Dear Sunday Investors:
Welcome to our second edition of the Sunday Investor! The format of this weekly newsletter will be to focus on one investment-topic. This week, we will start with the concept of earning interest with stablecoins using the power of decentralized finance.
Read, enjoy and share with your network. Let’s all build wealth together.
Recap of Last Week
We learned last week that keeping extra cash in our bank account offers us little to no returns. Even Marcus by Goldman Sachs, the highest high-yields savings account on the market, offers only 0.50%. What are our other options?
Enter Decentralized Finance
Before jumping into alternative options for earning interest on our cash, let’s get to the basics of what decentralized finance or “DeFi” is as well as more on the concept of stablecoins.
What is DeFi?
According to Investopedia, DeFi, is a system by which financial products become available on a public decentralized blockchain network. That makes them open to anyone to use, rather than going through middlemen like banks or brokerages.
What is a Stablecoin?
Stablecoins are designed to combine the stability of a typical currency like the US Dollar while also having the ability to trade quickly online like Bitcoin using blockchain technology. USDT and USDC are two of the most popular USD-reserve backed stablecoins & DAI is a completely decentralized stablecoin which uses automated smart contracts on the Ethereum blockchain to maintain it’s stability at $1.
So what does this mean? These stablecoins have the ability to be used on the blockchain with little to no volatility of typical cryptocurrencies.
How to Get Started?
There are numerous platforms, both centralized and decentralized that use the power of decentralized finance that you are able to use to earn extra cash. For this session, we will start with the more centralized platforms, which offer you an interest earning account that works very similarly to a typical bank account. Below are some examples that I have personally used in the market:
1️⃣ Voyager is an U.S. based cryptocurrency exchange that offers very attractive yields for generating passive income.
Earn: Stablecoins: 9.00% and Crypto: 0.88%-12.00%
Pros: Easy to use mobile app on iOS, easy to deposit from a bank account, minimum only $100 to earn
Cons: Withdrawals sometimes take 3-5 days to get approved
2️⃣ BlockFi is a fin-tech crypto lending and savings platform where you can trade, earn and borrow all in one platform.
Earn: Stablecoins: 8.25% and Crypto: 2.00%-5%
Pros: Easy to use platform to deposit from a bank account, interest is paid monthly
Cons: Variable interest rates, BlockFi changes rates on higher account balances frequently
3️⃣ Celsius is a blockchain based fintech platform that offers interest earning & lending features to all clients.
Earn: Variable rates that can change weekly, USDC (8.88% APY), BTC (6.20% APY) and ETH (5.35% APY)
Pros: Intuitive UI & easy to use application, very competitive interest rates across all cryptocurrencies and stablecoins
Cons: To earn the highest interest rates, you have to buy the Celsius token
Disclaimer: I have linked my referral code to all of these above as we both get bonuses when a friend signs up!
What Are The Risks?
As with every investment , every one of these platforms above come with risk 🚫
With the three options shown above, your trust in placed into these companies to use decentralized finance to pay out the yields mentioned above.
These platforms are not FDIC insured (although it is worth noting that multiple have their own separate insurance funds if a breach/exploit were to happen) 💰
You will have to go through KYC processes, meaning you will have to input your personal information/subject to taxes once you open an account 🔍
These options shared above have either self-custody or partner with another exchange that takes over custody, so you will not have your private key to your cryptocurrency or stablecoins 🔐
There is a learning curve as the user interface on these applications can take some time to get used to for new users experimenting with decentralized finance ⏰
What I Do: Diversify diversify, diversify in multiple platforms!
Next Week:
We will jump into decentralized finance further to see how to earn interest in a 100% decentralized manner on the Ethereum blockchain!
Anything else you want to see in a next article? Comment below!
Not financial or tax advice. The content in this newsletter is for informational purposes only. Every investment and trading move involves risk. Do your own research when making a decision.
Share with anyone you else & let’s build wealth together!