# APR methodology

**Annual Percentage Rate** (APR) is one of the most widely used metrics in DeFi and a common benchmark for comparing yields. Because different parts of the protocol accrue value in different ways, we use two distinct APR calculation methods. 

1\) APR for **Watt assets** is calculated as:

$$
\frac{tokenRatio\_t - tokenRatio\_{t-1}}{ tokenRatio\_{t-1}} \* 100 \* 365
$$

whereas $$tokenRatio$$ is described [here](/the-protocol/watt-assets/token-ratio.md).

2\) APR for **liquidity pools** listed in the app is calculated as: 

$$
\left( \frac{\mathrm{Rewards}*{\text{sum, }t\ \mathrm{days}}}
{\overline{\mathrm{LP}}*{\text{staked, daily over }t\ \mathrm{days}}} \right)
\times \frac{365}{t}
$$

Here, $$Rewards$$ refer to the amount of Watt collected fees to be distributed,\
and $$LP$$ represents the average value of liquidity staked in the pool.

To maintain healthy incentives for liquidity providers, fees are not distributed immediately upon collection. Instead, they are released gradually over several days following our **custom distribution curve**. This approach:

* Smooths out short-term APR spikes or drops caused by sudden liquidity inflows or outflows.
* Provides more consistent returns for LPs over time.

Due to this smoothing, a quick “back-of-the-envelope” APR calculation using only the 24-hour fees and the current 24-hour average liquidity from the app will not accurately match the exact realized APR.


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