In a blog post on Tuesday, the crypto exchange platform Coinbase revealed that its consumers could earn 4% APY (or annual percentage yield) by lending their assets for the US dollar-centric stablecoin known as the USD Coin (or USDC). The cryptocurrency exchange platform appeared to be addressing financial institutions with the said offering, asserting that it offers a better return when compared to an ordinary savings account in the US.
Nonetheless, Coinbase stated that the loaned USDC, unlike ordinary savings accounts in the US, is not under protection by either the FDIC (Federal Deposit Insurance Corporation) or the SIPC (Securities Investor Protection Corporation). The exchange also does not offer a cryptocurrency interest account offering appealing rates on customer’s holdings.
Although a majority of savings accounts in the US offer users returns below 1% on the dollar, numerous other cryptocurrency platforms offer an interest rate of approximately 8% for lending USD stablecoins.
Coinbase claimed that even though high-interest rates may seem beneficial, they actually carry different levels of risk. The platform also states that users might find their assets being loaned to unknown third parties and liable to their credit risk, resulting in a total loss of their cryptocurrency holdings.
The platform initially provided 1.35% interest on USDC between October 2019 and June of 2020. It then abruptly declared that the rewards for consumers holding the stablecoin would fall to 0.15%. The 4% interests depict the platform possibly further increasing interest for USDC owners by upwards of 2500%.