Lending stablecoins is one way to earn a return in the crypto markets, but it has a big advantage because it takes market volatility out of the equation.

Read on to find out how to earn interest on stable coins.

The rise of crypto interest markets

The emergence of crypto assets has led to the development of crypto interest markets, made up of DeFi (decentralized finance) and CeFi (centralized finance) borrowing and lending applications that typically provide APYs (annual percentage returns) more higher than fixed income and money market instruments.

Crypto loans are becoming more and more popular in the crypto markets as more investors seek to monetize the digital assets that they are. prowl. Due to this growing demand for yield, major crypto trading platforms are adding features that allow investors to borrow and lend. Additionally, there is a plethora of loan applications in the CeFi and DeFi markets.

However, the volatile nature of crypto assets has been a hindrance in the crypto lending markets, as market volatility can easily lead to losses for lenders despite high interest rates. To solve this problem, stablecoins have become one of the most popular lending assets in the crypto interest markets.

Stablecoins are digital currencies whose values ​​are most often tied to priced assets, such as the US dollar or gold. With stablecoins, investors can earn interest through the crypto loan while avoiding the volatility of crypto-assets like bitcoin (BTC), ethereum (ETH) or binance coin (BNB).

Thanks to the CeFi and DeFi lending platforms, investors can obtain above-average interest rates, higher than the rates in force in traditional finance. Most banks offer annual interest rates that are no more than 1%, while stablecoin interest rates go up to 4% to 12% per year. Many lending platforms even offer daily interest payments, allowing investors to earn compound interest.

Now let’s take a look at how you can deploy Stable Coins to earn interest in two major crypto lending platforms.

Earn Stable Interest in CeFi: A Step-by-Step Guide

Centralized finance loans follow rules similar to those of traditional financial platforms. CeFi platforms will generally require you to go through Anti-Money Laundering Procedures (AML) and Know Your Client’s Procedures (KYC) to prevent bad actors from carrying out illegal activities.

Typically, they manage your funds (i.e. hold your private keys) and make sure your collateral is secure. Some CeFi loan apps even offer insurance coverage to reduce the risk of losing funds due to hack or operational error and keep the majority of assets in their custody offline in a cold warehouse.

To demonstrate concretely how you can earn interest on stable coins in CeFi, we will use Nexo, one of the largest CeFi lending platforms. Nexo offers interest rates of up to + 10% on Stablecoins, which means that USD 1,000 of USDC deposited into your Nexo account would add up to USD 1,108.68 after one year (less fees ).

Below are the steps to start making money on Nexo:

• Open your browser and visit the nexo.io URL to create an account.
• After creating your account, click on the profile icon at the top right and choose “My Profile” to perform the KYC verification. You will be presented with two KYC options: Basic KYC allows you to earn interest on all supported stablecoins and cryptoassets while Advanced KYC includes support for fiat currencies.
• Access the profile tab again and select “Security”. You will have the option to enable two-factor authentication. Click “Activate” and scan the QR code using Google Authenticator or Authy.
• When you have completed the KYC, click on ‘Account’ from the top menu and select the stablecoin you intend to deposit. Deposit the coin by transferring from a wallet / exchange or buy directly on Nexo from your bank.
• After a minimum of 24 hours, you should start earning interest. Interest is automatically paid to your savings portfolio daily, which means you’ll automatically earn compound interest.
• To view the total interest earned on your active investments, navigate to “Accounts” and click the “Total Earned” button for detailed information on all of your interest payments.

Earn Stable Interest in DeFi: A Step-by-Step Guide

DeFi loans work differently from CeFi loans because, unlike CeFi loans where transactions are handled by a central authority, DeFi uses smart contracts to provide standalone loan pools to crypto investors. The whole process works independently of a central authority and the assets are held non-custodial in smart contracts, which means they are under your control.

In this example we will be looking at Compound (COMP) to show how you can earn interest in DeFi loan markets. Compound is one of the largest and oldest crypto lending platforms in the DeFi space and currently offers a competitive interest rate of 3.74% for DAI, 7.35% for TUSD, 3 , 39% for USDT and 4.70% for USDT.

You can start making money on Compound by following these steps:

• Open your Metamask wallet or any other web 3.0 wallet. Go to your browser and enter the URL “compound.finance”.

• Click on the three horizontal lines in the upper right corner and press the “App” button.

• Then click on the “Connect Wallet” button in the upper right corner and choose your wallet from the options.

• Click on the stablecoin you want to earn interest on and hit the “Activate” button.

Enter the amount of crypto you wish to lend and complete the process by signing the loan transaction using your wallet.

Earning interest on stablecoins in the CeFi and DeFi loan markets comes with risk. CeFi lenders might keep your funds if you fail to meet AML / KYC (sometimes newly introduced) requirements, while DeFi lending protocols are prone to hackers. If you are looking to earn interest on digital assets, you will need to weigh the potential returns with the risks of deploying capital in the crypto-interest markets.
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