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If you supply and borrow at the same time, neither the supply rate nor the borrow rate describes your position. Net APY does: it is what the position earns after what it pays, expressed against the capital you actually have at stake.

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The formula

The denominator is your net equity: collateral minus debt. That is the amount of your own capital in the position, and expressing the return against it is what makes the number comparable to an unleveraged one. Net APY is undefined when net equity is zero or negative, and the platform shows no figure rather than a misleading one in that case.

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Why the denominator matters so much

Consider 1,000 of collateral earning 5%, against 800 of debt costing 3%:
A 2-point spread became a 13% return, because only 200 of your own capital is committed. This is leverage working in your favor. Now let the borrow rate rise to 6.5%, a move that is entirely ordinary when utilization climbs:
The same position now loses money. The spread inverted on a 3.5-point move in one leg, and the leverage amplified it in both directions. Nothing about your position changed; the market’s borrow rate did.

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Both rates float independently

This is the central risk of a leveraged yield position: your supply rate and your borrow rate are set by two different markets, each by its own utilization. They are not linked, and neither is fixed. A position that is profitable at open can become loss-making without any price movement at all, purely from rate drift. Positive net APY at the moment you open a position is a snapshot of two independent variables, not a property of the position.

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Net APY says nothing about liquidation

Net APY and health factor measure different things and can move in opposite directions:
  • A position can show an attractive net APY while sitting one modest price move from liquidation.
  • Adding collateral improves your health factor and reduces your net APY, because it raises net equity without raising the net interest.
Read both. A high net APY on a position with a health factor near 0.80 is not a good position; it is a fragile one that has not broken yet.

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In the portfolio score

Your portfolio-wide net APY is one of the five components of the portfolio health score, weighted at 10% when you carry debt and 30% when you do not. Break-even scores 50 out of 100; +4% or better scores 100. It is intentionally a modest weight: a book can be highly profitable and still be dangerous.