Here's How Stablecoins Earn So Much Interest

Stablecoins have received huge admiration in recent years because of their utility. Crypto investors can now de-risk positions while dodging fiat conversion rates, securely move assets between marketplaces and protocols, make payments, and even generate passive income by lending idle stablecoins.

Tether (USDT), USD Coin (USDT), Binance USD (BUSD), and Dai (DAI) are some of the most popular stablecoins. Of these all, DAI is the one that’s not collateralized by the US dollar but by digital currencies. In this regard, it doesn’t always maintain a 1:1 peg and swings up to 8 cents for short intervals of intense volatility.

However, DAI is fully decentralized. It’s issued by a MakerDAO protocol, establishing a trustless alternative to investing in stablecoins.

How Stablecoins Earn Interest

Stablecoins earn interest by lending them on decentralized finance (DeFi) and centralized lending and borrowing platforms for Annual Percentage Yields (APYs). Cryptocurrency lending or yield farming is among the biggest use cases of DeFi currently.

Stablecoin lending and yield farming are superb investment strategies you can leverage, especially during bears or long-term plans, to profit from them instead of being idle in your wallet. These strategies yield between 4% and 20% APY, with few exemptions. For instance, the Malt Protocol on the MATIC blockchain yields DAI tokens at almost 450,000% APR.

Importantly, projects promising huge interest rates that are confusing to comprehend normally have a hook. Expect wide volatility in APYs for such projects, just like the small swings in traditional banks. It’s recommendable to do due diligence with the lending platform you want to invest in to avoid rug pulls, smart contract risks, and stablecoin crashes.

Best Platforms to Earn Interest on Stablecoins

Putting your stablecoin assets into use will enable you to earn passive income as you hold for long-term gains and during market drawdowns. Here are the best platforms to profit from stablecoins:

• AAVE – Offers APYs of up to 6% based on the stablecoin invested
• Compound – Provides APYs of up to 3% on stablecoins and more for other digital assets
• Curve – Guarantees APYs of up to 28% and 55% in risky vaults
• Cream – Offers APYs of up to 10% on stablecoins
• Yearn Finance – Provides APYs of up to 9% on stablecoins and up to 20% with stacked rewards in sUSD
• Centralized Stablecoin Lending Platforms
• Crypto.com – Provides APYs of up to 14% on stablecoins
• BlockFi – Offers APYs of up to 8.6% on stablecoins