Some cryptocurrency holders prefer secure investment strategies offering low-risk returns. A popular method for achieving this is by staking stablecoins, which can minimize volatility while potentially providing investors with inflation-beating interest rates.
However, with so many platforms available, finding the best one that aligns with your risk profile and requirements can be challenging. It's important to thoroughly research before investing in any platform, as risk is always involved. Here are some platforms that have proven reliable over time. Remember that each platform has a unique mechanism for delivering returns and absolute security is never guaranteed.
Decentralized platforms
In the past three years, several decentralized yield platforms have emerged. These platforms enable users to stake their digital assets and earn rewards while controlling their private keys. Since they are decentralized, they can be accessed by anyone, anywhere, and at any time. However, this may lead to lower returns compared to other alternatives.
Curve
Curve is famous among traders who want to exchange stablecoins with minimal fees and slippage. Its automatic market maker (AMM) is designed explicitly for this purpose.
The platform is an automated market maker, enabling users to contribute their stablecoins to "curve pools." Each pool charges a 0.04% fee on trades that use its liquidity. Half this fee is distributed among liquidity providers, while the other half goes to veCRV holders.
Investors can receive rewards in the form of CRV tokens and sometimes additional rewards in the form of an associated project token, such as Synthetix (SNX) for the sUSD pool.
The yield of each pool can vary over time based on trading volume and TVL, ranging from less than 0.5% APY to well over 10%. Generally, higher yields are associated with more volatile pools.
Pancakeswap
PancakeSwap is widely known as the most popular AMM on the BNB Chain in terms of trading volume, making it a key player in the platform's decentralized finance (DeFi) ecosystem. This platform enables users to contribute their assets to liquidity pools and earn a portion of the transaction fees generated, much like other AMMs. Despite being geared towards volatile asset trading, it has many stablecoin-centric liquidity pools such as USDC-USDT, USDT-BUSD, DAI-BUSD, and TUSD-BUSD.
The annual percentage yield for each pool can vary, typically falling between 1-3%. However, this rate can soar as high as 10% during exceptionally bullish periods. The yields generated from trading fees and CAKE tokens can fluctuate depending on PancakeSwap's multiplier for the supplement. This can significantly impact the total yields for the pool.
Yearn finance
Yearn Finance has a unique approach compared to other options on this list. Instead of directly providing a yield-bearing service, users can optimize the yields they receive from different platforms. By bundling user funds, the platform can use economies of scale and automatically boost their yields by minimizing transaction fees. Moreover, it employs conventional and unconventional strategies that could be challenging to achieve manually.
Users can employ several low-risk strategies, such as the flash mint folding strategy for Compound, the Tokamak reinvest strategy, and a similar one for Notional Finance. However, it's important to note that these strategies still carry some risks. When depositing assets into one or more Yearn Finance vaults, users grant permission for the platform to use their funds while executing pool-associated strategies. These strategies may change over time, as well as the expected yields from each vault.
Compound
Compound is an open lending protocol that lets users deposit assets into one or more liquidity pools to fund overcollateralized loans. The interest borrowers pay is then divided between liquidity providers based on their share of the liquidity pool. The platform supports various digital assets, including stablecoins such as DAI, TrueUSD (TUSD), USDC Coin (USDC), and Tether (USDT). The yield provided by each stablecoin varies depending on the supply and demand of the borrowing side.
In addition to the interest borrowers pay, many pools also receive a portion of the Compound (COMP) token emission, which adds to their returns. Currently, the DAI and USDC pools receive most of these COMP tokens.
The Comptroller risk management layer is utilized by Compound, which can force borrowers to liquidate if their collateral ratio falls below acceptable levels. This ensures that borrowers are only liquidated when necessary while protecting lenders.
Uniswap
Uniswap is widely recognized as a top AMM because of its trading volume on the Ethereum blockchain. It's known for its liquidity pools and efficient trading experience. The platform lets users create two-sided liquidity pools using any two assets, which means they can provide liquidity for the assets they prefer and earn a share of trading fees.
Uniswap usually charges a 0.3% trading fee based on the trade size. Nevertheless, other fee levels are available, such as 0.01% for stablecoin pools or 1% for more exotic pairs. Currently, all fees are distributed among liquidity providers, but a portion may be allocated to the Uniswap reserve in the future if enabled.
When providing liquidity on Uniswap, the yield you earn as a liquidity provider can vary depending on factors such as the pool, total liquidity available, trading volume, and fee parameters. Generally, you can earn 1-3% APY annually by contributing to popular stablecoin liquidity pools.
Centralized staking platforms
Centralized platforms are still the preferred choice for most investors despite the growing popularity of decentralized ones. This is because centralized platforms are more accessible and often offer higher interest rates. However, they require users to trust them with their funds and private keys, which you might find unacceptable.
Nexo
Nexo is recognized as the leading crypto loan provider with more than $15 billion in assets under management and over 4 million users globally. The platform is renowned for its high stablecoin deposit returns and extensive asset support. Like other lenders, Nexo typically shares the returns it receives from its lending business with its depositors and retains a small percentage of its operations.
Nexo offers a base rate of 8% APY on stablecoins such as USDT, USDC, DAI, and USDP, as well as 8% interest on fiat deposits like U.S. dollars (USD), euros (EUR), and British pound sterling (GBP). Additionally, users can increase their rates and earn up to 10% interest on stablecoin and fiat deposits by holding NEXO tokens. To reach the highest reward tier (Platinum), users must keep at least 10% of their portfolio in NEXO tokens. For instance, a $100,000 portfolio must include at least $10,000 in NEXO.
Binance
Binance is a versatile cryptocurrency service provider with many features, such as an exchange platform, OTC desk, launchpad, crypto debit card, and earn dashboard. The Earn platform offers various savings and staking products, allowing users to gain a yield on both volatile and stable assets. Its competitive interest rates and support for many assets make it a popular choice for those seeking savings products.
Binance provides flexible and fixed-term investment options for stablecoins, allowing users to withdraw their assets anytime or commit to a fixed term for a higher APY. Additionally, it operates a tier-based yield model, with returns decreasing for deposits above a certain threshold. The returns you earn depend on the coin, term, and size of your portfolio. Typically, you can expect to earn between 1-10% APY, but these numbers may change depending on market conditions, supply, and demand.
Coinbase
Coinbase offers a popular cryptocurrency exchange platform, a non-custodial wallet, a crypto debit card, a derivatives trading platform, and a brokerage solution. Unlike other platforms, Coinbase doesn't provide an independent asset staking dashboard. Instead, users can earn rewards by topping up their accounts with supported digital assets. However, users may have to opt-in to this feature to begin earning rewards on their deposits.
Currently, the platform focuses on providing staking rewards on unstable assets such as Ethereum (ETH), Cosmos (ATOM), and Tezos (XTZ) while also accommodating stablecoins like USD Coin (USDC) and DAI. However, the yield varies based on several factors and is currently around 0.15% APY for DAI and USDC, among the industry's lowest rates.
Bitfinex
Bitfinex, a cryptocurrency exchange platform with close ties to Tether, the most popular USD stablecoin, has been running since 2012. Its exchange offering has expanded to include a margin trading platform, OTC desk, lending service, securities exchange, and more.
Bitfinex, like many other exchanges, offers its users the opportunity to earn a secure return on their deposited assets by staking (for proof-of-stake assets) or through its lending platform. Users may earn a flash return rate (FRR) on their contributed assets through the lending platform. The FRR is calculated by subtracting the 15-18% commission taken by Bitfinex from the interest rate borrowers pay. As always, the amount you can expect to earn on your stable assets varies based on supply and demand. Currently, USDT deposits offer around 2.99% APY.
Crypto.com
Crypto.com is a mobile app that enables users to purchase, trade, and earn interest on cryptocurrencies. The platform's cryptocurrency savings plans and crypto-powered debit cards are notable features, as they offer a fixed return on deposited assets.
Crypto.com's savings product currently offers support for over 40 different cryptocurrencies and stablecoins, each with varying yields. Users can earn up to 8% APY on their stablecoins. In typical fashion for cryptocurrency savings providers, users can amplify their rewards by staking Crypto.com's native token (CRO) and committing to a fixed term. Additionally, Crypto.com has implemented a maximum quota per user, determined by the user's card tier (based on the amount of CRO locked).
The reward rates for USDC and USDT vary depending on the amount of CRO staked. For those with less than $400 in CRO staked and using a flexible term, the reward rate is 0.4%. However, users with over $40,000 CRO staked and committed to a three-month term can earn up to 8%.
Risks and considerations of staking stablecoins
When investing in a platform to earn a yield on your stablecoins, thoroughly research the potential risks involved. One significant risk to consider is theft, despite the defense mechanisms that many platforms have in place to protect users. For instance, Binance has principal protection, and Nexo has an insurance policy, but these may not be comprehensive and could fall short of protecting all users in every situation.
It's essential to thoroughly research before investing in any platform, as risk is always involved. It's not uncommon for platforms to be hacked or their business model to fail, which could leave your funds at risk. Therefore, it's essential to do your due diligence by investigating your chosen platform's reputation and security system. Consider taking additional protective measures, such as decentralized insurance or diversification.
It is essential to research any investment opportunities that seem too good thoroughly. Additionally, never investing more than you can afford to lose is necessary.
Frequently Asked Questions (FAQ)
1. What does it mean to stake stablecoins?
Staking stable coins involves locking up your stablecoin holdings in a smart contract or protocol to support the stability and operations of a blockchain network. In return, you typically earn rewards or interest for your contribution.
2. Why would I want to stake stablecoins?
Staking stable coins can provide a source of passive income, as you earn rewards or interest on your holdings. Additionally, by staking stable coins, you contribute to the liquidity and stability of the network, which is crucial for its functioning.
3. How do I stake stablecoins?
To stake stable coins, you usually need to use a decentralized finance (DeFi) platform or protocol that supports staking. This typically involves connecting your wallet to the platform, depositing your stable coins into the designated staking pool, and following the instructions provided by the platform.
4. What are the risks associated with staking stablecoins?
While staking stable coins can offer rewards, it also comes with certain risks. These may include smart contract vulnerabilities, market fluctuations affecting the value of rewards, and potential loss of funds in case of protocol failures or exploits. It's essential to conduct thorough research and understand the risks before staking.
5. Which stable coins can I stake?
The availability of staking options for stable coins can vary depending on the platform or protocol you use. Popular stablecoins like USDC, DAI, USDT, and others may be supported by certain DeFi platforms for staking purposes. Check the platform's documentation or interface to see which stablecoins are eligible for staking.
6. Can I unstake my stable coins anytime?
In most cases, yes, you can unstake your stable coins at any time by initiating the unstaking process through the platform's interface. However, some platforms may impose a lock-up period or other conditions you must fulfill before withdrawing your staked assets.
7. How are staking rewards distributed?
Staking rewards are typically distributed based on various factors, including the amount of stable coins you stake, the duration of your staking, and the overall performance of the staking pool or protocol. Depending on the platform's design, rewards may be distributed periodically or upon unstaking.
8. Is staking stable coins taxable?
Tax regulations regarding staking rewards can vary depending on your jurisdiction. Often, staking rewards are taxable income and should be reported accordingly. It's advisable to consult with a tax professional or accountant to understand the tax implications of staking stable coins in your specific circumstances.