According to the official statistics, a whopping 67% of eToro traders fail to make money trading on the platform. Likewise, on the whole, less than 10% of users successfully make a living from cryptocurrency trading — contrary to popular opinion.
While this is largely down to the unpredictable volatility of cryptocurrencies — which can result in dramatic price swings most traders fail to capitalize on. This has led to the development of a new type of low-risk cryptocurrency that now look to leverage price-stable assets to generate a healthy return.
Earning Liquidity Rewards
Although decentralized exchanges are nothing new in the cryptocurrency space, it wasn’t until only relatively recently that we had decentralized exchanges that could compete on a more or less even footing with centralized incumbents.
With the advent of automated market makers (AMMs) like Uniswap and PancakeSwap, traders were given the opportunity to trade whichever assets they want without having to fork over custody of their assets to a centralized intermediary. But more than this, these AMMs also provided users a way to turn a relatively safe passive income in the form of liquidity provider (LP) rewards for the first time.
These LP rewards are derived from the trading fee derived from any exchanges conducted in pools these traders provide liquidity to. In total, it is a relatively simple task to earn 5-15% APY by providing liquidity to pure stablecoin liquidity pools, such as Uniswap’s USDT/USDC pool or PancakeSwap’s BUSD/USDT pool.
But it doesn’t stop there as novel platforms are increasingly looking for ways to further incentivize liquidity providers using yield farm opportunities.
BondAppétit is a prime example — as a platform that offers a real-world asset-backed stablecoin, known as USDap — in addition to a governance token, known as BAG. BondAppétit allows USDap/USDC Uniswap liquidity providers to stake their LP tokens to earn an impressive additional yield in the form of BAG tokens. As of writing, this currently sits at 91.7% APY (but does fluctuate).
Though BondAppétit is far from the only platform with a yield farm, it’s rare in that it provides yields for pure stablecoin liquidity providers — making it attractive to investors worried about impermanent losses.
Participating in a Savings Account
Just as depositing fiat into a regular savings account is a popular method to earn interest (albeit typically extremely low APY), cryptocurrency savings accounts have become massively popular in the last few years.
However, as with most things in the cryptocurrency industry, the expected yield provided by some of these platforms generally eclipses anything offered by regular banks — with 5-10% APY relatively commonplace.
The expected APY can vary considerably by platform, but in general, these platforms tend to pay a higher APY on stablecoins like Tether (USDT) and USD Coin (USDC) than on volatile assets like Bitcoin (BTC) and Ethereum (ETH). Likewise, there are often ways to increase the yield further, such as by holding a specific token, taking payout using a specific method, or committing to a longer-term savings plan.
For example, Nexo generally provides a flat 8% APY on all cryptocurrencies supported by the platform, but allows users to boost this yield to up to 12% APY by both holding NEXO tokens and taking paying in NEXO (rather than the underlying asset saved).
BlockFi, on the other hand, uses a tier system, which means users might earn a different interest rate depending on the size of their deposit for some assets — e.g. it pays a flat 8.6% APY on USDC deposits, but between 0.5% and 5% APY for BTC deposits.
Many of these platforms also provide insurance over user deposits, providing an additional safety net for stablecoin users.
Using Yield Bearing Stablecoins
Right now, the stablecoin market is dominated by a handful of USD-pegged stablecoin behemoths, like USDT and USDC — which together have a combined market capitalization of almost $70 billion.
But while these assets are extraordinarily popular, they do very little for the holder besides allowing them to avoid volatility. However, with the cryptocurrency moving forward at a breakneck pace, we are now beginning to see the emergence of stablecoins that go one step further — by providing holders with a low-risk yield
BXTB’s CHIP stablecoin is one such solution. Unlike most stablecoins, which are backed by fiat, CHIP is instead backed by other stablecoins (like USDT). Users need to combine their stablecoin with a second token known as BXTB to produce CHIP stablecoins plus a yield-bearing form of BXTB called yBXTB. Users can then spend or use their CHIP like a regular stablecoin while earn additional CHIP rewards by holding the yBXTB they got as part of the process.
Likewise, Kava’s USDX offering and Origin Protocol’s OUSD stablecoin also provide yield earning opportunities for holders — albeit using different mechanisms. Nonetheless, given that CHIP (+yBXTB), USDX, and OUSD all provide a return at the protocol level they can be considered relatively safe as far as investments go.
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