USCoin: How To Earn 6-12% Interest Safely With Stablecoins (USDC-USD)

Blocks of Ice With water Drops close-up. Macro ice refreshing cube for a drink on a hot day

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Today, prudent investors must optimize their whole portfolios to fight inflation, even their cash reserves. One way to offset dollar value destruction is by holding high interest stablecoins on reputable exchanges. High rates with low risk are easily achievable.

Every dollar in the bank is losing you money

I’m old enough to recall a time when banks would give 5% interest and a certificate of deposit would pay 8%! Those rates are unheard of now. Here’s what my former bank now pays in interest:

Account name APY Balance required to open
PNC High Yield Savings 0.40% $1-$250,000
Standard Savings 0.01% $1-$10,000

Source: Bankrate

$10,000 in PNC’s High Yield Savings pays out a grand total of $40 per year. This is the sad state of traditional finance – the old institutions of banking – also known as TradFi.

In the mean time, inflation continued getting worse in March, rising to 8.5%!

At that rate, $10,000 now in the bank only buys $9,150 worth of goods and services next year. That’s why many invest in assets with the potential to outpace inflation such as real estate, stocks, and cryptocurrencies. Anything not beating inflation is losing value like an ice cube melting in the sun.

For liquidity purposes it makes sense to hold some cash in your portfolio. But how to avoid the shrinking value problem? One answer is to hold high interest rate stablecoins.

What are Stablecoins?

Stablecoins are a type of cryptocurrency designed to maintain a fixed value over time, unlike other cryptocurrencies that suffer from volatility. There are two main categories: asset backed tokens such as Tether (USDT-USD) or Circle’s USDC (USDC-USD) and algorithmic like TerraUSD (UST-USD). The former have real cash assets backing the coins and the latter do not.

Stablecoins can be deposited in one of the many crypto yield earning platforms. Those companies provide liquidity to other institutions, charge them interest, and share some yield back with the investor. Later in this article I’ll compare some of the leading exchanges that offer this service.

Because algorithmic stables have a much higher risk profile (some have lost their peg), this article focuses only on asset backed coins with a 1:1 correlation to the US dollar.

Stablecoin Risks

The primary risk for stables is the concern they aren’t backed by the reserve currencies they claim. Although Tether’s accounting transparency has improved as a part of the agreement with the New York attorney general’s office to settle their legal dispute, I still don’t recommend holding it.

USDC is fully backed by cash and short-dated U.S. government obligations, and always redeemable 1:1 in US dollars. Circle publishes monthly reports by auditor Grant Thornton to confirm the reserve balances and is a licensed money transmitter in 46 U.S. states, Washington, D.C. and Puerto Rico. The company is in the process of securing a bank charter that would make them a federally regulated entity to offer custody services, stablecoin management, payment, exchange and other services.

Since interest rates for Tether and USDC are much the same across different platforms, USDC is the clear choice for me.

There are also security risks the investor must understand. There’s always the possibility of a breach where coins are stolen from custodial platforms. But this same risk exists for any centralized exchange. As far as I know, none of the platforms discussed below have lost coins due to a security exploit.

Finally, crypto platforms have much less regulation than typical banks and are not required to offer insurance. Securities and Exchange Commission chief Gary Gensler has raised concerns about stablecoins and his agency has taken enforcement action against BlockFi, one of the biggest interest providing platforms. The order determined that BlockFi’s Interest Accounts are securities under US law, and that the company failed to register appropriately.

As of February 14, 2022, the BlockFi Interest Account is no longer available to new clients who are US persons or persons located in the US and existing US clients with Interest Accounts are unable to transfer new assets to their accounts. BlockFi also announced it will work with the SEC on a S-1 registration statement for BlockFi Yield, a new crypto interest-bearing security that would eventually be offered to US clients.

Celsius Networks announced a similar move restricting their Earn account for US clients. After April 15, 2022 all users can earn interest on funds already deposited, but only accredited investors may add to funds in the interest account.

I expect all US based platforms offering stablecoin interest will eventually need to take similar actions while they navigate the SEC regulatory hurdles. The good news is that there is now a legal path forward.

Survey of Platforms

Although some exchanges offer higher rates if the investor buys and holds loyalty tokens, I don’t recommend it. Token buy-in can be expensive, they can lose value, and selling can be difficult. This review will focus strictly on the base USDC rates offered on deposit without any extra commitments.

Along with the interest rate, important considerations are: the withdrawal limits, any fees, and whether the platform can link with traditional banks for ACH transfers. If exchanges structure the interest rate into tiers based on the amount deposited they are included below.

Here are the reviewed platforms in alphabetical order. Please note these rates are current at the time of writing but will change with market conditions.

Abra (app only for transactions, website for general info)

Interest rate Withdrawal limits Withdraw fees Bank link?

7.5%

no tiers

$20,000 ACH per day

$10M in crypto

ACH bank transfers are free. Network fee for crypto transactions Yes

BlockFi (website and app)

Interest rate Withdrawal limits Withdraw fees Bank link?

Tier 1 7.25% (0-$20k)

Tier 2 6% ($20k-5M)

Tier 3 4.5% (>$5M)

$25,000 ACH per day

$1M in crypto per 7 day period

ACH bank transfers are free. One free crypto withdraw per month, $50 each after that. Yes

Notes: BlockFi is not currently accepting new US customers, but has a special program for high net-worth ($3M) clients. BlockFi had previously planned to go public but that’s on hold until the SEC action is completely resolved.

Celsius Network (website and app)

Interest rate Withdrawal limits Withdraw fees Bank link?

7.10%

no tiers

$600,000 per 24 hours No fees No

Note: Celsius is currently only allowing accredited investors to add funds

Crypto.com (app only for transactions, website for general info)

Interest rate Withdrawal limits Withdraw fees Bank link?

6% with 3 month lock-in term

3% with 1 month term

1.5% with no term

ACH $100k per day, $500k month. Crypto is the dollar equivalent of 10 BTC per 24 hours. ACH bank transfers are free. Crypto is $25 per withdrawal Yes

Hodlnaut (website and app)

Interest rate Withdrawal limits Withdraw fees Bank link?

Tier 1 12% (0-$25k)

Tier 2 7% (next $75k)

Tier 3 3.5% (next $400k)

Tier 4 0.25% (above $500k)

Unknown One free per month, $10 each after first No

Note: Hodlnaut is based in Singapore

Vauld (website and app)

Interest rate Withdrawal limits Withdraw fees Bank link?

9.41% base, 12.68% with lock-in minimum of 30 days.

No limits Variable network fee No

Notes: Vauld is based in Singapore. Signup can be done with a Coinbase account because Coinbase Ventures is an investor.

Voyager (OTCQX:VYGVF) (app only for transactions, website for general info)

Interest rate Withdrawal limits Withdraw fees Bank link?

9%, no tiers

$25k for ACH per day

$25k crypto per day

Variable network fee for crypto. Yes

Conclusion

I have used several of these exchanges over the past two years with good success. The ACH link capabilities make it easy to move money into and out of bank accounts when needed.

The biggest surprise of my article research was the discovery of the high interest offered by Vauld with no reduced rate tiers. The 30-day Fixed Deposit must be used to get the 12.6% rate, but the money is still accessible; you can opt out early at any time. The company seems legit as Peter Thiel’s Valar Ventures, Pantera, and Coinbase Ventures (among others) have taken a stake. BitGo, a respected player in the space provides custodial services.

As always, do your own research but seriously consider high interest stablecoins to avoid the melting ice cube problem.

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