DeFi Yield Calculator: How to Calculate Staking and LP Returns

DeFi yield numbers are often misleading. A pool advertising 120% APR can produce very different actual returns once compounding frequency and impermanent loss are factored in.

APR vs APY: The Critical Difference

APR (Annual Percentage Rate) is the simple, non-compounded yearly rate. APY (Annual Percentage Yield) accounts for compounding — reinvesting rewards repeatedly throughout the year. The more frequently rewards compound, the larger the gap between APR and APY becomes.

How Compounding Frequency Changes Returns

A 100% APR compounded daily produces a significantly higher APY than the same 100% APR compounded monthly. This is why two pools advertising the same APR can deliver meaningfully different actual returns depending on how often you claim and restake rewards.

Single-Asset Staking vs LP Positions

Single-asset staking is simpler — you lock one token and earn rewards in that same token or another designated reward token. Liquidity pool positions require depositing two tokens and earning a combination of pool rewards and trading fees, but introduce a unique risk: impermanent loss.

Understanding Impermanent Loss

Impermanent loss occurs when the price ratio between your two pooled tokens changes after you deposit. The further the prices diverge from your entry ratio, the larger the loss compared to simply holding both tokens separately. This loss becomes permanent only if you withdraw while the price ratio remains diverged.

When Impermanent Loss Outweighs Yield

A pool can show an attractive 80% APR while still resulting in a net loss if one of the paired tokens experiences significant price movement. Always calculate potential impermanent loss scenarios before entering any LP position, not just the advertised yield.

How Our Tool Helps

The DeFi Yield Calculator includes three modes: Staking calculator with compound frequency options and earnings projections, LP Position calculator combining reward and fee APR, and a dedicated Impermanent Loss calculator showing risk at different price ratio scenarios.

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