How to Earn Interest on Dai?
Dai is one of the most popular stablecoins today. Unlike other cryptocurrencies, Dai does not suffer from extreme volatility as it is pegged to USD. People hold Dai as a safeguard against the volatility of other cryptocurrencies. They also use it to trade cryptocurrencies. If you are one of the Dai holders, there's a better way to multiply your Dai holdings. Follow the steps below to earn interest up to 12% on Dai:
- Sign up for an Interest Account
To begin earning interest on Dai, you will need an interest account. For an interest account, you will have to enter your legal name and email address on the interest account provider's website and click on submit button.
- Verify Your Account
After the signup process, look out for a verification email from the interest account provider, which will contain a link. Click on the link to verify your account. Your account isn't active yet to begin earning interest on Dai as there's a separate process for it.
To activate your interest account, you will have to go through a standard KYC process. Here, you will have to provide your personal details. You will also have to upload an image of your government-issued identity card. Click an image of yourself holding the identity card, as you will also have to upload it to complete the KYC process.
It is important to note here that the signup and KYC process won't be required if you are opting for a DeFi interest account provider.
- Deposit Your Dai
After your KYC is approved, it's time to deposit Dai into your interest account. To deposit Dai, go to the page that shows a list of available deposit options and spot Dai in the list. Click on the Dai option to receive a unique wallet address.
Paste the unique wallet address in the withdrawal section of the wallet or exchange from where you are withdrawing Dai. Enter the amount of Dai you wish to withdraw and click on the "Withdraw" button. Soon, you will receive Dai in your interest account.
- Start Earning Interest
Once you receive Dai in your interest account, the interest accruals will begin within or after 24 hours, depending on the interest account provider you choose. Interest accruals will begin automatically once you complete the three steps mentioned above.
Why Earn Interest on Dai?
Keeping Dai in your wallet isn't an effective way to maximize your profits. If you earn interest on Dai, you can multiply your Dai holdings. It is also one of the attractive ways to add a passive income stream. The interest you earn on Dai is also far more than what anyone can earn on USD from banks and other financial institutions.
- Easy Process
Earning interest on Dai is as simple and straightforward as it can get. It requires you to sign up for an account, complete the KYC process, and deposit Dai. The interest accruals will begin automatically.
When it comes to DeFi interest accounts, the process of earning interest on Dai becomes even simpler and easier. The reason is that there's no signup or KYC process to start earning interest on Dai. Connect your wallet and deposit Dai to your DeFi interest account. Once you deposit Dai, the interest accrual will begin.
- Low Risk
If we compare the level of risk involved in earning interest on Dai with other high-interest financial instruments, we will find that earning interest on Dai is a less risky option. The interest that you earn on Dai is paid by the interest account providers from their income from lending cryptocurrencies and fiat currencies. They manage the risk arising from lending by making over-collateralization mandatory for borrowing from them.
- Passive Income
With a Dai interest account, you can begin earning even while you are asleep. It will open a passive income stream for you. Deposit Dai to your interest account and see your Dai holdings multiply.
Where can I earn Interest on Dai?
As Dai is a popular stablecoin, there are lots of options for you to begin earning interest on Dai. But the best ones are Nexo, YouHolder, and Celsius Network.
Nexo offers interest up to 12% on Dai. But you must meet some criteria to earn the highest interest rates advertised by Nexo. 10% of your investment portfolio must consist of Nexo tokens, the native token of the Nexo platform. You must also agree to earn interest in Nexo tokens. If you meet both of these criteria, you will receive the highest interest offered by Nexo.
There are two types of accounts on Nexo: Fixed and Flex. In a fixed account, your funds will be locked for one or three months. Hence, you won't be able to access your funds during the lock-in period. The second account type is known as Flex. It has no lock-in period, and you are free to withdraw anytime you want.
YouHodler offers a 12% interest rate on Dai to their interest account holders. You will receive the interest amount at the end of the month in your account, and there is no deduction whatsoever from YouHodler's side. You can keep the interest that you earned to earn even more on your Dai or withdraw it at no cost.
Celsius Network offers interest up to 13.3% on Dai. But to earn the highest advertised interest rate, you must be from outside the United States and agree to earn interest in CEL, Celsius Network's native token.
The residents from the United States are not allowed to earn interest in CEL. It automatically makes them ineligible for the highest interest rates offered by Celsius. They can only earn in-kind interest, which is 10.51%.
Is it Risky Earning Interest on Dai?
The kind of returns that you can earn on Dai is impressive. But you must know the risks involved in earning interest on Dai. There are risks and we must not deny it. Yet, when compared to other high interest-paying financial instruments, earning interest on Dai is a less risky option.
Interest account providers pay interest from the income that they earn by lending cryptocurrencies and fiat currencies. Most of them manage risk by making over-collateralization mandatory for obtaining loans from them. But a few platforms don't have such requirements, and opting for an interest account with such platforms can prove risky.
As they do not mandate over-collateralization, their users are more likely to default on their loans. These platforms won't pay interest to their interest account holders if their borrowers won't repay loans. They may even have to wind up their operations if loan defaults become a norm rather than an exception. If the loan default number is large, the platform will go bankrupt.
If the platform goes bankrupt, they won't be able to refund the funds you had deposited with them. They may not even be able to pay you the interest amount that they were liable to. It's true that a majority of interest account providers now have insured their user funds. But the issue is that the insured amount is always in some millions of dollars. If the losses that a platform is facing are worth billions, the insurance for millions of dollars won't be enough to cover the entire loss.
If you want to earn interest on Dai, you must select a platform that has a good reputation in the industry. So give equal importance to the industry standing of platforms and the interest rates that they offer.
What to Look for When Choosing a Platform?
There are a few crucial factors that you must not overlook when choosing a platform to earn interest on Dai. The two most important criteria are the industry standing of the platform and the interest rates that the platform offers. A new platform is likely to offer higher interest rates, but they are riskier. It is important to not choose a platform solely based on the highest interest rates. Do your research well while choosing a platform.
Before you finalize a platform to earn interest on Dai, you must know if the platform has insured user funds or not. An insurance cover ensures that even if a platform goes bankrupt or loses funds from some black swan events like hacking, the losses will be refunded by the insurance company. Depending on the amount of losses and amount of insurance cover that the platform had, you will either receive a part of your funds or the entire sum.
You must also check if the platform has any specific criteria for earning the highest interest rates offered by them. Many platforms mandate the interest account holders must agree to earn interest in the platform's native token. Only then, the interest account holders will be eligible for the highest interest rates they offer.
A few platforms only offer highest interest rates to their interest account holders if they hold a specific percentage of their investment portfolio in the platform's native token. The platforms like Nexo, on other hand, requires its users to meet both of these requirements to earn the highest interest rates they advertise.
Many platforms require users to deposit a minimum amount of Dai to become eligible for earning interest on it. Thus, you must also check if the platform has such requirements. Also, check if the platform has any mandatory lock-in period. If they have a lock-in period, you won't be able to withdraw your funds during this period. If you don't want your funds to be locked-in for any period, choose a platform that has no such requirements.