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The cryptocurrency interest market has been booming as investors search for ways to make the best returns from their crypto holdings. As of this writing, investors have various profitable opportunities to explore, including CeFi (Centralized Finance) and DeFi (Decentralized Finance) exchanges, liquidity pools, and borrowing and lending platforms. These platforms give crypto investors an incentive to lock up their digital assets so that they can be used to run day-to-day business.
However, most investors do not readily jump on these platforms, even with the high APYs they offer. This is because of the high market volatility. As a result, these investors would rather put up with the minute interest rates that traditional finance institutions offer.
But what if you could earn 80% while avoiding market volatility? In this situation, your cryptocurrency holdings can keep their value and still give you a high APY. This is where stablecoins come into play.
For starters, stablecoins are literally "stable" coins. They are cryptocurrencies that are made to have a stable and fixed value because their prices are tied to external assets like fiat currencies or other valuable assets.
Stablecoins maintain a 1:1 ratio with their underlying assets, which is different from other crypto assets like Bitcoin, which are mostly backed by their use cases and future plans. This means you can hold it and use it the same way as the asset backing it.
They also serve as a safe haven for crypto traders looking to secure their profits from a trade before it turns against them. Traders can quickly swap to stablecoins so they don't lose out during a price correction.
Stablecoins are interesting because they can also be used as investment tools. This gives people who own stablecoins many options in the interest market.
It's important to know that putting stablecoins in your crypto wallet won't earn you any interest. So, to start earning interest, you need to find a way to invest and a platform that fits your risk tolerance. The following are the four main ways to earn interest on stablecoins:
There are platforms called CeFi and DeFi that let people lend crypto and earn interest on stablecoins. In this case, you give the platform your stablecoins for a certain amount of time, and they use them to give other users secured crypto loans for a fee.
These platforms for lending money require crypto-collateral from borrowers. This gives lenders some kind of security for their money. The whole idea behind this investment strategy is to reduce lenders' risks while allowing them to earn passive income, which can be as high as 80%.
You can do more than help people get crypto loans to earn interest on stablecoins. You can also provide liquidity. Here, you must put your stablecoins in a liquidity pool with those of other liquidity providers so that token swaps and trades can happen.
Platforms that offer yield farming services often use an automated market maker (AMM) that is driven by smart contracts to make it possible for digital assets to be traded automatically and without permission through liquidity pools. Traders use these platforms instead of a typical buyer-and-seller arrangement.
To be clear, a liquidity pool is just a big pile of money that makes it easier for crypto traders to trade money. It adds liquidity to the DeFi protocol, which was badly needed, making it easier, faster, and more convenient to turn crypto into cash.
Another way to earn interest on stablecoins is to stake them in a protocol to ensure the smooth running of the network. This process is common in networks that employ the proof-of-stake algorithm.
Here, users deposit stablecoins in a specific wallet, node, or platform that they do not have access to. In exchange, they get a piece of the network, which could be voting rights, rewards for mining, or something else.
It is worth noting that this strategy returns little interest, although it is guaranteed. Since this strategy doesn't offer much of a reward, it might work best for people who want to see the project move forward.
Like in traditional finance, crypto users can also open savings accounts on exchanges. These accounts are designed to help novice investors earn passive income without putting up with complicated processes. Here, the exchange takes the money and invests it in different things that make money. Following that, it distributes a percentage of the profits to investors.
Saving, staking, and lending share certain similarities. For instance, they require users to lock away their stablecoins to earn rewards.
However, they are different in their own ways. When you stake, you lock your cryptocurrency directly onto the protocol, where it is used to validate transactions and earn rewards. Savings, on the other hand, bind your funds to a crypto exchange, generating rewards for you. This is similar to having a savings account in a bank that earns interest.
Also, in crypto savings, the exchange can use the locked funds for staking, lending, pools, or any investment that can yield profits. However, lending only has to do with giving loans, and that’s the only thing the platforms do with users’ funds.
Exchanges such as Binance currently offer two savings options: flexible savings and locked savings.
With the flexible savings option, you can earn interest on your cryptocurrency while still being able to get your money out whenever you want. This allows for daily interest accumulation.
On the other hand, the locked savings option locks up your funds for a specified period. You'll get your reward at the end of the lock-up period.
Risk management is one subject every investor should consider. Typically, everyone would want to invest in businesses with higher APYs, but these investments attract higher risks.
In order not to lose out, investors must take calculated risks. This involves creating a balance between risk and reward in any venture.
Speculative cryptocurrencies are highly volatile, and they carry as much risk as the returns they offer. Their volatile nature makes them unsuitable for investors who prioritize stability.
Stablecoin deposits, on the other hand, are probably the lowest-risk yet most profitable venture. This investment strategy might make sense for you if you want to earn more interest than what is available from traditional banks.
So, if you want to avoid high-risk trades while earning a lot of interest on your deposits, you might want to think about lending your stablecoins to yield farming platforms. Their current stablecoin interest rates range between 8% and 80%.
The best stablecoins to earn interest are USDT, USDC, and BUSD. Although more stablecoins currently exist, these coins have the highest market capitalization and adoption.
The USDT is the most popular stablecoin in the crypto market, with over $80.8 billion in market capitalization value. It is the first and most traded stablecoin in terms of volume. It is also the most widely used stablecoin across major exchanges and blockchain protocols.
The USDT coin has been integrated into several blockchains. Since then, it has helped encourage more innovation in the cryptocurrency ecosystem. Tether created the token, pegged at a 1:1 ratio to the US dollar.
USDC is another reliable coin that is controlled by financial institutions and backed by a reserve asset that is worth exactly the same as the US dollar.
Center made and launched the coin, but later sold it to a group made up of Circle and Coinbase.
The fiat-pegged asset enables users to transfer value between exchanges and wallets. It has a market cap of $52 billion.
The USD coin uses the power of blockchain technology and the stability of the US dollar to make international payments easy, fast, and cheap.
BUSD is a stablecoin developed to improve the stability of the Binance ecosystem. Binance collaborated with Paxos to create this coin.
It has a market capitalization value of over $17 billion, and just like other stablecoins here, one BUSD is equal to one USD.
Note that the BUSD stablecoin operates under strict regulatory standards, which require a periodic audit of reserves to ensure the security of user funds.
The Binance USD stablecoin can be used with other coins, so traders can trade more quickly, easily, and with more options.
Origin Protocol's OUSD is a unique stablecoin because it earns interest right from your cryptocurrency wallet.
There are no lockup times with OUSD, so users can withdraw and trade the stablecoin at any time. OUSD is fully backed by top stablecoins like DAI, USDC, and USDT. This makes the risk of a de-pegging event much smaller.
As a governance token, the Origin Dollar Governance Token (OGV) is used to vote on which protocols to add stablecoins to in order to increase yield. Origin only integrates with risk-averse, blue-chip protocols, such as Curve, Aave, Convex, and Compound.
The best platforms to earn interest on stablecoins are centralized finance platforms. There are also decentralized platforms, but the demand on these platforms changes, so the yields aren't always stable. CeFi platforms have more stable yields and higher APYs, making them more appealing to investors.
Deposits on CeFi platforms or crypto exchanges are similar to traditional bank deposits. Users must go through KYC checks before they can start lending stablecoins on the platform. Here are some of the notable crypto platforms with reasonable stablecoins interest rates:
Nexo is a secure lending platform that allows users to earn interest on stablecoins, but unlike some platforms, it has its own token, NEXO. Nexo's current stablecoin interest rate is as high as 12%.
However, users who choose to receive their rewards in NEXO get a higher percentage return. In other words, if you want to maximize your return on investment, you should hold the NEXO token.
CoinLoan is another peer-to-peer lending platform for people who want to use their cryptocurrency reserves to make passive income. They offer up to 10.3% interest on stablecoins to users who have a stake in their CLT token.
However, you can earn without staking CLT. Staking CLD adds 2% to the basic offer. The platform pays interest on the deposited asset directly into the investor’s wallet. Investors need a minimum of $100 to get started on this platform.
YouHodler also offers stablecoin interest accounts that compare well with other platforms. Investors earn up to 8.33% on stablecoin deposits, and these interests compound weekly.
The platform also requires a minimum deposit of $100 to start earning interest, plus interest is paid in the deposited coin.
Yield farming with stablecoins is more stable than yield farming with volatile cryptocurrencies like Bitcoin and Ethereum. It also allows users to earn higher interest on deposits than their low-risk counterparts, such as traditional savings accounts.
Thanks to their importance in the crypto market, lending platforms are willing to offer high-interest rates to attract investors. If you want to earn interest on stablecoins, check out the platforms listed here. Some platforms compound interest automatically to increase yields. And most importantly, do your own research before depositing your crypto into lending platforms.