How to Calculate Real APY
Advertised APYs can be misleading. Learn to calculate your actual returns after fees, impermanent loss, and token inflation.
APY Components
| Factor | Impact |
|---|---|
| . . . . | . . . . |
| Base Yield | What you earn |
| Gas Costs | Subtract from returns |
| IL | Can reduce LP returns |
| Token Inflation | Dilutes rewards |
Real APY Formula
Real APY = (Base APY - Gas %) - IL % - Token Inflation %
Example Calculation
Advertised 50% APY LP:
- Base: 50%
- Gas: -2%
- IL: -5%
- Token inflation: -20%
- Real: 23%
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Step-by-Step Instructions
1
Note Base APY
Record the advertised APY from the protocol dashboard.
Tips
- ✓This is your starting point
2
Calculate Gas Costs
Add up gas for deposit, claims, compounds, withdrawal.
Tips
- ✓Use L2s to minimize gas impact
3
Estimate IL
For LP positions, estimate potential IL based on price volatility.
Tips
- ✓Use IL calculators online
4
Check Token Emission Rate
If rewards are in a governance token, check its inflation rate.
Tips
- ✓High emission = price pressure
5
Account for Sell Pressure
If you need to sell rewards, factor in market impact.
Tips
- ✓Stablecoin rewards have no this issue
6
Compare Real vs Advertised
Your real APY may be 50-80% of advertised in many cases.
Tips
- ✓Real yield protocols have less dilution