A rough week for stocks bled into a brutal weekend for crypto. Most of the leading digital currencies took a hit, but it was a different story for the stablecoins that lived up to their name in the cryptocurrency food chain.
USD Coin (USDC 0.20%) and Gemini Dollar (GUSD) -- two centralized stablecoins that can be swapped 1-to-1 for U.S. dollars since they are backed by cold hard greenbacks -- never wavered from their $1 trading price. Other stablecoins including Tether (USDT), TerraUSD (USTC -0.82%), and Dai (DAI -0.01%) also barely fluctuated from their $1 price tags. Stablecoins passed the test, and thankfully for investors so did the ways to monetize these relatively steady cryptocurrency denominations.
Why would you want a stablecoin stapled to the U.S. dollar or a decentralized coin trading roughly at that price? The obvious counter would be why would someone else want to be stapled to the U.S. dollar with an actual U.S. dollar?
The allure of stablecoins is that they are relatively steady fintech platforms that can be used for generating healthy amounts of interest. You know how far a dollar can go through traditional interest-bearing savings vehicles. The average U.S. savings account pays a mere 0.06% annual percentage yield (APY) according to rate tracker Bankrate. Look around and you can earn as much as 0.6% in today's climate in some of the more aggressive savings accounts with your cash. Stablecoins on platforms that pay interest will give you a lot more than that in yield on your assets.
Gemini Dollar will earn an 8.05% APY rate on the Gemini platform that birthed the currency, and you will find other places paying slightly more than than that. Coinbase Global (COIN -12.09%) -- the digital currency trading exchange giant that created USD Coin -- will pay just 0.15% interest on its own stablecoin, but other crypto platforms will make it more worth your while as long as you understand the inherent risks going in. Here are some current starting rates available for USD Coin through some popular sites and apps:
- Celsius: 10.02%.
- Nexo: 10%.
- BlockFi: 9%.
- Voyager Invest: 9%.
- Crypto.com: 6%.
These are the starting interest rates in some cases, as some platforms will shell out even more if you own a certain amount of its proprietary crypto or are willing to lock up your USD Coin for a few months. Crypto.com, for example, may have the lowest starting rate on this list, but if you have more than $40,000 in USD Coin and agree to let the platform hold it for at least three months you're looking at a rate of 12% to 14%.
There's no free lunch, of course. These companies are paying you a lot of passive income, but you're also allowing them to pledge, loan, or otherwise use your stablecoins for their own financial initiatives. Some platforms may protect your capital from losses in some cases through insurance, but this isn't the government-backed protection you get at traditional financial institutions. Some states also don't allow their residents to participate in these crypto earning programs.
The risks are real, but so are the payouts with some of these surprisingly steady digital currencies. In today's trading climate where so many asset classes are getting decimated it's a safe bet that many traditional and non-traditional investors will be dipping their toes into the realm of high-yielding stablecoins.