30.8.2024
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Stablecoins are designed to maintain a stable value, but that doesn't mean you can't earn income from these holdings. Decentralized lending platforms offer stablecoin lending. By locking your funds into lending pools, you can potentially earn a hefty yield.
Read on to learn how to earn interest on stablecoins in this beginner’s guide.
Stablecoins are digital currencies designed to maintain a stable value, typically tethered to a fiat currency like the US dollar or a commodity like gold.
They can be pegged using a variety of methods. One method establishes a stablecoin as a claim on the same USD amount of an established cryptocurrency like BTC or ETH. Another uses an algorithm that aims to maintain the price peg to the dollar or another stable asset using buying and selling pressure to adjust the price. Other methods exist as well.
Stablecoins are ideal for exchanging value via the blockchain and as a hedge against volatile crypto markets. They are also used as trading capital and as a base currency for many crypto trading pairs.
Increasingly, stablecoins have also been used as an asset in the crypto lending markets. Their relative price stability mitigates market risk, enabling crypto lending to capture yield without potentially losing it when crypto asset prices drop.
Stablecoins don’t pay interest just by holding them. Simply tucking them away into your crypto wallet won’t generate any interest the way fiat currency in your bank account does.
Fortunately, crypto asset markets provide opportunities for you to generate investment income on your stablecoin holdings. The most prominent example is stablecoin lending, which pays you interest for putting your stablecoins into lending pools.
Stablecoin lending is a fairly straightforward process: you choose the lending platform you want to use and deposit your coins to start earning interest. Crypto lending can be split into two categories: centralized and decentralized lending.
Let’s take a look at these options.
Centralized finance (CeFi) platforms are similar to traditional finance in that they have a central authority in charge of the whole ecosystem. To comply with regulations, they require you to complete KYC (Know Your Customer) procedures. This offers some protection from identity theft and some methods for recovering funds if a password is lost, but at the cost of compromising privacy. Another potential advantage of using CeFi platforms is that some of them offer insurance on the funds being lent out.
However, centralization also runs the risk of cyberattacks. Although these platforms usually claim they have state-of-the-art security protecting them, they are often not quite at the level of decentralized platforms, as those simply don’t have a central point of failure. Additionally—and more commonly — the platform can go bankrupt, and the funds could be lost.
Also, centralized lending is custodial, meaning users surrender control over their funds to the platform. This means you only get your funds back when the lending time runs out, which is usually part of the conditions you agree to when first depositing your funds.
The usual saying within the crypto space is, “Not your keys, not your coins,” meaning that if you can’t control your funds at all times, they’re not truly yours.
On the other hand, decentralized finance (DeFi) offers almost exactly the opposite of CeFi. If the project is highly decentralized, there is no central authority, which provides its own type of security to the system. The system runs according to predetermined rules and doesn’t depend on trusting others to follow their stated policies.
However, this also means that regulatory oversight might be limited, and there is often no way to ensure the funds against any type of loss.
Having said that, the non-custodial nature of DeFi platforms means you control your funds at all times. If the interest rates dip below what you expect, you can pull your funds from the pool with just a few clicks on the platform.
Sovryn is a decentralized bitcoin trading and lending platform that also offers interest on lending stablecoins, among other things.
Here is a guide taking you through all the necessary steps to start earning interest on stablecoins such as DLLR through Sovryn.
To do this, visit the Sovryn platform here. Currently, the dapp offers lending for the stablecoins DLLR, XUSD, DOC, and RUSDT.
DLLR is the Sovryn Dollar, a stablecoin aggregated from other bitcoin-backed stablecoins and tethered to USD. Make sure you own either DLLR or one of the other stablecoins mentioned above.
Before you get started, you need to connect the wallet holding your DLLR or other stablecoins.
Sovryn offers a Hardware Connect option (for Trezor and Ledger wallets), a Browser Wallet (supporting MetaMask and Bitget Wallet), and WalletConnect (for all types of wallets, which offers a QR code you can scan to get the setup started). After following the simple steps shown during the setup, you can move on to the next step.
This step is pretty straightforward. On the top menu, there is an ‘Earn’ option, under which you can find and click on ‘Lend.’
Find the stablecoin you’re holding in the list on the ‘Lend’ page. Every asset has its current annual percentage yield (APY) listed next to its ticker. Keep in mind this amount is variable and cannot be guaranteed.
This part also offers information on the accepted collateral. Sovryn requires all borrowing to be overcollateralized and the collateral to be locked in a smart contract to ensure the assets you lend are protected.
Clicking on ‘Deposit’ opens a window where you enter the details of your transaction. In addition to entering the amount, you must tick a box that states what you should be aware of when lending.
One is the fact that APY is variable. The other important factor is that while you can theoretically withdraw your funds at any moment, the pool may not have enough liquidity at some point.
In this case, if liquidity is abnormally low, the APY rises to attract lenders and incentive borrowers to pay off loans to provide enough liquidity for you to withdraw your deposit. Still, if this happens, keep in mind it may take some time until the funds are available. In the meantime, you will likely earn a very high rate of return.
Clicking on Confirm completes the process of lending your DLLR or other stablecoin. You can then see the amount you’ve lent in the dapp under Balance, as well as the amount of interest you’ve earned.
After this, all you have to do is keep earning until you’re ready to withdraw your funds.
And that’s it! That’s how easy it is to earn interest on your stablecoin holdings.
Sovyrn is the market-leading Bitcoin DeFi platform built to provide decentralized financial services on Bitcoin.
To start earning interest on your crypto assets, you can connect your wallet to the Sovryn dapp and explore the yield-generating opportunities, which include lending, staking, and earning rewards as a liquidity provider in the platform’s AMMs.
Connect your wallet to Sovyrn to start earning interest on your stablecoins.
There are ways in which you can earn interest on your stablecoins. Natively, crypto wallets usually don’t offer this capability. However, it’s possible to use DeFi platforms to generate returns on your stablecoin holdings.
Some of them, like Sovryn, offer lending pools where you can deposit your funds and receive interest in return. The advantage of DeFi platforms is that they’re non-custodial, meaning you can always withdraw your funds. This is a great way to earn interest on your stablecoins while still keeping them safely locked away in smart contracts.
The Bitcoin-based DeFi platform Sovryn offers great stablecoin lending rates for DLLR, XUSD, DOC, and RUSDT. The rates fluctuate, but they can go above 10% depending on the stablecoin.
The platform lets you see the current rates on its lending dashboard. If a lending pool is overborrowed and therefore lacking liquidity, the APY will increase even more to attract new lenders, which will generate more returns for all participants.
Arguably, the best way to earn interest on stablecoins is to deposit them into decentralized lending pools, where the platform rewards you for your participation by offering interest in return. This keeps your funds safer within tried and tested decentralized smart contracts. Platforms like Sovryn also require borrowers to overcollateralize their loans to ensure the funds you lend can be withdrawn.
