A stablecoin is a cryptocurrency whose value is tied to another cryptocurrency, fiat currency, or exchange-based commodity. There are three types of stablecoins – cryptocurrency-backed, fiat-backed, and commodity-backed. Fiat-backed stablecoins like Tether (USDT), USD Coin (USDC), and Binance USD (BUSD) are pegged to the US Dollar (USD) on a 1:1 basis.
These three stablecoins are the most popular by far and have trading volumes in the billions, with USDT having the highest-circulating supply of 63.25 billion at the time of writing. Fiat-backed stablecoins are very important tools in crypto trading, given their relatively constant value. The crypto world is volatile and stablecoins add much-needed stability to trading.
When you want to purchase or sell a cryptocurrency, you can use stablecoins to purchase a crypto token at its current market value without having to worry about fluctuation in the price of the medium token or sell a crypto token and maintain the value of your investment.
Given the consistent store of value associated with stablecoins, does it make sense to invest in them and earn interest?
Should you Invest in Stablecoins and Earn Interest?
There are a host of platforms that offer interest on your cryptocurrency holdings if you place (deposit) a certain amount of the cryptocurrency on the platform for a decided upon (or flexible) duration of time. These platforms include Abra, Hodlnaut, BlockFi, Gemini, Celsius Network, Crypto.com, and Binance.
If you open a normal savings account, you will earn less than 1% annual percentage yield (APY). Opening a fixed deposit too will not earn you the potential interest you can earn by investing in cryptocurrencies and depositing on a platform of choice. Some platforms offer up to 12.73% APY on your deposit.
Of course, staking cryptocurrencies is a volatile venture as you could lose your investment by sudden bouts of volatility or be subject to a scam. Such platforms are not regulated as well – the Federal Deposit Insurance Corporation (FDIC) for example compensates depositors when banks fail to do so.
That said, the prospects of yield farming as it is called are high. Not only will you earn interest on your deposit but also (in some cases) an additional subsidy, in the form of a new token altogether. The risk-ridden nature of yield farming is partly why platforms offer such incentives.
To eliminate the possibility of volatility ruining your yield-earning experience, you could deposit stablecoins and earn interest. Hodlnaut is one of the best platforms to earn interest on stablecoin deposits. On the first 25,000 USDC you deposit on the platform; you will receive an APY of 12.73% and an APY of 7.25% on your next 75,000 USDC deposit. The same applies to USDT.
In comparison, the platform offers much lower rates for Bitcoin and Ethereum – you will have to deal with market volatility as well. It makes utmost sense to deposit stablecoins on such platforms and earn a higher yield than what you will earn by depositing money in a bank. Choose a trusted platform and invest wisely.