Coinbase to Pay Users 4% on USDC Holdings

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by Patrick Kariuki · 3 min read
Coinbase to Pay Users 4% on USDC Holdings
Photo: Depositphotos

The current 4% yield announcement by Coinbase will be an equivalent of over 2,500% increase.

Coinbase, one of the largest cryptocurrency exchanges, has made an announcement that its clients can now earn a 4% interest on USDC. This will be necessitated by a product the company compared to a fiat-based savings account. In an article published on their website, Coinbase explained that the 4% interest a.k.a annual percentage yield (APY) could be earned when users lend their holding of the USDC, which is pegged to the dollar to control volatility.

Coinbase’s mouth-watering product or offer, however, which claimed to be a better investment choice thanks to its higher returns compared to returns derived from the other American savings accounts, seemed to be directed to banks.

Features of the Coinbase and USDC Offering

Coinbase clarified that neither the Federal Deposit Insurance (FDI) nor the investors’ protection watchdog Securities Investors Protection Corporation has a hand in the loaned USDC. This is unlike the other types of savings made in your typical savings accounts. Additionally, Coinbase said that the accounts offered will not have “good interest rates based on client’s assets”. Typically, most savings accounts give a return of below 1% in the US, but most cryptocurrency exchanges give their clients an interest of 8% for loaning the dollar-pegged digital asset – stablecoins.

Interest vs Risk Reward

In any investment, high interests come with higher levels of risk, and in this particular case, Coinbase reiterated that while the interest rates it’s offering are quite appealing, it should be noted that they come with a varying risk level. The company further added that investors may find their asset (USDC) is loaned to a third party exposing the asset credit risks and this may eventually cause a complete loss of one’s asset.

Originally, Coinbase offered a 1.25% return on the dollar-pegged stablecoin for a period of 9 months, October ’19 to June 2020. Thereafter, Coinbase announced that the interest rate for USDC would go down to 0.15%. The current 4% yield announcement will be an equivalent of over 2,500% increase. At press time, USDC’s market capitalization was $25B, ranking at position 8 overall for cryptocurrencies. However, Tether (USDT) whose market capitalization stands at $62.5B, still remains the most popular stablecoin

New Products and Global Outreach

Moving forward, Coinbase plans to enhance its global presence by launching new products. The plan includes the unveiling of an app store for cryptos. Recently, the company said that the app store will offer products developed by third parties. An article written by the company’s chief executive Brian Armstrong stated that even though the crypto space is still in maturity, there’s no doubt that more financial and economic activities will continue happening in the cryptocurrency arena.

The CEO estimated that financial activities done via Dapps could easily be worth over $10 B. The published article also suggested that Coinbase will increase its cryptocurrency portfolio and also look into the issue of new listings, primarily focusing on speed.

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