Effective Annual Yield

Effective Annual Yield represents the actual percentage return an investment earns over a year, accounting for the effects of compounding interest. Unlike the nominal interest rate, which does not reflect the reinvestment of earnings, the effective yield provides a standardized metric for comparing different financial products.

In crypto, this calculation must incorporate the specific compounding frequency defined by the protocol's smart contract. Higher compounding frequencies lead to a higher effective yield for the same nominal rate.

This metric is the primary tool for investors to compare the performance of various staking and lending opportunities across different platforms. It serves as the true measure of profitability for yield-generating digital assets.