As the COVID-19 pandemic spread, crypto analysts noted a surge of demand for stablecoins, especially Tether. Holding USDT is a good idea in times of uncertainty – but can you earn a profit while hedging your risks at the same time?
In just one month between March and April 2020, USD stablecoins’ total market cap shot up by $1.5 billion. Investors rushed out of risky volatile assets and into ‘digital dollars’ like Tether and Neutrino.
Some overly cautious investors will probably just leave their Tether to collect dust in their wallets. But for those willing to spend a few extra minutes, there are some exciting – and safe – opportunities.
Staking is one of the hottest trends in crypto investing. It’s safe and easy enough to use even for beginner crypto holders. There’s no need to untangle the complexities of lending apps like Compound. All you have to do is deposit coins in your account on an exchange – and the staking will start automatically.
USDT staking is still a very new service. The vast majority of exchanges only allow you to stake classic PoS coins like ATOM. For now, the only major exchange where you can stake Tether is Tidex, with an interest rate of 12% a year.
Incidentally, this is the highest ROI you can get with Tether. The reason is that Tidex’ offering is based on staking Neutrino (USDN) – another USD-pegged stablecoin, 100% backed by WAVES. Since USDN is completely decentralized and governed by a smart contract, the rewards are guaranteed. The source of the rewards is the Leased Proof-of-Stake consensus model used by Waves.
The rewards are paid out daily. The staker retains full control over their USDT and can easily withdraw their stake any time.
The main difference between staking and lending is that in lending, your assets are actually transferred to someone else. Most of the demand for crypto loans comes from margin traders. They need extra funds to increase the scale of their trading and maximize their profits. This is known as leverage.
In the past, traders obtained leverage from a broker or an exchange. Now, with the rise of crypto lending, they have a much easier access to funds. But how do you know that you’ll get your money back? After all, crypto lending platforms don’t conduct stringent credit checks the way banks do.
The answer is overcollateralization. For each 100 USDT that someone borrows from you, they will have to deposit an equivalent of at least 150 USDT in some other crypto asset, which the borrower doesn’t need at the moment. If something happens and the , the platform can automatically sell the collateral and give you the proceeds.
Now let’s look at a few USDT staking offers on various kinds of platforms.
1) Binance. You can choose between flexible and locked savings. The flexible option allows you to withdraw your USDT any time, and the estimated ROI is 1.72%.
If you prefer to maximize your earnings, though, you should go for the locked option, where the yield depends on the lock-up period. The annualized ROI for a 90-day deposit is 6.26%, but 5.74% if you lock your Tether for 7 days. It’s not as good as staking on Tidex, of course, but still better than depositing fiat USD in a bank.
2) CoinLoan. This is a P2P lending marketplace: the site matches lenders and borrowers, similar to fiat platforms like LendingClub. The interest rate is 8.3%, regardless of the duration.
The interest accrues daily, but the payouts are made on a monthly basis straight to your blockchain wallet. There is no lock-up, so you can withdraw your Tether whenever you wish.
In terms of the ROI, this offer is more attractive than on Binance. On the other hand, CoinLoan doesn’t have quite the same global reputation. The platform claims to use overcollateralization, but you should still consider the possible risks.
3) Compound. This is a 100% decentralized platform, governed algorithmically, so you can be sure that neither Compound nor the borrower can disappear with your money. The platform only added USDT on May 1, 2020, after a large-scale community vote. 800,000 votes were given for USDT, showing that Tether remains the main force in the stablecoin market.
The downside of full decentralization is the low ROI. You’ll only earn 1.23% if you lend Tether on Compound. It’s the second-highest interest you can earn on the platform after MakerDAO’s SAI, which will bring you 1.79%.
Surprisingly, there are still users who prefer to simply store their Tether in a blockchain wallet. Of course, this will keep your money safe. But any idle money is a lost opportunity.
With staking and lending, you can make your crypto work with minimum risks. Of course, there is always a tiny risk of a 51% on the network, but it’s still lower than the risk of losing access to your wallet.
If you hold Tether as a way to hedge your risks and protect your wealth, you’ll be glad to know that passive HODLing isn’t your only option. Being able to earn up to 12% a year while holding the world’s most secure crypto asset – that’s a sure sign of a maturing market.