Do you remember when stablecoins were still just for hedging risks? In the crypto industry, just about anything can become a source of profit – including stablecoins. But which of the USD-pegged coins should you buy to maximize your earnings?
There's nothing illogical about making a profit from stablecoins, if you think about it. Fiat USD can be deposited in a bank and yield an interest – or loaned on specialized platforms to earn even more.
Stablecoins were designed as a way to preserve one's money, a bit like a savings account – as opposed to regular crypto, which were viewed as 'real' investment assets, profitable but highly volatile. Thankfully, the industry did catch up with the fiat market, and now you can get good returns on stablecoins, too.
Since Tether (USDT) and USD Coin (USDC) by Coinbase are the two major players in the USD stablecoin market, we'll focus on them. Bear in mind, though, that some reasonably profitable products are also available for GUSD, BUSD and TUSD.
Stake
Stablecoin staking is a very new trend, and there are only a handful of offerings in the market so far. However, staking products have a big future, given their combination of zero volatility and guaranteed interest.
1) Tidex: stake USDT. Tether is used to create stakes in Neutrino (USDN) – a USD-pegged stablecoin backed by WAVES. The Waves blockchain's LPoS consensus model guarantees daily leasing rewards, which are converted into USDT and paid out to Tidex stakers daily.
USDT yield: 12%.
2) Staked.US: stake USDC. One of the best-known staking platforms, Staked.US supports around 20 PoS coins, such as Tezos and Kava. USDC is its first foray into stablecoin staking.
USDC yield: 1.1%.
3) Coinbase: stake USDC. The exchange co-founded Centre – the consortium behind USD Coin. In October 2019, Coinbase launched USDC Rewards: you just have to hold USDC in your exchange wallet to earn the interest.
USDC yield: 1.25%.
Verdict: USDT wins. With its 12% annual interest, the Tidex staking product is the most profitable on the market, beating even lending platforms.
Lend through a crypto loan company
In this case you are dealing with a proper company, not a smart contract. Of course, it's not as transparent as when lending on blockchain: the company could potentially run away with your money, and you have no way of checking that the loans are really overcollateralized. The real risk is probably low, though, since the leading platforms have already built a good reputation.
Unless you are after decentralization as a matter of principle, it's probably the second-best option after staking.
1) Nexo. the platform boasts a $100 million insurance on custodial assets and claims to be the world's largest crypto lender, serving 550,000 users.
Yield: USDT 8.00%, USDC 8.00%, the interest is paid daily.
2) Celsius. The platform apparently shares up to 80% of its revenue with its customers. There's no minimal deposit, and you'll earn a higher interest if you choose payouts in the platform's tokens, CEL.
Yield: USDT 8.05%, USDC 8.05%, the interest is paid weekly.
3) Hodlnaut. Founded by 2 Bitcoin maximalists from Singapore, the platform mostly lends to institutions that need assets for market-making and hedging. Hodlnaut doesn't seem to use overcollateralization, so if a borrower defaults, the company will have to take legal action.
Yield: USDT 8.3%, USDC 8.3%, the interest is paid at the end of each month.
Verdict: no winner – different platforms offer the same rates for USDT and USDC.
Lending on blockchain
DeFi apps offer complete decentralization: all the steps of the lending process are carried out on a smart contract. You can always check how much money is locked in the app's contract – just like you would with any other dApp. Unfortunately, DeFi lending protocols aren't very suitable for beginners.
Apart from the technical complexity, the main downside of DeFi lending is low rates. The borrowers are mostly margin traders, looking for the cheapest way to obtain extra funds to enlarge their operations. The collateral is well over 100%, and if the borrower defaults or the value of the collateral slumps, it is sold to compensate for your losses.
1) Compound.Finance. If you look at the website of Compound Finance – the best-known DeFi app – you'd never guess it was a lending platform: in fact, the words 'interest' or 'deposits' is never mentioned. However, if you switch to the App section and connect your MetaMask, Coinbase Wallet, or Ledger, you can start lending at once.
Yield: USDT 0.75%, USDC 1.04%.
2) Aave. This non-custodial platform places a priority on security and was audited by Open Zeppelin. The rates are attractive, but the website is hardly beginner-friendly, with a focus on the protocol and code.
Yield: USDT 3.16%, USDC 3.56%.
3) DDEX. This is a decentralized margin exchange, meaning that all the loans go to margin traders. As soon as you enter the site, you are prompted to connect MetaMask; from there, the lending process is straightforward if you have some experience with crypto.
Yield: USDT 3.92%, USDC 1.20%.
Verdict: USDC wins. Even though you can get a higher rate on USDT on DDEX, there are many DeFi platforms not mentioned here that support only USDC. In fact, USD Coin is the main currency of the DeFi industry, with rates reaching 8% on Nuo.
Overall winner: USDT staking. The highest ROI you can extract from a dollar-pegged stablecoin right now is 12% - the fixed interest rate offered by the Tidex exchange for staking USDT. Tidex also offers BTC-backed loans in USDT.
In the context of the current recession and uncertainty, stablecoin staking becomes an attractive alternative to traditional staking. The ability to hedge one's currency risks and earn an interest at the same time is something new in the crypto market, and it will surely attract more investors in 2020.
One can only hope that exchanges like Tidex will soon add staking products for other stablecoins, such as TUSD or Gemini USD, with a similar structure and interest rates.