The crypto world continues to innovate, offering alternatives to traditional bank offerings. Coinbase’s 4% interest USDC loan offer is positioning itself as a serious competitor to traditional savings accounts.
USDC savings, 4 times more attractive than dollar savings
Coinbase offers a stablecoin savings plan that is more attractive than its traditional counterpart offered by banks in the United States. The exchange said in its June 29 release that its users could earn a 4 percent annual return on their USDC loans.
Coinbase pointed to traditional finance interest rates that “have steadily declined over the past few decades, making it difficult to earn meaningful passive income on your assets.” His offer is therefore much more attractive than the dollar savings accounts that offer an annual interest rate of 1% or less. At the same time, it should be remembered that other crypto lending platforms offer an 8% return on dollar-backed stablecoin loans but lack the clout and potential market penetration of a giant like Coinbase.
Coinbase is thus rekindling interest in its loan offering among its users holding USDCs. The exchange initially offered a 1.25% yield on USDC from October 2019 to June 2020. At the time, USDC was the 23rd largest cryptocurrency in terms of market capitalization, while it is currently in 8th place. The exchange then surprised (unpleasantly) USDC holders by suddenly dropping the loan yield to 0.15%.
High rewards with no cover
Coinbase points out, however, that these loans are not covered by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, unlike traditional savings accounts in the US. The exchange thus reminds us of the risks associated with the fact that “your assets are loaned to unidentified third parties and subject to their credit risk, which could result in a total loss of your crypto assets.”
This news comes less than a month after Coinbase announced the listing of 9 stablecoin/fiat and stablecoin/stablecoin pairs. At the time, the exchange said that the stablecoin pair markets had seen a 10-fold increase in volume over the past six months.
The development of stablecoins is of concern to the US Federal Reserve (Fed). The institution goes so far as to consider Tether USDT as one of the “3 challenges to financial stability”. A mass adoption of USDC or USDT would therefore be much more dangerous for the dollar than a rush to Bitcoin. The reasoning makes sense considering that the former are well positioned to be used as everyday means of payment, while the latter is a safe haven.
