On Wednesday, crypto giant Coinbase unveiled its latest product: interest on stablecoin USDC deposits. While it’s presumably a tantalizing offering for crypto traders, whose stablecoins currently yield 0%, this offering is easily surmounted by Ethereum decentralized finance (DeFi) apps — if you discount smart contract risk, though.
Coinbase Unveils Interest Product
Revealed in a blog post published on Wednesday afternoon, Coinbase will now allow eligible U.S. customers to earn interest for every USD Coin (USDC), which is backed 1:1 by USD reserves, that is deposited on the exchange.
Starting today, eligible US customers will earn 1.25% APY rewards on every USD Coin held on Coinbase. Read more here: https://t.co/IqyStL1OPo pic.twitter.com/yhiAiN4tgw
— Coinbase (@coinbase) October 2, 2019
This product purportedly abides by the company’s mission to “make crypto accessible to everyone” as “USDC Rewards will enable more customers to take advantage of stablecoin rewards, simply and easily.”
The APY offered will be 1.25% — meaning that over the course of a year, a $100 deposit could net $1.25. Not a lot but better than nothing. Interest will be paid out on a monthly basis.
Coinbase’s latest product launch comes after shortly after Binance Lending was unveiled, which gives a limited number of holders the opportunity to earn interest on Bitcoin, Ethereum, Tether, and other cryptocurrencies.
Ethereum DeFi Offers Higher Rates
1.25% is better than nothing, sure. But, much higher interest rates are offered on Ethereum-based DeFi applications. Cryptocurrency data site LoanScan reports that Compound (Dharma), Fulcrum, and Neo — three Etheruem-based lending, borrowing, and trading platforms — offers some 5% on USDC deposits, which is four times the APY that Coinbase is currently providing eligible clients.
Even some more traditional “CeFi” options offer a higher rate than Coinbase. For instance, Marcus by Goldman Sachs offers 2% APY (on USD), and Celcius Network offers 9.25% on certain stablecoin loans.
It is important to note, however, that the relatively higher rates through other platforms come with their own inherent risks. With DeFi platforms, there is a chance that an exploit could be found in an application’s smart contracts; with crypto-friendly CeFi platforms, there may be extensive counterparty risk.
Beneficial for Open Finance
Although likely not tantalizing for users of a DeFi platform like Compound, pundits have argued that Coinbase’s interest product only adds to the network effects of crypto, specifically Ethereum.
Spencer Noon, a cryptocurrency investor, noted that the return offered on USDC deposits has “massive onboarding potential for Open Finance, leading millions down the Ethereum rabbit hole.”
Woah! This came out of nowhere @Coinbase.
🌎 – Massive onboarding potential for Open Finance. CB leading millions down the ETH rabbit hole
💡- Great example of how something can be Open Finance but not DeFi. OpFi isn't necessarily decentralized but it still leverages primitives https://t.co/w06krg23zQ
— Spencer Noon 🕛 (@spencernoon) October 2, 2019
Photo by Sharon McCutcheon on Unsplash