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Earn Interest By Holding USDC On Coinbase

by Pragati Shrivastava
, Earn Interest By Holding USDC On Coinbase

On October 2, 2019, leading U.S-based cryptocurrency exchange and wallet service, Coinbase officially announced that they would offer qualifying HODLers of USDC with a 1.25% annual percentage yield, with rewards being distributed every month except to New York State residents.

Coinbase describes USD Coin as a stablecoin that offers price stability by being backed by a reserve asset. Created by Circle and Coinbase, the CENTRE technology is an open-sourced stablecoin framework and the consortium issued over one billion USD Coins as of early August 2019.

Coinbase intends to share the return on users’ USD Coin holdings without having to sell or transact any cryptocurrency and they made it clear that USDC is not legal tender but a digital currency. The company added that it is not a depository institution for USDC and that customers’ wallets are not protected by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation.

USDC is the 24th largest cryptocurrency by market capitalization with its token pegged to the U.S. Dollar with a 1:1 ratio so it is considered a stablecoin. Its biggest competitor is Tether, another stablecoin that has recently overtaken Bitcoin Cash and Litecoin in position as the fourth-largest cryptocurrency by market cap after Bitcoin, Ethereum and XRP.

Though 1.25% is not a huge number, it is comparable with the rate you can get for actual fiat dollars kept at the bank. There are no fees imposed on users and the USDC funds accrue in real-time and are at the users’ disposal at all times according to Coinbase. This proposition beats moving fiat from a bank to Coinbase and vice versa. This is an exciting opportunity for traders holding crypto at Coinbase as this will help in generating passive income without risk to the USDC that they HODL. This arrangement works for those who directly purchase USDC using fiat on Coinbase.

Binance, Coinbase’s competitor offers users higher yield but requires them to lend their coins, which carries a higher risk. In the crypto world, it’s possible to gain a much higher annual yield through lending or similar products on platforms like Nexo or Compound, but Coinbase’s product does not include lending, making it theoretically safer compared to the rest.

The challenge is that this option is only available to eligible U.S. customers, excluding customers in New York State, and currently this program is only available to Coinbase customers and not Coinbase Pro, a more professional trading program.

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