What is APY, APR and Forced Loss in Crypto?

**APY (Annual Percentage Yield)**,

It measures the annual rate of return an investor can earn by investing crypto assets in a platform over a certain period of time. APY takes into account the compounding effect of interest. Compound interest is earned automatically on the initial investment and the accumulated interest. This provides greater returns over time than APR because the total amount invested increases.

**APR (Annual Percentage Rate)**

refers to the annual rate of return on an investment or the cost of a loan. APR does not take into account the compounding effect of interest. APR uses simple interest, where funds earned are not automatically added to the principal. The only real difference between APR and APY is the distinction between compound and simple interest.

**Temporary Loss (Impermanent Loss)**,

occurs when you provide liquidity to a liquidity pool and the price of invested assets changes compared to when you deposited them]. The greater the change, the greater your temporary loss]. In this case, loss means a decrease in dollar value at the time of withdrawal compared to the time of deposit. Pools containing assets that fall within a relatively narrow price range are less exposed to temporary loss.
, let's dig deeper into the subject.

**APY** and **APR**
Let's go through an example to better understand the difference between them. Let's say you make an investment with 10% APR and the interest on that investment is paid annually. In this case, the annual return on your investment will be 10%. However, if the same investment is made with a 10% APY and interest is paid out every month, the interest you earn at the end of each month will be added to your investment at the beginning of the next month, resulting in compounding of interest. In this case, the annual return would be 10.47%.

**Temporary Loss**
As for liquidity providers, they usually take this risk because they earn transaction fees from the pools they provide liquidity to. These transaction fees can make up for the temporary loss or even make it profitable. However, this is not always guaranteed and liquidity providers should consider the risk of temporary loss.

When investing in cryptocurrencies, it is important to understand what these terms mean and how they work. You should always do your own research before investing and consult a professional advisor when necessary.

**APY** and **APR**
The difference arises during the compounding process of interest. APY takes into account the compounding effect of interest. For example, when you make an investment with an APY of 10%, that rate compounds throughout the year, resulting in a total return of slightly more than 10% at the end of the year. On the other hand, APR does not take into account the compounding effect of interest. So, when you make an investment with a 10% APR, the total return at the end of the year is exactly 10%.

**Temporary Loss**
is caused by changes in asset prices in a pool from which you provide liquidity. If the asset prices in the pool are very different from the prices when you provided liquidity, you may experience temporary losses. This means that the value of your assets in the pool has decreased. However, this loss is usually "temporary" because once asset prices return to their previous level, the temporary loss disappears.

When investing in cryptocurrencies, it is important to understand what these terms mean and how they work. You should always do your own research before investing and consult a professional advisor when necessary. Cryptocurrencies involve high risk and you may lose your entire investment. Therefore, you should be careful and fully understand the risks before investing.