DeFi, maybe – but in some ways it’s a lot like traditional finance.
The news comes this week that Coinbase, the cryptocurrency exchange, launched a crypto savings account that pays 4% interest (annual percentage return) in exchange for the ability to lend out the stablecoin known as USD Coin (USDC).
In an advertisement via a blog post On Wednesday, June 30, Coinbase offered users the option to pre-register accounts, with rates 50 times the national average for a traditional savings account (or around seven basis points). The post also noted that USDC is guaranteed by Coinbase.
Savings and loans
“By lending your USDC to Coinbase, you can earn eight times the national average for high yield savings accounts,” according to the ad (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 assets may be loaned to unidentified third parties and are “subject to their credit risk, which could result in a total loss. of your cryptographic holdings “.
The savings account – putting the stablecoin aspect aside – and lending activities point to traditional financial activities. When an institution lends more than it holds, it creates a multiplier effect which (hypothetically speaking) increases the amount (in this case) of crypto active in the market. It is no exaggeration to think that the aspects of lending and saving would make users (and potential users) increasingly familiar and comfortable with stablecoins.
Although the promise of stablecoins and other offerings is that blockchain and digital data and transactions will be done directly and can bypass the central bank, with middlemen, “traditional” accounts and ancillary fees. In a way, this is also a form of DeFi as Coinbase creates the accounts and brings together savers / lenders and borrowers through its own platform.
CoinDesk reported that the USDC account announcement on Wednesday comes just under a year after the company also rolled out a bitcoin lending product, which capped those accounts at $ 20,000, with 8% interest paid on loans bitcoin-backed.
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 adopted by institutions).
Jeremy Allaire, CEO of Circle, the company behind USDC, told Karen Webster that there is plenty of room for bitcoin, its siblings and offshoots, for volatile cryptos as well as for more stable versions (per example, stablecoins) in this booming asset class. . For the USDC, he said, growth has reached a compound annual growth rate of over 6,000%.
“It is widely recognized that stablecoins running on public blockchain infrastructure are here to stay,” Allaire said. He also told Webster that “there are many different types of crypto assets that economically incent a lot of different things,” Allaire maintained. “Everyone can grow. There are $ 300 trillion in the debt and equity markets calling for more transparency, he said.