So you want to venture into cryptocurrency, and thought that stablecoin is a good and "safer" idea. Now, what can you do with it? Before we go into that, let's explore what it is exactly.
What is a stablecoin?
It is a cryptocurrency that is pegged to a certain dollar value (e.g. pegged to USD, Euro etc.), and hence, do not see the same kind of volatility like Bitcoin or Ethereum aside from the typical foreign currency fluctuations if it isn't your native currency.
By pegging, this means that there's an equivalent dollar being held for the issuance of the stablecoin. However, there's a great deal of grey area for this. For instance, the most popular/notorious (depending on which camp you are in) stablecoin, Tether, has recently disclosed its reserves breakdown. From the breakdown below, it can be seen that Tether is supported by 3.87% in actual cash, with a great majority being pegged to commercial papers. There is a lot of controversy surrounding this, and the purpose of this article isn't to convince you this or that - please do your own research to establish your understanding of stablecoins.
Extract from: https://tether.to/wp-content/uploads/2021/05/tether-march-31-2021-reserves-breakdown.pdf
What are the types of stablecoins?
You'll be surprised at the different types of stablecoins available; there's currently a list of 59 stablecoins listed on CoinGecko. Below is an extract of the top 5 in volume (as of 7 Aug). The top 5 are pegged to USD and each have their own methodology in doing so. The best way to invest is to pick the one(s) that you are comfortable with.
Extract from: https://www.coingecko.com/en/stablecoins
What to do with stablecoins?
So now to the actual question for this topic. You can already earn interest on your dollar deposits, albeit at a pathetic rate. Changing your dollar to a stablecoin increases the yield you can squeeze out of your money.
1. Lending on Cefi
By depositing in certain Cefi platforms (where you have to disclose your personal information), you are entitled to a yield of above 5% (take that 0.05% bank interest!).
Some of the rates from the top lending platforms are as follows: BlockFi offers 7.5%, Celsius offers 8.88% and Nexo goes as high as offering 12%. A word of caution: the crypto environment is ever evolving, do keep yourself up to date on the news before taking the plunge. Further, some of this advertised rates may or may not be the actual rates - some may have tiered interest systems, while others have a loyalty scheme to unlock the higher rates.
*If you're interested in this method, you can take a look at another article of mine (Newbie Guide (Part 1)) for a bit more details on these platforms
2. Lending on Defi
Defi opens up many options on lending without any of the personal information disclosure. One simple way to lend would be to deposit your stablecoins onto Aave. One advantage of Aave over the Cefi platforms is that your deposit can be used as an interest-earning collateral. Let me repeat, interest-earning collateral. If the rates permit (i.e. rate to borrow is less than the rate to lend to Aave which results in you netting a net gain), you can even borrow to deposit more!
3. Providing liquidity on Defi
Liquidity gets a bad rep for impermanence loss. However, this can be reduced (not eliminated completely as there is still fluctuation in the value of stablecoins despite the peg) by going into stablecoin-pairing. If you're new to this (which frankly I am too), I do recommend you to head onto the Polygon network to carry out the transactions due to the forgiving transaction fees if you happen to make a mistake(s). Every single transaction incur costs on the blockchain, and you wouldn't want to be wasting your hard-earned money on learning to manoeuvre and stake your liquidity pair.
Shoutout to Presstab who prepares a very helpful weekly update of some stablecoin-pairing yields: https://stablerates.substack.com/people/39348909-presstab
On the same note, a simple way out would be to deposit single stablecoins onto platforms such as Curve to cut the hassle of pairing tokens up. A popular combination would be Aave + Curve arrangement; these 2 are established platforms in the crypto world and are perceived as more reliable and "safer".
In summary, the above are just some ideas on what you can do if you want to dabble on a crypto that is less volatile. Same as what all articles will say, this is not financial advice and certainly still come with their own risks (don't get blinded by all the yields!). Should you have any great ideas or realised there's a misstatement somewhere, feel free to share in the comments below!
Image credit:milleguide.com