This week, CoinMarketCap Alexandria explains ways to stake stablecoins on different platforms and avoid potential risks.
With the world economy taking a turn for the worse in recent months, many cryptocurrency holders are beginning to take a risk-averse approach to their investments — favoring secure, low-risk returns over wild speculation.
A large number of platforms, including both decentralized and centralized options, now offer relatively attractive returns on stablecoin deposits. Unfortunately, due to the immense competition in the stablecoin staking space, there is no clear one-size fits all platform for investors. Instead, it is best to have a broader grasp of the landscape as it stands to find the platform that best fits your desired risk profile and other requirements.
Though there remains at least some risk with using any platform that promises to grow your investment, we’ve found some that have stood the test of time. That said, it is important to do your own due diligence before investing with any platform since they can vary considerably in the mechanism by which they deliver their returns. Moreover, absolute security is never guaranteed.
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Image courtesy: Curve
Like most AMMs, PancakeSwap allows users to contribute their assets to one or more liquidity pools to earn a share of the transaction fees they generate. Though the platform is primarily designed for trading volatile assets, it also supports a large number of stablecoin-specific liquidity pools. These include USDC-USDT, USDT-BUSD, DAI-BUSD and TUSD-BUSD.
Exact yields vary by pool, but currently range between 1-3% APY. This can reach as high as 10% APY during particularly bullish periods.
Image courtesy: PancakeSwap
These yields are formed of both standard trading-fee-derived rewards as well as an additional supplement in the form of CAKE tokens. PancakeSwap often changes the multiplier associated with the CAKE rewarded supplement, which can significantly increase/decrease the total yields for the associated pool.
The platform takes advantage of the economies of scale to bundle user funds together to automatically boost their yields by minimizing transaction fees and employing both conventional and unconventional strategies that could be difficult to achieve manually.
These include a flashmint folding strategy for Compound, a Tokemak reinvest strategy and a similar reinvest strategy for Notional Finance. These are designed to be low-risk, but not risk-free.
By depositing assets to one or more Yearn Finance vaults, users give the platform permission to use their funds while executing strategies associated with the pool. These strategies can change over time, as can the yields expected from each vault.
Image courtesy: Yearn Finance
The platform supports a wide variety of digital assets, including popular stablecoins like DAI, TrueUSD (TUSD), USDC Coin (USDC) and Tether (USDT). Each of which provides a different yield depending on the amount of supply available and borrow-side demand.
Image courtesy: Compound
Since the platform allows for the creation of two-side liquidity pools formed of any two assets, it allows users to contribute liquidity for whichever assets they choose — and earn a share of trading fees as a result.
In most cases, Uniswap trading fees are set at 0.3% of the trade size. However, a handful of additional fee levels are also available — including 0.01% (typically stablecoin pools) and 1% (typically more exotic pairs). Right now, 100% of the fees are shared among liquidity providers, though a fraction may be directed to the Uniswap reserve, if enabled in the future.
Image courtesy: Uniswap
As with all AMMs, the yield you can expect to earn as a liquidity provider varies based on the pool, total liquidity available, trading volume and fee parameters. But in general, expect to earn between 1-3% APY per year by contributing to popular stablecoin liquidity pools on Uniswap.
Centralized Staking Platforms
Though decentralized platforms have gained a great deal of traction in recent years, centralized platforms remain the most popular for investors — largely due to their accessibility, better brand recognition, and oftentimes higher interest rates.
That said, they do generally require users to trust them with the custody of their funds and management of their private keys, which some can find unacceptable.
Like most lenders, the platform passes the return it receives from its lending business on to its depositors and pockets a small % for its operations.
Nexo currently has a base rate of 8% APY on popular stablecoins like USDT, USDC, DAI, and USDP, and also provides 8% interest on fiat deposits — including U.S. dollars (USD), euros (EUR), and British pound sterling (GBP).
Nexo recently introduced maximum balance limits and lowered yields for deposits above this limit. The current limits for base tier users are shown below:
Image courtesy: Nexo
Binance's Earn platform features a wide variety of savings and staking products, which allow users to earn a yield on both volatile and stable assets. Due to the large number of assets it supports and its competitive interest rates, it is among the most popular choices for those looking for savings products.
For stablecoins, Binance offers flexible term and fixed-term investment vehicles, giving users either the freedom to withdraw their assets whenever they want or commit to a fixed-term for a higher APY. It also enforces a tier-based yield model, whereby deposits above a specific threshold receive lower returns.
The amount you can expect to earn varies based on the coin, the term and the size of your portfolio, but in general, between 1-10% APY is standard. These figures fluctuate based on supply, demand and market conditions.
Image courtesy: Binance
Coinbase is unusual in that it doesn't provide an independent asset staking dashboard, but instead allows users to earn rewards by simply topping up their account with supported digital assets. That said, users may need to opt-in to this feature to begin earning rewards on their deposits.
Image courtesy: Coinbase
Right now, the platform primarily offers staking rewards on volatile assets, like Ethereum (ETH), Cosmos (ATOM) and Tezos (XTZ), but also supports stablecoins, like USD Coin (USDC) and DAI.
The yield provided varies over time based on a range of factors but currently sits at around 0.15% APY for DAI and USDC. This counts among the lowest rates in the industry.
Since it launched in 2012, Bitfinex has seen its exchange offering grow in scope and usage, and it now offers a margin trading platform, OTC desk, lending service, securities exchange and more.
Like many popular exchanges, Bitfinex allows users to earn a relatively safe return on their deposited assets by staking (for proof-of-stake assets) or through its lending platform — where users can earn a flash return rate (FRR) on their contributed assets. The FRR is the interest rate paid by borrowers, less the 15-18% commission taken by Bitfinex.
As always, the amount you can expect to earn on your stable assets varies based on supply and demand. But right now, around 2.99% APY is available for USDT deposits. A full list of supported assets is provided below.
Image courtesy: Bitfinex
The platform is known for its crypto-powered debit card and cryptocurrency savings plans, which allow users to earn a fixed return on their deposited assets.
As of writing, Crypto.com's savings product supports more than 40 different cryptocurrencies and stablecoins. Yields vary from asset to asset, but right now users can earn up to 8% APY on their stablecoins.
Like most cryptocurrency savings providers, Crypto.com allows users to increase their rewards by staking the platform's native token (CRO) and by committing to a fixed-term. It also enforces a maximum quota per user, which depends on the user’s card tier (determined by the amount of CRO locked).
Right now, reward rates for USDC and USDT range from 0.4% for flexible term users with under $400 in CRO staked, to up to 8% for those with >$40,000 CRO staked and committed to a three-month term.
Image courtesy: Crypto.com
Stablecoins Staking: Risks and Considerations
As with any investment, there are risks that you will need to consider when using a platform to earn a yield on your stablecoins.
First and foremost is the risk of theft. While most platforms have several defense mechanisms in place to protect users, such as Binance’s principal protection and Nexo’s insurance policy, these aren’t necessarily comprehensive and may not protect all users under all circumstances.
Because of this, it is important to do your due diligence and investigate the reputation and security system of your chosen platform, and potentially take additional protective measures on your side — such as decentralized insurance or diversification.
Be wary of offers that seem too good to be true, and never invest more than you can afford to lose.