Interest Rates Going Down on USD Stablecoins? (22 September 2020)
This article is checking why some providers low the interest rates they offer on USD Stablecoins
Interest Rates Going Down on USD Stablecoins?
About a month and a half ago we posted in our blog an article describing how Binance is paying 8% per annum on USD Stablecoins such as Tether, USD Coin and Binance USD - this article can be found here:
Since then (4th of August), if you go to Binance now you would see a 90 day fixed deposit pays a rate of only 7% whilst the flexible product which used to be paying 6%-7% is currently paying only 4.26% - that’s quite a change considering only a month and a half ago the rates were much higher.
But what about other providers?
Crypto.com is still offering a high rate of up to 12% per a 3 month fixed deposit (5% more than Binance).
Blockchain.com is also offer a similar rate to the one offered by Crypto.com
So why has Binance taken down the rates?
Every lender is offering products based on supply and demand
The type of users investing in Binance may not be the same users who use Blockchain.com - for example if you wish to exchange your BTC to USDT via Blockchain it would look like this:
At the time of writing these are the values of the top Crypto currencies in USD:
Basically, according to the exchange made on Blockchain.com for 0.0843 BTC you would get $834 USD which is fairly low. ($9892 USD per 1 BTC)
If you use Binance for instance you would get $10,440 for 1 BTC so 0.0843 BTC would be exchanged to $880 ($46 more than Blockchain.com!) - This screenshot was taken at the time of writing from Binance.com
So if you come to exchange $1000 worth of Bitcoin you could pay more than $50 in fees (more than 5% in fees as 5% of $1000 = $50).
So why not exchange on Binance and save in Blockchain.com?
Technically that could be a great solution if you want to maximize the interest rate earned on your dollars, but you need to keep in mind the exchange fees in Blockchain.com are very high and the rates as seen above are very bad.
This article did indicate there are many examples of free falls in the market:
When the market is in free fall you could lose 2%-5% extremely fast and if you need to react you do need to react fast.
Sometimes the ability to exchange your Bitcoin extremely fast to USDT with minimal fees can give even a novice investor a peace of mind knowing he can react anytime and anywhere without worrying about fees, transfers, confirmations etc.
Imagine the following investor
Imagine an investor with a balance worth $100,000 in Bitcoin (10 BTC) - for this type of investor saving Bitcoins with Binance might be a better option, because even if the rates on some products are paying less than its competitors - the peace of mind knowing that a fee free bitcoin trading along with the best rates is the best combination to maximize solid profits at the times of downward markets.
Now imagine a $1,000 investor - for him a 7% rate is $70 per year and 12% is $120 per year, it’s not insignificant but $50 over a span of 1 year for most people is not a life changing amount of money (in some countries it could be worth a lot but in the majority of countries around the world it isn’t).
This entire point of view can explain why Binance Coin keeps on rising ($24 at the time of writing) whilst Crypto.com went down ($0.15 at the time of writing).
Binance.com vs Crypto.com
If you learned business studies in university/college you must have come across Porter’s Five Forces Model which looks like this:
One of the features this model points out is the rivalry between businesses which can come in a form of a new entrant. Crypto.com can be classified as a new entrant as its coin was traded for the first time around February 2019, in April 2020 it was worth $0.05 and now at the time of writing it’s worth 3 times more than its value back then in April.
One of the things that could explain the reason behind this 3x jump is the following:
At the time of writing you could see Crypto.com is offering an 18% interest rate per annum on CRO deposits. This turns their crypto currency into some form of a stock, if you believe in Crypto.com then you might get nice gains from its investment but on the same time things could go wrong and the 18% is a good reflection to the risk you take.
This, explains the high difference between Binance.com and Crypto.com
Binance.com vs Crypto.com - which is better?
Binance.com seems to be more solid in comparison to Crypto.com but its coin (Binance Coin) at the time of writing does reflect a lot of trust of the market in this product. There is no doubt that Binance, hands down, is appealing to so many Crypto users, because of its simplicity and its ease of use. (In comparison OkEX is an exchange website that requires you to have a different wallet for trading or for funding - Binance was smart to realize the less complexity - the better it is for a potential new/existing client).
Crypto.com started in 2016 but its official coin came into the world around February 2019 and it’s too early to use this coin as indication to know if this business is going to become successful or not and how safe is it going to be - from our perspective it seems like a OK investment but if were to choose where to invest our USDT funds - we would probably take 7% over 90 days in Binance than 12% over 90 days in Crypto.com