Lending APY Calculator
Compare crypto lending rates across Aave, Compound, and MakerDAO by token and duration. Calculate yield earnings with compound interest.
Lending APY Calculator
Calculator
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Formula: A = P × (1 + APY/365)^days
Worked example — MakerDAO best at $512.67/year | Compound lowest at $428.92/year
Formula
A = P × (1 + APY/365)^days
Earnings are calculated using daily compound interest. The principal (P) grows each day by the daily rate (APY / 365), compounded over the total number of days. This formula accounts for the compounding effect that makes APY higher than simple interest APR.
Worked Examples
Example 1: Stablecoin Yield Comparison
Problem:You have 10,000 USDC to lend for 365 days. Compare earnings across Aave (4.5% APY), Compound (4.2% APY), and MakerDAO DSR (5.0% APY).
Solution:Aave: 10,000 × (1 + 0.045/365)^365 - 10,000 = $460.25 Compound: 10,000 × (1 + 0.042/365)^365 - 10,000 = $428.92 MakerDAO: 10,000 × (1 + 0.05/365)^365 - 10,000 = $512.67 Difference: MakerDAO earns $83.75 more than Compound
Result:MakerDAO best at $512.67/year | Compound lowest at $428.92/year
Example 2: ETH Lending for 6 Months
Problem:Lend 5 ETH for 180 days on Aave at 2.1% APY vs Compound at 1.8% APY.
Solution:Aave: 5 × (1 + 0.021/365)^180 - 5 = 0.05205 ETH Compound: 5 × (1 + 0.018/365)^180 - 5 = 0.04458 ETH Difference: 0.00747 ETH more on Aave Daily Aave earnings: 0.000289 ETH
Result:Aave: +0.0520 ETH | Compound: +0.0446 ETH over 6 months
Frequently Asked Questions
What is APY in DeFi lending?
APY stands for Annual Percentage Yield and represents the real rate of return earned on a deposit when compounding interest is taken into account. In DeFi lending, APY reflects the annualized return you earn by supplying your crypto assets to a lending protocol's liquidity pool. Unlike APR (Annual Percentage Rate), which only considers simple interest, APY includes the effect of compound interest — meaning your earned interest itself earns interest over time. DeFi APYs are highly variable because they depend on supply and demand dynamics within each protocol; when borrowing demand is high relative to available supply, lending rates increase, and vice versa.
How does Aave lending work?
Aave is a decentralized lending protocol where users deposit cryptocurrency into liquidity pools to earn interest. When you supply assets to Aave, you receive aTokens (like aETH or aUSDC) that represent your deposit plus accrued interest. These aTokens continuously increase in value as interest accumulates in real-time. Borrowers pay interest to borrow from these pools, and that interest is distributed to lenders proportionally. Aave supports variable and stable interest rates, flash loans, and rate switching. The protocol uses an algorithmic interest rate model that automatically adjusts rates based on pool utilization, ensuring competitive yields while maintaining sufficient liquidity for withdrawals.
What is the difference between Aave, Compound, and MakerDAO?
All three are leading DeFi lending protocols but serve different functions. Aave is a multi-asset lending platform supporting dozens of tokens with features like flash loans, variable/stable rates, and cross-chain deployment. Compound is a similar multi-asset lending protocol known for its simplicity and the COMP governance token; it pioneered algorithmic interest rates in DeFi. MakerDAO is fundamentally different — it issues the DAI stablecoin through collateralized debt positions (CDPs/Vaults) and offers the DAI Savings Rate (DSR) for passive DAI holders. For simple lending, Aave and Compound directly compete, while MakerDAO is primarily used for generating DAI against collateral or earning the DSR.
Are DeFi lending rates safe and reliable?
DeFi lending carries several risk categories that traditional savings accounts do not. Smart contract risk means bugs in the protocol code could lead to loss of funds, though major protocols like Aave and Compound have undergone extensive audits. Market risk includes the possibility of liquidation if collateral values drop sharply. Regulatory risk is evolving as governments develop frameworks for DeFi. Rate volatility means yields fluctuate constantly — a 5% APY today might be 1% tomorrow. Despite these risks, leading protocols have maintained strong track records over years of operation and billions in total value locked, making them reasonably reliable for informed users who understand the risks involved.
How are DeFi lending rates determined?
DeFi lending rates are determined algorithmically based on the utilization ratio of each lending pool, which is the percentage of deposited assets currently being borrowed. When utilization is low (lots of supply, few borrowers), rates are low to incentivize borrowing. When utilization is high (most assets are borrowed), rates increase to attract more deposits and discourage additional borrowing. Each protocol uses its own interest rate model — for example, Aave uses a kinked rate curve that increases gradually up to an optimal utilization point, then rises sharply beyond that threshold. These models run entirely on-chain via smart contracts, adjusting every block without any human intervention.
Why do suppliers earn less than borrowers pay on the same pool?
Two things sit between the borrow rate and the supply rate. First, only the borrowed portion of the pool generates interest, so interest paid is spread across every deposited token, not just the utilized ones: at 50 percent utilization a 6 percent borrow rate can only fund about 3 percent to suppliers. Second, each market applies a reserve factor that diverts a share of interest to the protocol treasury as a backstop against bad debt. The supply rate is therefore roughly the borrow rate times utilization times one minus the reserve factor, which is why idle liquidity dilutes your yield.
How do the collateral factor and health factor decide when a position is liquidated?
Every collateral asset carries a collateral factor, also called a loan-to-value ratio, that sets how much borrowing power a deposit grants: at a 0.80 factor, 10,000 dollars of supplied ether supports at most 8,000 dollars of debt. Protocols then track a health factor, roughly the collateral value weighted by each asset's liquidation threshold divided by the borrowed value. Once it falls below 1, liquidators may repay part of the debt and seize collateral at a discount. Supplying is safe from this, but collateral you have borrowed against is not.
How do aTokens and cTokens represent an accruing deposit differently?
Aave issues aTokens that rebase: your balance of aUSDC increases as interest accrues, and one aUSDC always redeems for one USDC. Compound's older cTokens do the opposite — the balance stays fixed while the exchange rate between cUSDC and USDC rises, so 100 cUSDC redeems for progressively more underlying. Both encode the same economics, but the difference matters for accounting, for tax records that track cost basis, and for any integration that assumes a token's balance never changes on its own. Newer Compound V3 markets track a supplier balance directly rather than issuing a wrapper token.
What happens to my deposit if pool utilization reaches 100 percent?
Nothing is lost, but withdrawals stall. If every supplied token is borrowed, there is no free liquidity to pay out redemptions until borrowers repay or new deposits arrive. The kinked interest rate curve is designed to prevent this: past the optimal utilization point the borrow rate climbs steeply, which simultaneously pushes borrowers to repay and attracts fresh supply chasing the elevated yield. The state usually resolves within hours, but it is a real liquidity risk during market stress, and it is why a headline yield alone is a poor measure of how accessible your capital is.
Why can advertised DeFi yields exceed the underlying interest rate?
Because many advertised figures bundle token incentives with the interest the pool actually generates. Since Compound began distributing COMP to users in June 2020, protocols have routinely paid governance or reward tokens on top of the base supply rate, and dashboards add the two together into one headline number. The base rate comes from borrower interest and is durable; the incentive portion depends on emission schedules that can be cut by governance and on the market price of the reward token when you sell it. When comparing venues, separate the two and treat only the interest component as reliable.
References
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History
Reviewed for accuracy by Daniel Agrici, Founder & Lead Developer · Editorial policy
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