The return estimates of yield farming are typically calculated annually. This means that the estimated returns you could expect are calculated over the course of one year.
Annual Percentage Yield (APY) and Annual Percentage Rate (APR) are some widely used metrics. The difference here is that APY considers the compounding effect, while APR does not. In this case, compounding refers to the direct reinvestment of profits in order to gain more returns. However, you should note that APY and APR can be used interchangeably.
Noteworthy also is the fact that these are merely projections and estimations. And it is quite difficult to accurately estimate even short-term rewards. Why is this so?
The yield farming market is faced-paced and highly competitive, and the rewards are subject to rapid fluctuations. If one strategy works for some time, lots of farmers will embrace the opportunity, and it may in turn reduce the amount in returns.
As APY and APR issue from the legacy markets, separate metrics may need to be created for calculating DeFi returns. As a result of DeFi’s fast pace, daily or weekly returns estimates may be more appropriate.
