Before going any further, what is the signification of "APY" (Annual Percentage Yield) in the context of cryptocurrencies is a measure used to calculate the expected return on an investment over a year, taking into account the effect of compounding interest. Compounding refers to the process where the earnings from an investment are reinvested to generate additional earnings over time.

Here’s a breakdown of how APY works in crypto and why it's important:

1. Compounding Interest
Unlike simple interest, which is calculated only on the principal amount, compounding interest in crypto involves reinvesting both the initial principal and the accumulated interest. This means that if you are staking or lending your cryptocurrency, the interest earned is continually added to the investment, and new earnings are calculated on this increased amount.

2. Staking and Lending
APY is commonly used in scenarios such as staking or lending cryptocurrencies:
  Staking : This involves locking up cryptocurrencies to support the operation for a certain amount of time and security of a blockchain network. In return, stakers earn rewards, often calculated based on an APY.
 
3. Lending : By lending your crypto assets on a platform, you can earn interest, with returns typically expressed as an APY.

Let’s break it down with an example:

APY = 58%

Initial stake = $10,000

Duration = 1 year

After 1 year, with 58%, your $10,000 will grow to $15,800 without mentioning the value of the token itself at launch and after if you decide to stake your investment longer.