How To Earn Interest On Stablecoins
A way to earn as much as 80% interest on your capital without worrying about market volatility.
The cryptocurrency interest market has been booming as investors search for ways to make the best returns from their crypto holdings. As of 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 incentivize crypto investors to lock up their digital assets to support day-to-day operations.
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 there is another way to earn as much as 80% interest on your capital without worrying about market volatility? In this case, your crypto holdings can maintain their value and still provide high APY. This is where stablecoins come into play.
What Are Stablecoins?
For starters, stablecoins are literally "stable" coins. They are cryptocurrencies designed to have a stable and fixed value as their prices are pegged to external assets such as fiat currencies or other valuable assets.
Unlike other crypto assets like Bitcoin, whose backing is mostly their use cases and roadmaps, stablecoins maintain a 1:1 ratio with their underlying assets. 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.
Interestingly, stablecoins can also serve as investment tools, offering many opportunities for stablecoin holders in the interest market.
How to Earn Interest Payments With Stablecoins
It is worth noting that you cannot earn interest on your stablecoins by holding them in your crypto wallet. Therefore, you must find an investment strategy and platform that suits your risk threshold to start earning interest. The four major ways to earn interest on stablecoins are as follows:
There are CeFi and DeFi platforms that offer crypto lending services, enabling users to earn interest on stablecoins. In this case, you lend your stablecoins to the platform for a specified period, and they use your assets to provide secured crypto loans to other users for a fee.
These lending platforms require crypto collateral from borrowers, offering some form of security for lenders' capital. 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%.
Apart from facilitating crypto loans to earn interest on stablecoins, you can also become a liquidity provider. Here, you are required to deposit your stablecoins in a liquidity pool along with other liquidity providers to facilitate token swaps and trades.
Platforms that offer yield farming services often use an Automated Market Maker (AMM) driven by smart contracts to facilitate the trading of digital assets in an automatic and permissionless manner through liquidity pools. Traders use these platforms instead of a typical buyer and seller arrangement.
For clarity purposes, liquidity pools are simply a big pile of funds that ease monetary exchange for crypto traders. It provides the much-needed liquidity, increasing a DeFi protocol’s ease, speed, and convenience of converting crypto to 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 return, they obtain a stake in the network, which may be voting rights, mining rewards, or other benefits.
It is worth noting that this strategy returns little interest, although guaranteed. Since the incentive for this strategy is modest, it may be best suited for people interested in the advancement of the project in question.
Saving Crypto Assets
Like 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 in various profitable vehicles, after which they pay certain percentages 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. In staking, your cryptocurrencies are locked directly on the protocol where they generate rewards from validating transactions. On the other hand, savings lock your funds with a crypto exchange, generating rewards for you. This is similar to having a savings account in a bank that earns interest.
Also, in crypto saving, 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.
The flexible savings option allows you to earn interest on your cryptocurrency holdings while having the flexibility to withdraw your funds at any time. 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.
Why You Should Consider Deposits In Stablecoins
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 profitable venture. This investment strategy might make sense for you if you want to earn more interest than what is obtainable in traditional banks.
Therefore, consider lending your stable coin holdings to yield farming platforms if you wish to avoid high-risk trades while earning a substantial interest on your deposits. Their current stablecoin interest rates range between 8% and 80%.
Best Stablecoins to Earn Interest
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. As a result, it has since supported and empowered growing innovation in the crypto ecosystem. Tether created the token, pegging it at a 1:1 ratio to the US Dollar.
The USDC is another dependable coin regulated by financial institutions and backed by a reserve asset equal to the US Dollar in a 1:1 ratio.
The coin was created and launched by Center but was later sold to a consortium comprising 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 combines the power of blockchain technology with the stability of the US dollar to enable smooth, fast, and low-cost cross-border payments for users.
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 by strict regulatory standards, which require a periodic audit of reserves to ensure the security of user funds.
The interoperable nature of the Binance USD stablecoin allows traders to trade with greater speed, ease, and flexibility.
Top Platforms With The Best Stablecoin Interest Rates
The best platforms to earn interest on stablecoins are centralized finance platforms. There are decentralized platforms as well, but the demand on such platforms fluctuates, leading to unstable yields. CeFi platforms have more stable yields and higher APYs, making them more appealing to investors.
Deposits in 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 token, NEXO. Nexo's current stablecoin interest rate is as high as 17%.
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 crypto lending platform suitable for people looking to earn passive income with their reserve crypto. They offer up to 10.3% interest on stablecoins to users who have a stake in their CLT token.
However, you can still 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 interests that compare well with other platforms. Investors earn up to 11.29% on stablecoin deposits, and these interests compound weekly.
The platform also requires a minimum deposit of $100 to start earning interest, plus interests are paid in the deposited coin.
Yield farming with stablecoins provides a level of stability that one can't get with the volatile speculative crypto assets 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.