Earn Interest on Stablecoins

Stablecoin lending is one of the methods to generate income in the crypto markets, but it has one major advantage: it eliminates market volatility.

Continue reading to find out how to earn interest on stablecoins.

The emergence of cryptocurrency interest markets

Crypto interest markets, which are made up of DeFi (decentralised finance) and CeFi (centralised finance) borrowing and lending applications, typically provide higher APYs (annual percentage yields) than fixed income securities and money market instruments, have emerged as a result of the emergence of cryptoassets.

Crypto lending is growing in popularity in the crypto markets, as more and more investors want to make a return on their digital assets. Leading crypto trading platforms are implementing tools that allow investors to borrow and lend as a result of this increased need for income. Furthermore, both the CeFi and DeFi industries have a multitude of loan applications.

The volatile nature of cryptoassets, on the other hand, has been an impediment in the crypto lending markets, since market volatility may easily result in losses for lenders, even when interest rates are high. Stablecoins have developed as one of the most popular loan assets in the crypto interest markets to address this issue.

Stablecoins are digital currencies that are tied to price-stable assets like the US dollar or gold. Stablecoins allow investors to receive income while avoiding the volatility of cryptoassets such as bitcoin (BTC), ethereum (ETH), and Binance coin (BNB) (BNB).

Investors can earn above-average interest rates through CeFi and DeFi lending platforms, which are higher than standard financing rates. The majority of banks give yearly interest rates of less than 1%, whereas stablecoin interest rates range from 4% to 12% annually. Many lending companies even pay out interest on a daily basis, allowing investors to profit from compound interest.

Let’s take a closer look at how you may use stablecoins to earn money on two of the most popular crypto lending services.

A step-by-step tutorial to earning stablecoin interest in CeFi

In centralised finance, lending follows the same regulations as traditional financial platforms. To avoid unscrupulous actors from undertaking illicit operations, most CeFi platforms will need you to go through anti-money laundering (AML) and know your customer (KYC) protocols.

They typically handle your finances (i.e., retain your private keys) and assure the safety of your collateral. Some CeFi lending applications even offer insurance to reduce the risk of cash being lost as a result of a breach or an operational error, and they store the bulk of the assets in their custody offline in cold storage.

We’ll use Nexo, one of the major CeFi lending sites, to show how you may earn interest on stablecoins in practice. Nexo provides interest rates on stablecoins up to 10%, which means that a year’s worth of USDC put on your Nexo account would grow to USD 1,108.68. (minus fees).

The steps to get started earning on Nexo are as follows:

  • To make an account, open your browser and go to nexo.io.
  • After you’ve created your account, go to the top right and click on the profile icon, then ‘My Profile’ to complete KYC verification. You’ll be given two alternatives for completing your KYC: Basic KYC allows you to earn interest on all supported stablecoins and cryptoassets, whilst Advanced KYC adds fiat currency support.
  • Select ‘Security’ from the profile tab once again. The option to implement two-factor authentication will be provided to you. Scan the QR code with Google Authenticator or Authy after clicking ‘Enable.’
  • After you’ve finished the KYC, go to the top menu and choose ‘Account,’ then select the stablecoin you want to deposit. You may deposit the currency by transferring it from a wallet or exchange, or you can buy it straight from your bank on Nexo.
  • After you’ve finished the KYC, go to the top menu and choose ‘Account,’ then select the stablecoin you want to deposit. You may deposit the currency by transferring it from a wallet or exchange, or you can buy it straight from your bank on Nexo.
  • You should start collecting interest after a minimum of 24 hours. The interest is sent out to your savings wallet on a daily basis, which means you’ll be earning compound interest on it automatically.
  • Navigate to ‘Accounts’ and select the ‘Total Earned’ tab to get complete information on all your interest payments.

A step-by-step method to earning stablecoin interest in DeFi

DeFi lending differs from CeFi lending in that it employs smart contracts to provide autonomous lending pools to crypto investors, as opposed to CeFi lending, which relies on a central authority to manage transactions. The entire process runs without the need for a central authority, and assets are held in smart contracts in a non-custodial manner, meaning they are within your control.

We’ll use Compound (COMP) as an example to show how you might earn interest in the DeFi lending market. The compound is one of the largest and most well-known crypto lending services in the DeFi industry, with a 3.74 percent interest rate for DAI, 7.35 percent for TUSD, 3.39 percent for USDT, and 4.70 percent for USDC.

Follow these steps to get started earning on Compound:

  • Open your Metamask wallet or any other Web 3.0 wallet for that matter. Go to your browser and type “compound. finance” into the address bar.
  • Press the ‘App’ button by clicking on the three horizontal lines in the upper right corner.
  • Then, in the upper right corner, click the ‘Connect Wallet’ button and select your wallet from the alternatives.
  • Click the ‘Enable’ button next to the stablecoin you wish to earn interest on.

Fill in the amount of cryptocurrency you wish to lend, then sign the loan transaction using your wallet.

READ MORE: 7 Best Cryptos that will Make Investors Wealthy in the Year 2022

In the CeFi and DeFi loan markets, earning interest on stablecoins includes risks. If you fail to fulfil (sometimes recently adopted) AML/KYC criteria, CeFi lenders may keep your cash, whilst DeFi lending methods are vulnerable to hacking. If you want to earn interest on your digital assets, you’ll need to balance the possible rewards against the hazards of investing in the crypto interest markets.


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