DeFi, maybe – but in some respects, it looks a lot like traditional finance.
News comes this week that Coinbase, the cryptocurrency exchange, has debuted a crypto savings account that pays 4 percent interest (annual percentage yield) in return for the ability to lend out the stablecoin known as USD Coin (USDC).
In an announcement via a blog post on Wednesday (June 30), Coinbase offered users the option to pre-enroll for the accounts, with rates that are 50 times the national average of a traditional savings account (which is about seven basis points). The post noted, too, that the USDC is guaranteed by Coinbase.
Saving and Lending
“By lending your USDC to Coinbase, you can earn eight times the national average of high-yield savings accounts,” per the announcement (which also states that the accounts are not FDIC- or SIPC-insured).
In a nod to other crypto interest accounts seen elsewhere, the site noted that the assets may be loaned to unidentified third parties, and are “subject to their credit risk, which could result in a total loss of your crypto holdings.”
The savings account – putting the stablecoin aspect aside – and the lending activities point toward traditional finance activities. When an institution lends more than it holds, it creates a multiplier effect, which (hypothetically speaking) increases the amount of (in this case) crypto that is active in the market. It’s not too far-fetched to think that the lending and saving aspects would make users (and would-be users) increasingly familiar and comfortable with stablecoins.
Though the promise of stablecoins and other offerings is that blockchain and digital data and transactions are done directly and can sidestep central banking, with intermediaries, “traditional” accounts and attendant fees. In a way, this is also a form of DeFi, as Coinbase is building the accounts and bringing the savers/lenders and borrowers together through its own platform.
CoinDesk reported that the Wednesday announcement of the USDC account comes a bit less than a year after the company also put a bitcoin lending product in place, which capped such accounts at $20,000, with 8 percent interest paid on bitcoin-backed loans.
Perhaps digital currencies need to be rooted in at least some familiar constructs to get crypto enthusiasts to do more than speculate (and for stablecoins to be more widely embraced by institutions).
Jeremy Allaire, CEO of Circle, which is the firm behind USDC, told Karen Webster that there’s plenty of room for bitcoin, its brethren and offshoots, for volatile cryptos as well as for more stable versions (e.g., stablecoins) in this burgeoning asset class. For USDC, he said, growth has clocked in at a compounded annual growth rate of more than 6,000 percent.
“There’s wide recognition that stablecoins running on public blockchain infrastructures are here to stay,” said Allaire. He also told Webster that “there are many, many different types of crypto assets that economically incentivize a lot of different things,” maintained Allaire. “All of them can grow.” There’s $300 trillion in the debt and equity markets rife for more transparency, he said.
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