In the world of cryptocurrency, stability and predictability are elusive goals. With stablecoins like USD Coin (USDC) and, investors seek a reliable tool for preserving value while still harnessing the potential for growth. Here we explore what you need to know about earning interest yield on USDC stablecoin and navigating associated risks.
Understanding USD Coin (USDC)
USD Coin, or USDC, is a cryptocurrency token designed to maintain a stable value by being pegged to the US dollar. Issued by Circle, each USDC tends to be valued (bought and sold) at a price within 0.5% of a dollar, making it an attractive option for investors seeking stability in the volatile world of cryptocurrency. USDC, and its competitor, USDT (Tether), are used as the settlement currency for billions of dollars in volume (daily) of cryptocurrency trading, and they are used for instant cross-border payments, and for simply holding value in a near-dollar equivalent asset. As of this writing, USDC has over $28Bn of total value, meaning that Circle is investing $28Bn of real fiat dollars and earning yield for themselves. And Tether has a market cap of over $97Bn earning yield for the company that issues Tether. Tether has a bit shadier reputation than Circle; Circle is strong in the US market and Tether is strong outside the US. Both have lost their peg to the dollar, which (like most any traded product) is maintained by the market’s faith in the product. In March of 2023, Tether traded down to $0.95 and Circle as low as $0.87 (even lower on certain exchanges) due to market concerns. Previously, in May of 2022, the algorithmic stablecoin Luna depegged and never recovered, collapsing to zero value, wiping out $2Bn in value.
Ways to Get Yield with USDC:
There are several avenues available for earning interest yield on USDC, each offering unique benefits and potential risks. Let’s delve into some of the most common methods:
Crypto Lending Companies:
By lending your USDC to companies that, in turn, lend out the USDC to borrowers, you can earn interest by providing the liquidity needed to fund the loans. Borrowers pay interest to borrow the USDC, and the company pays you a portion of that after taken their cut. Some of the more popular companies offering this included BlockFi, Celsius, Coinbase, Gemini, Nexo, and Medici Bank. However, due to regulatory pressure and market concerns over their use (and misuse) of the deposits and loan collateral, most either left the US market or went out of business. As of this writing, of the above, only Medici Bank is available in the US.
Savings Accounts: Savings accounts offer a familiar concept but with a twist — the USDC is swapped to traditional fiat dollars to avoid the risk of stablecoin depegging. These platforms use your deposited funds for various lending activities, generating interest that is then shared with you. As of this writing, we only know of Medici Bank offering yield accounts that can be funded with (but not held in) USDC.
Crypto Exchanges: Many crypto exchanges offer interest-earning opportunities for USDC holders. The exchange uses the USDC to offer margin loans to their other clients. By lending your USDC to these exchanges, they will pay you what they might call ‘rewards’ (because they lack the authority to use regulated terms like interest and yield)..
DeFi Protocols: Decentralized Finance (DeFi) platforms leverage smart contracts and decentralized ledger technology to facilitate lending and borrowing. By lending your USDC to these platforms for others to borrow, you earn interest on the funds you provide after the protocol takes its spread. Users often complain that DeFi requires technical sophistication on behalf of the user (some understanding of smart contracts and how to integrate wallets) and stories abound about getting liquidated by the platform due to manipulation by other users.
Staking: Staking involves locking up tokens to participate in the governance and security of a Proof of Stake blockchain network such as Ethereum. While some people may talk about staking USDC, that is a misnomer — instead it would be one of the other use cases listed here.
Yield Farming: Yield farming involves allocating USDC across multiple yield options on decentralized finance (DeFi) platforms that generate returns by lending, staking, and possibly even trading. While this appears to be a convenient way to diversify yield opportunities, it also increases the likelihood of something going wrong somewhere.
As a regulated US Bank based in San Juan, PR, Medici Bank provides two distinct options for those with USDC farming for yield. Both liquid (demand) and locked (term deposit) accounts fund a lending pool that is deployed for secured loans backed by BTC and ETH collateral. The over-collateralization with highly liquid BTC and ETH reduces the risk of the loans, and the lending rates enable Medici to pass through compelling yield rates. What’s more, in all cases, any payments to fund the account, be it in up to 65 foreign (i.e. non-USD) fiat currencies or USDC is immediately converted to US dollars to avoid any FX or de-peg risk. Whether you’re looking for flexibility or guaranteed growth, there is a solution available. Learn more here.
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