One of the biggest attractions of crypto’s yield-bearing products is that they offer higher interest rates than banks. On the face of it, this sounds like great news but remember interest rates are the price of money, or put another way, the rates reflect risk.
There is price volatility; even the most liquid cryptocurrencies (Bitcoin, Ethereum) can fall by 10 or 15% in a matter of hours. So the interest rates reflect this, which is why it is higher for Hard Staking
In part compensating for the risk of it falling in value before your fixed-term staking period ends.
You can mitigate the volatility by simply staking Stablecoins (we explain what a Stablecoin is here). The interest rates of synthetic versions of USD or EUR are much higher than official fiat versions but again this reflects risk.
Cefi providers can charge high interest rates on Stablecoin deposits in part because there is strong demand to borrow, which is in turn influenced by opportunities in the wider crypto economy.
The rates also reflect a risk that the Stablecoin may fail, remember though they sound like their fiat equivalents – USDT, USDC, TGBP – they are not backed by the Federal Reserve or Bank of England, so you’ll need to trust the protocol behind them to retain a stable value.
The risks include regulatory concerns which have been underlined by active lawsuits in 2021 against Blockfi and Celsius – on a state by state basis – who argue that crypto lending products are securities, and the SEC warning Coinbase that they would sue if they launched a new Lend product.
Having explained how passive interest works, we can look at a snapshot of some of the most popular platforms currently available and the rates available.
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