22nd December 2021 > > Earning passive income with stablecoins (Part I).

tl;dr

It's in the title.

Market Snap

Market Wrap

Overnight at $49.5k suggests this mini rally might still have some legs. Wall Street is still 600 points shy of where we were a week ago. With Joe Biden ruling out any federally mandated Omicron related restrictions, my pessimism for the year end is not being reflected in stock prices – all of Monday’s opening losses have already been reclaimed.

Curious Cryptos’ Commentary – CCC update

By popular demand, the CCC will include more commentary regarding practical information in the purchase, storage, and use of cryptos. This topic has not been ignored in the past, but perhaps the specific subject matter spoke to a more sophisticated and experienced crypto enthusiast.

This does not mean that discussion of crypto developments, regulation, institutional adoption, DeFi, NFTs, etc. etc., will be jettisoned. Perish the thought. But above all, the CCC aims to inform and educate, and there has clearly been a gap in the CCC offering.

Until now that is.

Curious Cryptos’ Commentary – Earning passive income with stablecoins (Part I)

When stablecoins were first introduced, I was left a little flummoxed. I didn’t understand that they had any utility over and above the US dollar, and I knew they had many risks over and above just holding US dollars.

But I was wrong about their utility. Stablecoins are very effective in moving crypto assets across blockchains, and between exchanges, and they perform a vital function in engaging with Decentralised Finance (DeFi), amongst many other use cases.

All the way back on 1st and 2nd November 2021, the CCC discussed the merits and the risks of earning passive income using stablecoins. I am not going to repeat those arguments again.

However, if you are interested in this subject, I would recommend going back and reading those two commentaries. Constructive criticism is most welcome. As always, back copies are available on request.

To summarise those two missives, for me personally, I would have zero interest in earning passive income on stablecoins for less than 100% (that is one hundred per cent) per annum.

However, given that there is a vibrant market for lending stablecoins at 5% per annum, my personal conviction is not held by most people involved in this market.

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If we assume I am wrong, and that the market is right, and you are comfortable with all the risks (see commentaries alluded to above) the question is a simple one.

How to get involved?

And for the purposes of Part I of this tutorial, it is very easy to get involved.

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For almost all investors, the fiat on-ramp into cryptos will be via a centralised exchange.

I would always recommend Coinbase as a starter (shameless marketing link https://www.coinbase.com/join/timmis_d), then Coinbase Pro for cheaper fees, and Binance - despite all their compliance problems – as the third option.

You will of course have your own favourite exchange, but please can I ask you to avoid the ones based in China (www.hitbtc.com is one of the scariest in my opinion).

They are mostly white labels of one underlying engine, which in itself is not necessarily a problem.

But fees are high, support is low, and property rights are not as well respected in China as they are in the UK or the US.

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Once you have been through the process of buying cryptos on an exchange, then it is the same process to buy a stablecoin on that exchange.

Next, you must find which exchange is offering the best rate for your stablecoin. Note that rates continually change, though some exchanges offer fixed rates for a fixed time period.

Coinbase is currently not offering passive income on stablecoins. Coinbase Pro never offers passive income (which I see as a benefit, but again, I am out on a limb on that one). Which leaves me with Binance.

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As at the time of writing, Binance is offering 5% APR for deposits of USDT held at Binance. The option to earn this interest is easy to find: “Earn, Savings, USDT”.

There is no interest paid on the day you subscribe, and I assume no interest paid on the day you unsubscribe.

If you are looking for a way to earn 5% on money you currently hold at a bank earning 0%, then 5% superficially seems a great option. There will be many other exchanges offering yields well above what Binance are paying but be assured that the ones offering three figures are all scams.

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You must weigh up the risks versus the rewards for yourself. No-one else can do that for you.

Please re-read the commentaries from 1st & 2nd November 2021 which offer some insight to some of the risks over and above those compared to simply keeping cash in a bank account.

But I will add one more. If you are not a USD based investor, you have FX risk too.

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I bet you can’t wait for Part II.

Reserve Treasury Protocols (before they all go to zero