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- More Focus on Crypto Credit Risk
- Coinbase is offering only half of what other lending platforms are offering in returns
- Consumers prefer lower interest rates with the enhanced security of their assets.
Coinbase has rolled out a new deposit scheme for consumers for the dollar-linked stablecoin USDC, at a rate of 4%. Admittedly, the interest rate is low, but still, it promises to pay consumers more than 50X of what they will receive if they put their assets in any traditional savings account.
Coinbase is offering far fewer returns on deposits
Coinbase, compared to other crypto lenders, offers far fewer returns on deposits of the stablecoin USDC (+0.04%). It is a statement on the confidence and inherent strength of Coinbase, and consumers also prefer low risk- low return investments. As a result, consumers view the Coinbase cryptocurrency platform as a safe place to keep their assets and increase their value.
Coinbase vouches for its creditworthiness
Coinbase, however, did not compare its interest rates to other crypto lending platforms. Such platforms offer higher interest rates and, in some cases, almost twice what Coinbase is offering. Celsius, for example, is offering an annualized percentage yield (APY) on USDC deposits of 8.88%.
Coinbase justified the below-market deposit rate and pointed to the risks of putting the assets in platforms that offer very high interest rates on deposits. There has been a spate of new crypto interest accounts that provide attractive rates on customers’ purchases. However, they do not have a proven track record of fulfilling the said promises. Coinbase is a well-established crypto trading entity, and consumers prefer lower interest rates with the enhanced security of their assets.
In reply to an email from a leading crypto daily, Coinbase highlighted the risks associated with investing in little-known crypto lenders offering higher interest rates on deposits. Often the consumer assets are loaned to unidentified third parties and subject to their credit risk, resulting in a total loss of the consumer’s crypto holdings.
Warning apt because of entry of many new players
The above warning comes at an appropriate time since more and more new players enter the crypto arena and try to woo big financial institutions and companies to the digital asset market with offers of high returns. However, before investing, it must be checked about the creditworthiness of the lender in whose hands the consumer is putting his hard-earned assets and if it can repay them when depositors ask to redeem.
Coinbase offers lower interest because it’s a big, well-known player
Coinbase can get away by providing only 50% returns because it has built a formidable reputation as a big, prominent player in the cryptocurrency industry. It has a stock that is publicly traded. In other words, it is legally bound to reveal publically financial statements and a host of information about its risks.
Lead digital asset strategist at Fundstrat David Grider wrote in its weekly newsletter that 4% interest is not a bad deal in the debt markets after all investors see Coinbase as a highly creditworthy borrower and their assets in the company attractive.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
