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Interest income makes Stablecoins better than US Dollars, with some caveat

stable coin and US dollar

The US dollar has lost about 15% of value in the last decade. While the US dollar will remain as one of the strongest currencies in existence for a foreseeable future, it is not immune to inflation.

Inflation eats away a dollar’s power each year. For instance, $100 in 2011 saved in a bank account with no interest would only buy you stuff worth $85 in 2020. This is assuming that the bank has not eaten into your $100 with fees.

Compound interest – antidote to inflation

Investing usually helps you stay ahead of inflation. However, we see financial meltdowns every once in a while.  In the 2008 financial crisis, people saw their 401(k)s and stocks plunge 40%, which is worse than the inflation hit.  To be fair, the market has since bounced back with vengeance only to take a nose dive in 2020.

Point is, you cannot hold onto your fiat currency as a safe haven because it loses its value each year.  You may not like the risk-reward aspect of the stock market

Another avenue to beat the inflation is earning interest and compounding it over a period of time.  

Compound interest was considered as the 8th wonder of mankind by Einstein.

If you had put $1000 into a savings account that paid 5% interest each year and you invested your interest back in, then you would have $4321 today.  

The inflation adjusted dollar value for the same period would give you: $1895. You are still better off by $2336.  

How to earn interest with US dollars?

dollar-interestMost banks do not pay any interest on the deposits you hold with them. Some banks like CapitalOne pay around 1.5% which may not be enough to help you catch up with the last five year average annual inflation of 2%.

However, Stablecoins could be a good avenue to earn interest with some Crypto Lending platforms offering 7.5% in annual interest.  

[Quick note: A Crypto Lending platform lends money using Crypto as collateral. They also pay interest to those who deposit their crypto with the platform.]

Steps involved to earn interest

Step 1: Convert US dollars to Stablecoins: Convert your US dollars to Stablecoins like USDC through a cryptocurrency exchange like coinbase. To be able to purchase stablecoins (or other crypto) you have to create an account with the exchange, connect your bank account with the exchange (some exchanges allow you to buy crypto with credit/debit card) and make your purchase

Step 2: Transfer your Stablecoins to a Crypto Lending platform: There are a number of options out there when it comes to Decentralized Finance platforms like SALT, BlockFi. We cannot speak to any of those platforms since we have not used them. We have used Celsius Network and we love it. You can choose whichever platform you like and create an account with them.

Step 3: Earn interest:  This is not so much a step as it is just reaping the benefits.

Single Step process: If you don’t want to deal with the hassle of transferring money to a crypto lending platform, you can simply open an account with coinbase and buy USDC which pays you an interest rate of 1.25% (low but something).

Disclaimer 1: Crypto lending is relatively new and you may lose your investment; do your own research before investing 

Disclaimer 2: If you decide to use Celsius Network, we may get a referral – so please consider using the referral, if you want to.

Celsius Network – My experience earning interest on cryptocurrency

In this video I discuss my experience of the Celsius platform, on which you can earn up to 10% interest on your cryptocurrency portfolio. Updated offer: Use …

Source: Straight Forward Money

There is a clear risk-reward aspect with stablecoins. Choosing wisely might pay off handsomely.

Reasons to consider Stablecoins as an alternative to holding US Dollars

Gold and US DOLLARWe cannot tell you what to do. We are only writing about our opinions and what we are personally doing.  Time will tell us whether we are right or blatantly wrong.

For instance, we have started putting our savings (however small they are) into USDC and then onto Celsius Network to earn interest.  

We are doing this for more than just interest income reasons. Here are the other reasons.

Bail in and Peer to peer transaction

The full blunt of COVID crisis has not been felt by the world yet. If this lock down continues any longer and if the economy goes into a tailspin the repercussions could be severe.  One of the consequences of a dire economic situation could be bail-in.

A bail-in is where the failing financial institution is taken over by another entity (or government) and in the process money owed to creditors and depositors could be cancelled, even if partially.  For instance, let’s say you hold $10,000 with Bank A. Due to the hardship Bank A goes into a Bail In and Bank B agrees to rescue Bank A by agreeing to pay 60 cents on the dollar on Bank As obligations, this includes money owed to the depositors.  Now, when Bank B takes over, you will have $6000 with Bank B, not $10,000.

The US may not face bail-in anytime soon. Other countries might face it sooner if the economic collapse reaches the 1930 depression levels (some think it may, some think it will not as the fundamentals are good).

Instead of betting on whether or not a bail-in will come – we decided to diversify into USDC to earn some interest while we wait.

Access to US dollars from anywhere in the world

US dollar digitalIf you are living in India but want to hold US dollars, the only way to do that is to jump the hoops to open an account in the US and then lose a lot of money in exchange fees, transfer fees, banking fees, minimum balances, and a lot other stuff.

With stablecoins, anyone from anywhere in the world can hold US dollars (equivalent).  

So in theory, someone living in India can go to an India exchange and buy stablecoins and then deposit them into a reliable crypto lending app to start earning interest. Even if you are not allowed to earn interest through crypto lending app, you can save yourself from higher inflation compared to 2% in the US. 

For example, even if your country’s currency loses its value due to inflation similar to Argentina, you can hold value in one of the strongest currencies in the world – the US dollar, through stablecoins.

Stable coins – earn interest

Obvious reason on which this whole article is based is the ability to earn interest using your stablecoins. This will be an even bigger game changer when insurance comes to the crypto lending space providing greater assurance to the investors on these platforms.

While there are some reliable crypto lending platforms – it is always prudent to not put ‘all your eggs in one basket’.

Use your crypto instead of cash with Crypto.com Debit Card

For those who want to get involved in crypto but still want to spend their crypto, Crypto.com (MCO) might be a good solution. MCO offers crypto debit cards that allow you to spend your crypto similar to the way you use your bank debit card.  Their Metal Visa Card is available in the US, UK and Singapore and offers up to 5% money back on all spending.  

In addition, Crypto.com offers 8% to 12% in interest on stablecoins held in their app.

Essentially, you can have your cake and eat it too, that is, you can keep your crypto principal and spend the interest, if you choose to.

How to set up Crypto.Com Wallet Account

? OPEN A CRYPTO.COM ACCOUNT ? Use my referral link https://platinum.crypto.com/r/cryptodad to sign up for Crypto.com and we both get $50 USD 🙂 Or use the co…

Source: Rex Kneisley

Conclusion

Stablecoins can prove to be beneficial in helping individuals all over the world to benefit from:

  • Access to US dollars to save your wealth from higher inflation
  • Earn interest income from Crypto Lending platforms
  • Use your Crypto for day-to-day transactions through crypto cards

We believe stablecoins will pave the way to mass adoption of cryptocurrencies.

Thank you for reading and sharing this article. Stay safe and healthy!

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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