How to use stablecoins to earn a higher APY

Platforms are offering investors several opportunities to earn from stablecoins, some of which extend far beyond cryptocurrency lending.

Many are quick to flock to stablecoins for their ability to de-risk cryptocurrency positions. A stablecoin can be pegged to any perceivably stable asset, for instance, a digital asset like Bitcoin (BTC) or a fiat currency like the US dollar. In theory, if a digital asset was pegged to the US dollar, $100 worth of the digital currency should mean $100 in the backed asset is held in a secure reserve like a bank account. Stablecoins are broad in utility; their uses include moving tokens between exchanges and protocols securely, lending out tokens or making payments. For this reason, they have also quickly become an entry point into the cryptocurrency world for first-time users.

Unlike Bitcoin, Ethereum (ETH) or other cryptocurrency projects, the price of a stablecoin is, well, stable and won’t always provide a significant opportunity to earn. In this case, earning will typically come down to new innovative products entering the market, such as peer-to-peer lending. With peer-to-peer lending, users can leverage a crypto loan platform to lend their stablecoins out. Interest rates, in this case, will often be significantly more than what is earned in a traditional savings account.

Users choose a platform that specifies a high-interest rate, higher than the rate the end-user is paying, the difference being known as the spread. The spread is how a loan platform will pay its lenders. Consider that the process can be likened to storing your assets in a normal bank account. After depositing your funds, traditional banks will invest funds or loan them out to others. With the earnings they collect, they then redistribute a portion to you, either daily, weekly, or monthly.

A happy medium

Some platforms offer a similar user interface to your traditional bank; the only difference is that higher interest rates are often offered. Although this may be riskier than storing your money in a traditional bank, stablecoins are also more attractive as an investment than traditional cryptocurrencies since there is lower chance funds will be pulled out at an amount less than a user started with.

To further illustrate this concept, say you purchased a cryptocurrency intending to earn a 10% interest rate each year on a given platform. This is an attractive rate and is more than you would likely earn with funds sitting in your traditional high-interest savings account. However, the underlying asset also holds a higher risk, suggesting to users that they may end up losing their money if the price dips (and it likely will at some point). Even if a buffer of 10% exists, it is not uncommon for a wild price swing to decrease the price of these assets far below what you were expecting if your timing is off.

Stablecoins, on the other hand, almost guarantee that the amount you’ve invested is the same amount you will get back. For example, 850 USDC tokens, each priced at $1, will always result in your 850 tokens worth $1. The prices should theoretically always move in a sideways pattern, as the assets that back them (in this case, the USD) will always be worth $1.

Earning from sideways prices

While crypto lending provides an opportunity for stablecoin holders to earn higher yields, they do little in the way of allowing users to accumulate digital assets like Bitcoin. To address this concern, Matrixport is released a new user-friendly cryptocurrency investment project known as the “BTC-U Range Sniper.”

Matrixport’s new product offers users an annualized yield (APY) from anywhere between 6 and 200%, which can be paid out in USDT, BTC or USDC. The amount is determined by the price of BTC on settlement. At the time of the settlement, if the price is above the given range, a minimum of 6% APY will be paid out to the user in USDC. However, if the settlement falls below the set range, the principal investment will be transferred back to Bitcoin, and the same minimum of 6% APY will be paid to the user. In an ideal scenario, the price will fall within the predetermined raise allowing users to earn up to 200% APY.

When asked about their new offering, John Ge, the co-founder and CEO of Matrixport, summarizes this initiative as, “Stablecoins are an important fiat on-ramp pathway and has been a great entry point for the crypto curious. However, many stablecoin holders now desire to accumulate BTC while earning higher yields. BTC-U Range Sniper is a user-friendly crypto investment product where we empower users to continue to earn attractive stablecoin yields or ride BTC’s innate volatility to accumulate more BTC.”

As a result, USDC holders looking for a suitable time to enter the market will likely benefit from Matrixport’s latest product offering.