Earning Yield on USDC: Best Lending Services

Cryptocurrencies are often associated with high-risk investments due to price volatility. However, there are low-risk investment products that revolve around stablecoins, which are blockchain-based digital currencies whose prices are pegged to fiat or commodities, allowing them to reduce the risk of volatility. Here we discuss how to generate interest or “yield” with USDC, a stablecoin that is fully backed by the US dollar.

What is USDC?

USDC is a digital currency issued by US-based fintech company Circle. It is backed by the US dollar, based on a 1:1 ratio and relies on a multi-chain infrastructure. After starting as an ERC-20 token, USDC has expanded to other major blockchain platforms, including Algorand, Solana, Avalanche, Stellar, and Tron.

To maintain the peg, Circle maintains a reserve consisting of USD cash, equivalents and US Treasuries. Reserves are monitored monthly by third-party auditor Grant Thornton.

USDC’s stable stake and Circle’s reputation have driven demand for this digital dollar token, helping it to become the fastest growing stablecoin. It is currently the fourth largest cryptocurrency, with a market capitalization of over $50 billion.

USDC: Staking vs Lending

Crypto betting and lending are two ways to profit from your crypto holdings without selling them. Additionally, this passive income mechanism allows USDC holders to put their money to use, as most dollar stablecoins carry higher interest rates than traditional savings accounts, especially amid the current low interest rate environment.

The main difference between the two is that USDC staking requires you to lend your digital dollars to a blockchain or crypto network for a reward, whereas USDC lending means lending them to a borrower in exchange for interest.

USDC Lending Platform

The most convenient way to earn passive income in USDC is to deposit it in a centralized lending platform, which provides the highest annual percentage return (APY). Here are some of our top picks for lending platforms:

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Nexo provides up to 12% APY on USDC deposits, which is much higher than average. Also, Nexo is great for beginners because it has an intuitive interface.

Investors prefer Nexo because it offers combined daily payouts and flexible earnings. The platform has $375 million in insurance for all custodial assets covered by BitGo and Ledger.

By using Nexo – the platform’s native token – you will get more benefits, such as better interest rates and more free crypto withdrawals.

Hodlnaut

Hodlnaut is a crypto platform that allows users to diversify their crypto investments with six top digital assets, including Bitcoin, Ethereum and USDC. APY on USDC deposits can reach up to 9.40%.

Users can deposit their stablecoins at any time, with no locking or deposit limits. In addition, they can receive weekly payments and withdraw funds at any time. The withdrawal fee is $10 USDC.

Pros and Cons of Lending Platforms

USDC Loans on the Exchange

Another way to earn interest on USDC loans is through centralized crypto exchanges, which use your funds to lend to merchants. In most cases, you will need to lock up your USDC funds for a certain amount of time. Here are the most popular exchanges where you can use your USDC funds:

Binance

Binance is the largest crypto exchange by trading volume. It offers many crypto products apart from its flagship exchange terminal. Binance Earn is a one-stop hub for earning possibilities, including earning interest from USDC. Despite offering cheap rates for most digital assets, the APY on USDC flexible deposits is currently only 1.20%, as Binance relies on other stablecoins for its ecosystem. However, investors can rest assured that their funds are safe.

Kucoin

Kucoin is a fast-growing crypto exchange founded in 2017. Kucoin has successfully expanded its global presence and reached a $10 billion valuation, according to the most recent financing round conducted in May 2022. The company raised $150 million from a pool of investors, including Circle Ventures.

Kucoin supports USDC loans for users to earn interest. Unlike other exchanges, Kucoin allows users to lend directly to counterparties, who determine their own interest rates. Thus, APY figures can range from 1% to over 50%. Users can choose to lend USDC holdings for 7, 14, or 28 days.

Crypto.com

Founded in 2016, Crypto.com has become one of the most trusted cryptocurrency services. It offers exchange, non-fungible token (NFT), payment and lending services to more than 50 million users worldwide. Additionally, it boasts $750 million insurance coverage across all assets. Last year, it was selected by Visa to complete transactions on its payment network.

The Crypto Earn platform supports USDC and offers an average APY of 8%. You can choose from flexible and fixed-term deposits, but the former will yield lower yields. Interest rewards are paid weekly.

Pros and Cons of Loans on the Exchange

USDC DeFi Loans

Decentralized finance (DeFi) is one of the most important trends in the crypto industry. DeFi applications allow users to access financial services that are run by algorithms and powered by blockchain instead of being managed by a centralized entity. Here are the best loan protocols today:

Ghost

Aave is one of the largest DeFi markets, with a total locked value (TVL) of close to $10 billion. The protocol specializes in lending services, and USDC plays a major role, accounting for more than 20% of all assets in Aave.

The interest rate for contributing to USDC liquidity is 1.50%.

Compound finance

Compound is a direct competitor of Aave. Lending protocols were the main catalyst that fueled the DeFi craze in 2020. With a TVL figure of over $5 billion, Compound is the third largest lending protocol after Maker and Aave.

USDC plays a major role here, although the APY on USDC deposits currently does not exceed 0.65%, down from 2% in March 2022.

Finance Curve

Unlike Aave and Compound, Curve is a decentralized exchange (DEX) focused on stablecoins. It acts as an automated market maker (AMM), meaning it doesn’t have a centralized order book to match buyers and sellers. Instead, it relies on a liquidity pool consisting of stablecoins. Liquidity providers are incentivized for their efforts. For example, one of the largest pools on Curve requires users to lock in DAI, USDC, and USDT to earn an APY of around 2%.

Pros and Cons of DeFi Loans

Why are USDC Yields So High?

USDC yields are much higher than the interest rates provided by traditional savings accounts despite the parity between digital dollars and fiat dollars. How could it be? Traditional high yield savings accounts barely top 1% APY, but crypto lending platforms can exceed the 10% mark while eliminating the risk of volatility.

It all boils down to the business model implemented by the crypto company. Specifically, they let users lend digital currency to borrowers who are willing to pay higher rates, because they can use their crypto as collateral, which cannot be done with traditional banks. Consequently, the demand for loans against crypto collateral drives up interest rates, offering crypto investors the opportunity to generate better returns compared to money market products.

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