TL;DR: Most DeFi vault APYs combine three separate yield layers: base lending, protocol token emissions, and time-limited campaign rewards. Each layer has a different duration, risk profile, and compounding behavior. If you don’t break them apart before depositing, you’ll likely earn less than the headline number suggests.

What Is the Difference Between APR and APY in DeFi?

APR is the simple annual rate. APY includes the effect of compounding. A 12% APR compounded daily comes out to roughly 12.75% APY. Most dashboards display APY because it’s the higher number. But many bonus rewards don’t auto-compound. They sit unclaimed until you manually harvest and redeploy them. If the dashboard shows APY but the rewards require manual action, the rate you actually earn is closer to the APR figure.

When comparing stablecoin yields or DeFi yield farming rates across platforms, convert everything to the same unit first. Otherwise you’re comparing numbers that represent different things.

How Does Yield Stacking Actually Work in DeFi?

Take a stablecoin position like exUSD (not a real stablecoin, using as an example). The return comes from three separate layers, each with different mechanics and duration.

Layer 1: Base Lending Yield

Your capital gets deployed into lending protocols like Morpho, Aave, or Euler. Borrowers pay interest on it. This is the base return, and it exists whether or not any bonus program is running. It fluctuates with borrowing demand. Currently stablecoins earn roughly 2–4% APR in lending protocols.

Layer 2: Protocol Token Emissions

The protocol behind exUSD distributes $EX tokens to depositors through a rewards distribution platform like Merkl. This is an additional return funded by the protocol’s token budget. It has a set duration and it dilutes as more people deposit into the vault. These rates vary and are typically provided through protocol emissions, though not always. Additionally, if the token hasn't TGE'd, the protocol may show an estimated yield based on what they think the token price will be at launch. This may or may not actually be the case, in which case the yield will change dramatically.

Layer 3: Campaign Rewards (Liquidity Mining)

On top of the first two layers, some platforms run targeted liquidity mining campaigns. These are time-bound, often lasting 2 to 12 weeks, and distribute additional tokens to depositors who meet certain criteria. This layer is the most variable and the first one to disappear. There can be other conditions like vesting, hold periods, etc.

Why Does the Blended APY Number Mislead DeFi Depositors?

A dashboard might combine all three layers into a single “22% APY” figure. But in reality, Layer 1 continues as long as borrowing demand exists. Layer 2 runs until the protocol’s bonus budget is spent. Layer 3 ends when the campaign closes. If you deposit expecting 22% and the campaign ends next week, your actual yield drops to whatever Layer 1 and Layer 2 provide on their own.

What Are Liquidity Coordination Platforms in DeFi?

Layer 2 and Layer 3 exist because of a category of platforms called liquidity coordination platforms. Merkl, Turtle, and others in this space let protocols run incentive campaigns that target specific vaults, chains, or LP positions. They handle the distribution so that each depositor receives rewards proportional to their contribution.

This is different from yield aggregators like Yearn or Beefy, which optimize existing yield. Coordination platforms add new yield layers that wouldn’t exist without the campaign. For a deeper breakdown of how the full incentive infrastructure landscape works, including distribution platforms, liquidity marketplaces, and optimization services, Turtle wrote a great post here- The Complete Guide to DeFi Incentive Infrastructure.

How Do You Check DeFi Yield Sources Before Depositing?

Most lending protocols show the base rate directly. On Aave or Morpho, the supply rate listed for a given asset is your Layer 1 base yield.

For campaign durations, check the platform running the incentive program. On Merkl, you can see active campaigns with their remaining time and budget. Turtle’s Earn tab shows which vaults have active campaigns and lets you sort by yield source, so you can see exactly how much of the rate comes from the base and how much comes from the bonus. DefiLlama also tracks base yields across protocols, which makes comparison straightforward.

If you can’t find the end date of a campaign on any dashboard, that’s worth investigating before you deposit.

Note: All DeFi carries inherent risk. This is not meant as financial advise for anyone to invest or yield farm, but it is an attempt to educate on all the ways projects show stacked yield and what is actually "real" vs "speculative" yield.