# Understanding APY

## Annual Percentage Yield (APY)

The Annual Percentage Yield (APY) dynamically adjusts to reflect the current utilization of our lending services. The APY on Mage Finance comprises several key components:

### Supply APY <a href="#supply-apy" id="supply-apy"></a>

This represents the base interest rate earned on supplied assets and varies with the value of the supplied assets.

### Borrow APY <a href="#borrow-apy" id="borrow-apy"></a>

This is the basic interest rate applied to borrowed assets, which increases with the size of the borrowed asset and can sometimes be negative, indicating a situation where interest is paid by borrowers.

### Net APY <a href="#net-apy" id="net-apy"></a>

The Net APY is calculated as follows:

Copy

```
Net APY = (Supply balance * Supply APY - Borrow balance * Borrow APR) / (Net worth)
```

It can be negative if Borrow(Base) APY doesn't cover the entire yield.

{% hint style="info" %}
Example: A user deposits 10 ETH and borrows 15,000 USDC.

Given:

* ETH price: $2500
* ETH Supply APY: 4%
* USDC Borrow APR: 6%

Calculations:

1. Supply balance: 10 ETH \* $2500 = $25,000
2. Borrow balance: 15,000 USDC = $15,000
3. Net worth: $25,000 - $15,000 = $10,000

Now, let's apply the formula:

Net APY = (Supply balance \* Supply APY - Borrow balance \* Borrow APR) / (Net worth) = ($25,000 \* 0.04 - $15,000 \* 0.06) / $10,000 = ($1,000 - $900) / $10,000 = $100 / $10,000 = 0.01 = 1%

Therefore, the Net APY for this user is 1%.
{% endhint %}


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