How to Earn Interest on Stablecoins
Investors are always looking for new opportunities to invest their money and get good returns on it. Unfortunately, traditional investment opportunities have not been giving impressive returns in the last couple of years. Bank interest rates on deposit accounts have not been favorable for many years, given that most top US banks offer an average annual interest rate that is less than 0.1%.
Due to the low returns, investors are seeking alternative interest-earning investments with better yields. One of the options right now is to earn interest with crypto. However, due to the volatility of cryptocurrencies, earning interest on stablecoins is a better option that offers some certainty with the expected returns. You can earn crypto as interest payouts for your deposits, thus increase your crypto holding and stand better a chance of making gains.
To comprehend how to earn interest on stablecoins, you need first to know what stablecoins are. In simple terms, a stablecoin can be defined as a cryptocurrency token with a value pegged to that of a fiat currency. The earliest and most popular stablecoin is the Tether (USDT). Other stablecoins are Gemini dollar (GUSD), Binance USD (BUSD), and USD Coin (USDC).
Tether has its value attached to the US dollar and is ostensibly backed by reserves of US dollars. This theoretically means that for every USDT in circulation, the provider of the stablecoin should have an equal value of US dollars held in a bank account.
Tips on earning interest on stablecoins
The initial way investors used to make money with digital currencies was acquiring the assets and holding them, anticipating they would appreciate in value before selling at a profit. Generally, this approach worked well given the value of cryptos consistently appreciated rapidly, despite some temporary drops at times. However, the growth in popularity of stablecoins has changed this way of earning. This is because they are designed to maintain a constant value.
Fortunately, another way to earn passive income from stablecoins has evolved. Investors can use third-party crypto platforms such as YouHodler, BlockFi, and others to lend out their stablecoins. As a reward for depositing their coins with lending platforms, the investors are paid interest on their deposits, usually more than the rate they would get via conventional savings accounts with banks.
Steps on earning interest on stablecoins
If you are eager to know how to earn interest on stablecoins, a basic stablecoin interest-earning program involves the following steps:
- Open an account with a crypto lending platform like YouHodler, Ledn, BlockFi, and others that offer a defined interest rate, for example, 10% on stablecoin deposits
- You decide the number of stablecoins, say USDT, to deposit and deposit the same.
- You keep the stablecoins lodged on the platform for a given duration, for example, six months. However, some exchanges offer a chance to withdraw your digital assets any time you wish
- At the end of the agreed deposit period, you withdraw your stablecoins plus the interest. Alternatively, you could receive periodic payouts of the interest earned, for instance, monthly or quarterly. Then you get your principal amount at the end of the period plus any interest earned.
You also earn compound interest on your interest because most platforms compute your interest payment daily. This way, you can reinvest your digital assets depending on the agreement terms, and you earn more returns. You get to earn crypto as interest increasing your digital assets.
Now you know how to earn interest on stablecoins by depositing them with crypto loan platforms. However, you should choose the platform you use carefully to avoid any loses or risks that you could have avoided.