DeFi APY Calculator — Aave & Compound Stablecoin Yield 🌎

The APY Formula: Compound vs Simple Interest

The canonical compounding formula is APY = (1 + r/n)^n − 1, where r is the nominal annual rate and n is the number of compounding periods per year. Aave and Compound effectively compound per block (roughly every 12 seconds on Ethereum post-Merge), so n is on the order of 2.6M — close enough to continuous compounding that the APY ≈ e^r − 1. This calculator models daily compounding (n=365), which is standard for APY comparisons.

Why APY beats APR: At 5% APR you get ~5.13% APY; at 10% APR you get ~10.52% APY. Always compare APY to APY.

Common APY Reference Table: $1,000 Principal over 1 Year

All values in USD for a $1,000 principal, using daily compounding.

How Aave and Compound Set Rates: The Kinked Interest Rate Model

Both protocols use a utilization-based kinked model. Utilization = total borrowed / total supplied. Below an optimal utilization (typically 80–90% for stablecoins), the borrow rate climbs gently. Above the kink, the rate jumps steeply to penalize over-borrowing and protect lender liquidity. The supply APY is the borrow APY times utilization, minus a reserve factor (Aave keeps 10–20%, Compound 7–15%). This is why USDC rates spike during volatile weeks — leveraged traders borrow stables to short ETH, utilization climbs past the kink, and suppliers earn the spike. Morpho Blue improves on this by isolating markets and letting curators (Gauntlet, Steakhouse, MEV Capital) optimize the curve per asset.

Supply vs Borrow: You're the Bank

When you deposit USDC on Aave V3, you receive aUSDC (a rebasing token whose balance grows). On Compound V3, you receive cUSDCv3 (non-rebasing; the underlying balance grows via exchange rate). Borrowers post collateral (ETH, wBTC, wstETH) and pay the borrow APY. The protocol takes a cut into the reserve; the rest flows to suppliers. Your supply APY = borrow APY × utilization × (1 − reserve factor). No counterparty risk in the traditional sense — the smart contract enforces over-collateralization (typically 75–82.5% LTV for ETH).

Gas Reality: L1 vs L2

An Aave supply transaction on Ethereum mainnet runs $15–40 in gas at 20–40 gwei. A withdrawal is similar. On a $1,000 position earning 6% APY, that's $60/year minus $30–80 round-trip — your effective yield collapses. Use L2s for positions under ~$10K: Aave V3 is deployed on Arbitrum, Base, Optimism, Polygon, and Avalanche. Gas on Base or Arbitrum is typically $0.10–0.50 per transaction. Compound V3 lives on Ethereum, Polygon, Arbitrum, Base, and Optimism. Bridging USDC via Circle's CCTP (native USDC bridge) is the cleanest way to move funds — avoid wrapped USDC variants.

The Risks Nobody Caps for You

US Tax Treatment (IRS)

The IRS has not issued DeFi-specific guidance beyond Notice 2014-21 (treats crypto as property). In practice, CPAs and tax software (CoinTracker, Koinly, TokenTax) treat interest accrued on supplied stablecoins as ordinary income at fair market value when earned, reported on Schedule 1 (Other Income) or Schedule B. Each rebase or claim is a taxable event. There is no 1099-INT — the burden is on you to track. If you later sell the underlying USDC for USD, that's a separate capital gains calculation (usually zero gain for stablecoins). At a 24% federal + 6% state marginal rate, a 6% APY nets ~4.2% after-tax — still beating a 4.5% HYSA after-tax (~3.15%), but not by the headline gap.

Tools You Actually Need

This calculator is an estimate. Always read the protocol docs (docs.aave.com, docs.compound.finance) before depositing, verify the contract address against the official site, and never sign a transaction you don't understand.