interest rates for stable coins

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franksmith1863

Age: 30
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How are some crypto staking platforms able to offer such high interest rates for stable coins (USDT, USDC, etc.) like 10% or more, while banks offer virtually nothing?
Posted 02 May 2022


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Posted 03 May 2022

Franklee says
The easy explanation is that high interest rates compensate people for the risk that the stablecoin will fall off its peg. But prime stablecoins like USDC and Pax (USDP) are fully backed by high-quality dollar assets, so the risk that people will lose their money is small. No, there is another reason and it highlights a fundamental conflict in the purposes for which stablecoins are used.
We know why interest rates on actual dollars are so low. The Federal Reserve has cut interest rates to zero, so banks have no reason to pay interest on deposits. And the Fed has issued trillions of new dollars, so there are far more cash dollars circulating in conventional markets than anyone has a use for. No one wants dollars so they don’t command any interest.
Posted 03 May 2022

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