Compare The Best Stablecoin Staking Yields
September 2023

What are Stablecoins?

Stablecoins are a type of cryptocurrency that is designed to track the value of a non-crypto asset, for example fiat currencies such as the US Dollar, or a physical asset such as gold.

Whilst many cryptocurrencies such as Bitcoin offer features that make them a compelling investment choice, they do remain quite volatile in price. Some investors may choose to move part of their investment into a stablecoin as a means of protecting their wealth if they think the crypto market is falling.

Others may deliberately hold part of their portfolio in stablecoins in order to generate passive income from the high savings yields available, or to enable them to quickly move funds between exchanges to take advantage of arbitrage opportunities (difference in prices) between the exchanges.

What Is a Stablecoin Staking?

Defi platforms offer stablecoin staking besides other crypto staking. You can send fiat currencies to the defi and centralized crypto platforms and earn interest by holding them in a saving account.

The Federal Reserve of the United States issued Dollars and followed an expansive fiscal policy during the pandemic. Inflation rates have new highs and prices are going up constantly in the United States. This is very new for Americans. Interest rates offered by traditional banks are not satisfying anymore in 2021.

Defi platforms offer very competitive rates for stablecoins staking with very flexible terms and conditions. There are advantages and disadvantages of Defi platforms compared to traditional banks.

How Do Stablecoins Hold Their Value?

There are three main ways that stablecoins keep their value constant against non-crypto assets (e.g. the US Dollar):

• Directly Holding the Collateral - The issuer of the stablecoin holds the actual asset on a 1 for 1 basis in traditional financial institution. For example a USD stablecoin would be backed by actual US Dollars held in a traditional bank account. When you want to convert your stablecoin to US Dollars then a withdrawl is made from that bank account.
• Crypto Backed Stablecoins - These types of stablecoin are backed by other cryptocurrencies which are used as collateral. The main example of this type of stablecoin is DAI which is issued by MakerDAO.
• Algorithmic Stablecoins - Units of the stablecoin are automatically created or destroyed as required to keep the value of the coin stable against the target asset.

Centralised vs Decentralised Stablecoins

One of the biggest appeals of the cryptocurrency space is its decentralised nature. No central controlling entity makes many cryptocurrencies highly censorship resistant and immune to government interference in their value.

When it comes to stablecoins some of these decentralisation benefits can be lost because a centralised issuing entity exists that manages the collateral.

For example one of the most popular and oldest stablecoins, Tether (USDT) is issued by a company, Tether Ltd. As a business that is holding traditional collateral on behalf of investors, Tether Ltd is required to comply with all the various money laundering and KYC rules. Whilst governments would argue that these rules are designed to protest investors, it does mean that Tether Ltd could freeze your funds if required to do so.

The crypto community recognises the centralisation problem that comes with some stablecoins and has established a number of innovative decentralised alternatives. MakerDAO is a Decentralised Autonomous Organisation (DAO) and as such there is no central entity. MakerDAO issues its own stablecoin, DAI, on the Etheruem blockchain. The value of the coin is automatically stabilised by smart contracts on the Ethereum blockchain meaning that no single entity is in control.

Why Are Stablecoin Yields so High?

Savings interest rates for stablecoins are amongst the highest available across all cryptocurrencies. The reason that platforms offer such high rates for stablecoins is that they have high demand for loans denominated in these currencies, particularly from institutional investors that are looking to borrow stablecoins in order to increase their leverage on speculative cryptocurrency trades.

What are the Advantages of a Stablecoin Staking?

Stablecoins have a much higher APR compared to fiat currencies. Crypto platforms offer interest rates up to 12% APR for stablecoin staking. Traditional banks offer very low APR. Enjoying the high yield available through stablecoin staking is a great way of fighting inflation.

The best thing about stablecoins is they have a stable price. The price of a stablecoin doesn’t fluctuate as the other cryptocurrencies make sharp moves. You can always withdraw stable coins to your bank account or send someone. There are many apps allowing you to send stablecoins. There are crypto debit and credit cards where you can spend stablecoins.

But of course, low risk brings a smaller yield. Make good research before deciding how you will use your savings. Make good research about the stablecoins issuer company.

What are the risks of Stablecoins?

Stablecoins are issued by private companies. They are not regulated and not federally protected. You should be aware of that before you invest in stablecoins. Especially centralized platforms can suddenly interfere with your and block your funds. They can require you to do identity verification and KYC. Go to our Platforms page and learn more about centralized and decentralized platforms before deciding to open a stable coin saving account.