Cryptocurrencies are often viewed as high-risk investments due to their price volatility. However, there are low-risk investment options available in the form of stablecoins. Stablecoins are digital currencies that are pegged to fiat currencies or commodities, which helps reduce the volatility risk. In this article, we will explore how to generate interest or “yield” with USDC, a stablecoin backed by US dollars.
USDC is a digital currency issued by Circle, a US-based fintech firm. It is backed by the US dollar on a 1:1 ratio and operates on a multi-chain infrastructure. Initially launched as an ERC-20 token, USDC has expanded to other major blockchain platforms like Algorand, Solana, Avalanche, Stellar, and Tron. Circle maintains reserves consisting of USD cash, equivalents, and US Treasuries to maintain the stable peg of USDC. These reserves are audited every month by Grant Thornton, a third-party auditor. USDC has gained popularity as a stablecoin and is currently the fourth-largest cryptocurrency with a market cap of over $50 billion.
USDC staking and lending are two ways to earn passive income from your crypto holdings without selling them. These methods are particularly attractive as dollar stablecoins often offer higher interest rates than traditional savings accounts, especially in the current low-interest-rate environment. Staking involves lending your USDC to a blockchain network for rewards, while lending involves lending it to borrowers in return for interest.
Centralized lending platforms are a straightforward option for earning passive income on USDC. These platforms offer some of the highest annual percentage yields (APY) for USDC deposits. Nexo is a popular choice among investors as it provides an APY of up to 12% on USDC deposits. It has a user-friendly interface and offers compound daily payouts and flexible earnings. Hodlnaut is another platform that allows users to diversify their investments with various digital assets, including USDC, and offers an APY of up to 9.40%.
Another way to earn interest on USDC is through centralized crypto exchanges. Binance, the largest crypto exchange by trading volume, offers Binance Earn, where you can earn interest on USDC deposits. Kucoin, a fast-growing crypto exchange, also supports USDC lending and allows users to lend directly to counterparts, with the APY ranging from 1% to over 50%. Crypto.com is a trusted cryptocurrency service that offers its platform, Crypto Earn, where you can earn an average APY of 8% on USDC deposits.
Decentralized finance (DeFi) lending is another option to earn interest on USDC. DeFi apps are powered by blockchain and run by algorithms, providing financial services in a decentralized manner. Aave and Compound Finance are prominent DeFi lending protocols that support USDC deposits. Aave has a total value locked (TVL) figure of nearly $10 billion and offers an interest rate of 1.50% for USDC liquidity. Compound Finance, with a TVL of over $5 billion, is another popular lending protocol that supports USDC deposits.
It is worth noting that while USDC yields are higher than traditional savings accounts, they are lower compared to centralized lending platforms. Additionally, DeFi lending protocols generally offer lower rates compared to centralized counterparts but provide the advantage of decentralization and control over funds.
The high yields offered by USDC can be attributed to the business models implemented by crypto companies. These companies enable users to earn interest by utilizing their USDC holdings for lending purposes, eliminating the volatility risk associated with cryptocurrencies.
In conclusion, generating interest or “yield” with USDC is possible through various platforms and protocols, including centralized lending platforms, centralized crypto exchanges, and decentralized finance lending protocols. These options provide opportunities to earn considerable returns on USDC deposits, making them attractive alternatives to traditional savings accounts.