What is USD Coin (USDC)?
USD Coin, referred to as “USDC,” is a type of cryptocurrency known as a stablecoin. Circle and Coinbase issue it, two of the largest regulated financial institutions in the United States, fully backed by reserve assets. The price of one USDC is pegged to one dollar. In other words, it is redeemable one-for-one to the US dollar.
This allows for USD-pegged transactions in crypto wallets. USD Coin is an ERC-20 Ethereum token powered by the Ethereum network, meaning that it can be stored in any wallet that can accept Ethereum. This makes it extraordinarily flexible and usable by most in the crypto space.
How does USDC Interest Work?
Stablecoins, which are tokens that have their value pegged to that of another asset, are ideal for earning interest. In the case of USDC, it is worth one dollar. Interest earned on these coins tends to be much higher than other cryptos because it can be quantified much easier. When the asset is stable, it’s easier to offer a reward, as it should not fluctuate too much. By allowing people to borrow USDC, companies and individuals can take out loans via the blockchain for investment, personal reasons, or leveraged trading. They agree to repay the loan with interest, just like a traditional loan taken out at a bank. In other words, if you borrow 10,000 USDC, it is the same thing as borrowing $10,000.
Cryptocurrency Interest vs. Stablecoins
You can earn interest from both stablecoins and cryptocurrency. However, they are quite different, and the risk profile you will be dealing with will reflect this. As cryptocurrencies are much more volatile than stablecoins, exchanges are much less willing to loan them out. A cryptocurrency can lose 30% of its value in a single day, but stablecoins hardly move.
Because of the extreme volatility in crypto, exchanges offer those who stake crypto on their exchange lower rates on the currency. After all, they may be on the hook for paying out exacerbated returns. On the other hand, those who stake their crypto could find themselves getting a bit of an interest gain, but at the same time, losing a massive amount of principal. There is always risk.
Because coins like the USDC do not fluctuate much, stablecoins are a safer way to store value in crypto. Exchanges are willing to offer users much higher interest rates as a result. USDC APR tends to be robust, mainly because it is “stable.”
Why You Should Earn Interest on USDC
There are many reasons you would want to earn interest on USDC, and the advantages include the following and much more:
- Replaces savings: Some people will earn interest on USDC in order to replace savings accounts. Savings accounts have offered very little interest over the last few years, and crypto has rushed to fill that void.
- Higher yields: The yields earned in crypto staking, including USDC, is typically much higher than in traditional banking.
- Earn while you wait: The markets can sometimes be hazardous and volatile. Because of this, some traders will stake USDC while staying out of the markets. This is a great way to continue growing your account.
What are the Risks of Earning Interest in USDC?
While earning interest on USDC makes much sense over the longer term and offers many benefits, it is not without risks.
- Risk of hacks: Depending on how you choose to earn interest, there are some risks of exploitation via smart contract.
- Lock up periods: Some routes will require you to lock up your coins for a specified period.
- Counterparty risk: You must trust the protocol to stay liquid and solvent to get your coins back with custodial lending programs. Not all are custodial, though.
How to Earn Interest on USDC?
Step 1
To benefit from interest in USDC, you must first own it. Buying USDC is simple and can be done at most exchanges. You will need to open an account and do a few minor actions to confirm your email address, etc. Once you have an account, you can purchase USDC.
Step 2
By going into your platform or dashboard, you will see a relatively straightforward process to purchase USDC.
Step 3
At this point, you will typically see a place on your dashboard that says, “stake crypto.” Depending on your broker, you will have a few clicks to do so. Once you decide on the amount to stake, it is a simple process. Some brokers may ask you to lock up the coins for a specific time.
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What are the Different Ways of Earning Yield on USDC?
There are many different ways and places you can earn interest on your USDC . However, you need to know the difference between each type of platform and their pros and cons.
Earn Yield on USDC Through an Exchange
Earning yieldthrough an exchange is probably the simplest of processes. Most exchanges require a similar set of steps, including creating an account, depositing USDC, and selecting your preferred yield-earning product. This may or may not involve locking up USDC for a certain time. This would be an issue if you need liquidity.
The most significant advantage of using centralized exchanges is that it is straightforward, as you are more likely than not going to keep your crypto or at least funding for your crypto trading on that platform.
| Pros: | Cons: |
| Easy and convenient. | May or may not be forced to lock up USDC for a specific time. |
| It can be done on the same platform. | May get lower rates. |
| Most exchanges are well capitalized. | Available products may be limited. |
PrimeXBT is one of the leaders in this field of staking cryptocurrencies.
Earn Yield on USDC Through a Lending Service
Holders of USDC can also earn a yield on their holdings if they choose to lend through a lending service. A custodial lending platform can help match those looking to lend with those needing to borrow. The yields can be better than an exchange because of the additional risks incurred.
The holder of the asset can entrust their assets with a custodial lending platform, which allows them to lend directly to others via smart contracts. However, doing this is risky because you are giving up custody of your coins.
There are also non-custodial lending platforms where users maintain their control of USDC, avoiding counterparty risk. However, these platforms are more vulnerable to hackers through smart contract exploits.
| Pros: | Cons: |
| Matches lender and borrower. | May or may not allow you to keep custody. There are both pros and cons to each version. |
| Does all calculations and interest payments for you. | Exploits have happened in the past. |
| Often allow multiple assets. | Lending platforms offered varied rates. You must look around for the best deal. |
Circle is a famous example of a lending service.
Earn Yield on USDC with DeFi
One of the most exciting possibilities in crypto is the DeFi platforms that allow users to access essential financial services without needing an intermediary. Users can deposit crypto, in this case, USDC, into a decentralized lending protocol to earn interest.
This area of decentralized finance allows users to borrow, lend, and invest in new financial products. This is all made possible using smart contracts and blockchain technology.
| Pros: | Cons: |
| Smart contracts offer ease of use. | DeFi protocols do not reverse mistakes by users. |
| No intermediary. | Scalability may be an issue with some protocols. |
| Other products are available. | Liquidity can be an issue with smaller protocols. |
Examples of decentralized finance protocols include Uniswap and Bancor.
Is Earning Interest in USDC Worth It?
Earning interest on USDC is a great way to make interest on your crypto assets. Keep in mind that interest rates are much higher than typical savings accounts in the physical world, allowing you higher returns. That being said, you need to be aware that there are risks of hacking, which could pose a bit of a threat to your investment. While nothing is 100% secure, earning interest on USDC is beneficial for most traders.
Conclusion
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There are multiple reasons you may choose to use USDC to start earning interest. The most obvious one is that it is far superior to a standard brick-and-mortar bank as far as interest rates are concerned. Beyond that, USDC is a great way to earn interest on assets that might be losing value in a general crypto selloff. For example, you could cash out of your Bitcoin and then convert it to USDC, where you can earn interest while waiting for the market to turn around.
Keep in mind that nothing is 100% secure, but you should be protected as long as you stay with a reputable exchange or lending service. Remember that this could be a great way to diversify part of your overall portfolio, as earning interest on USDC can be thought of very much like a high-yielding bond.
Most traders will benefit by holding USDC and, of course, trying to make interest in times when markets are challenging to deal with. By having these secure assets in your portfolio, it gives you not only safety but flexibility as they can be converted into other coins or used as a safety net. Most professional traders have at least a portion of these coins at various times.
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