How do I earn interest on cryptocurrency?
In the previous section, we talked about stablecoins as an option to decrease volatility in your cryptocurrency portfolio. For those of us looking for predictable passive income, large valuation swings are intractable. In this section, I’ll walk through how I earn 5-10% APY (passive income) on stablecoins backed by AUD, CAD, and USD.
This assumes that you are not domiciled in the USA. Due to an evolving legal situation, some providers described in this article will only provide their high interest products to accredited USA investors.
Another very important thing to understand is that there is more risk, than holding your tokens and staking them independently, involved in keeping your cryptocurrency with centralized interest paying “crypto banks”. To pay you interest, they have to make more on interest by allocating your loaned crypto somewhere, usually through leverage, and if crypto (or any) markets drop enough the leverage has to be undone and there could be a big balance sheet hole like in Celsius bankruptcy: https://www.cnbc.com/2022/07/17/how-the-fall-of-celsius-dragged-down-crypto-investors.html
When I research stablecoins, or cryptocurrency tokens more broadly, I look for the following characteristics:
- A reputable issuer or sponsor. What governmental entities have granted the issuer of a particular token, licenses? Where is the sponsor located? What other entities are related to the sponsor? Who sits on the board or executive committee of the issuer?
- Market capitalization. How much of a particular token exists? What is its total value? Is this a micro-cap or mega-cap (Apple/Amazon/Microsoft behemoth)?
- Volume of token actively trading. How much token is available on various exchanges? If I want to exchange the token for something else, I want there to be sufficient liquidity.
- Acceptance of the token. Can I use this token for the application I want? There is no point having exposure to a particular token if I can’t do anything with it. Will the crypto lender pay me interest for a particular stablecoin?
AUD interest with TAUD
TrustToken offers TrueAUD which is fixed to the Australian Dollar. Creating new TAUD by wiring AUD to their fiat custody provider, Legacy Trust Company Limited, is a bit of a trick so instead I buy my TAUD through Crypto.com. Crypto.com offers built in crypto certificates of deposit and flexible terms; with rates of 6-14% APY depending on length of your deposit term and how much of their utility token, CRO, you hold (or stake).
Crypto.com has a in-depth walkthrough of transferring funds to their interest bearing accounts (in case you skipped the Moving cryptocurrency section earlier): https://help.crypto.com/en/articles/1972928-how-to-deposit-crypto-into-the-crypto-com-app
CAD interest with TCAD
USD interest with USDC
Centre issues USD Coin which is fixed to the United States Dollar. Once you have registered for Coinbase Pro (or for institutional investors Coinbase Prime) for trading on Coinbase’s exchange, instead of just in their app, you can convert between USD and USDC free of charge.
- Click the “Deposit” button to start a USD deposit transaction.
- Once you have a USD balance, you can press the “Convert to USDC” button to convert a portion or all of your USD balance to USDC.
- If you want to convert USDC back to USD, press the “Convert to USD” button.
Most of my USDC I keep in Nexo’s earn product where I get 8% APY compounding daily. They have been very successful at delivering a consistent 8% yield for the past several years during bull or bear crypto markets. For higher yields, I use Crypto.com’s Earn product.