Stablecoins have become some of the most trusted tokens in the digital asset industry. Pegged 1:1 to the US dollar, the asset is utilized as a fantastic alternative to the traditional currency, with all the security it brings. Subsequently, we answer the question, can you borrow and lend USDC?
Lending your stablecoins presents a brilliant way for you to earn passive income on your digital assets. Specifically, lending the USD-pegged cryptos allows predictability for the income you earn without the need for concern over the development of your portfolio.
So, let’s delve into the USDC stablecoin and how lending the digital asset works.
What is USDC?
The USD coin (USDC) is the US dollar-pegged stablecoin that runs on the Ethereum network. Moreover, the asset is completely backed by the US dollar at a 1:1 ratio. These physical US dollars are protected and are usually proven so through various audits conducted. Subsequently, stablecoins provide an extra layer of predictability and safety. As the $1 price is certain to never decrease amid the volatile digital asset industry.
USDC is issued by the Center Consortium, which is a partnership between both Circle and Coinbase. The two prominent names in the cryptocurrency world operate on a host of different blockchains. Moreover, it is utilized across the DeFi sector through different layer 1 and layer 2 projects.
The stablecoin is backed primarily by US Treasury securities and cash that is held at regulated financial institutions. Moreover, they are held in the Circle reserve fund, while being set aside for USDC holders specifically. Its connection with fiat currency has driven its popularity, and its confirmation of reserve status has continued to drive its prominence.
The ERC-20 is the standard by which the token functions on the Ethereum network. Additionally, various stablecoins are also ERC-20 tokens, like Tether’s USDT. Conversely, now that we know what a USDC stablecoin is, let’s discuss the concept of lending.
Lending USDC
We’ve discussed the USDC stablecoin and what makes it so attractive from an investment standpoint, so let’s discuss lending it. Specifically, USDC lending is the act of depositing your USDC holdings on a lending platform. Thereafter, you will earn cryptocurrencies for the deposits without the need to do much else.
Many decentralized exchanges offer to lend and borrow USDC. Specifically, decentralized platforms like Aave, Compount, MakerDAO, and Coinrabbit all facilitate the lending transaction for the stablecoin. Subsequently offering interest rates to encourage participation in lending. Thus, boosting the overall ecosystem’s health.
The incentive of the practice is the ability to earn interest from DeFi lending protocols while also aiding them. These platforms will store the deposited USDC in cold wallets and often guarantee the safe storage of your assets.
Lending platform Coinrabbit specifically offers 8% APY with a minimum lending amount of 100 USD coins. Moreover, the lending of these assets thrives off of their predictability in a volatile industry. Alternatively, lending the USD coin is a predictable way to earn passive income. As opposed to other cryptocurrencies that would not provide the assured return of a stablecoin.
Why and Where to Lend?
There are a host of reasons why lending your stablecoin is a good idea, the chief among them being the ability to earn passive income. The process is simple, and when you’ve found a trusted platform, it does provide an optimal way to earn money on your stored assets.
Alternatively, the monthly income you would receive comes with low risk. Something like staking does come with some risks while lending stablecoins presents a pretty certain practice. Alternatively, lending does not impact your deposits during market transactions. The lack of volatility remains the prime benefit of stablecoins over alternative options.
Conversely, it is important to know what to look for when finding the best platforms for lending USDC. Specifically, you’d want to look at a few factors. Among those is APR, or interest rates. This figure should be competitive, not just in the digital asset industry but in traditional finance as well.
Additionally, you should maintain a sense of freedom to withdraw your funds when you want to. At the very least, the possibility of retrieving your asset is important, but also rare. So it’s vital to do due diligence and find the best middle ground.
Moreover, understanding registration and KYC requirements is important to know whether or not you want to deal with KYC protocols. Then, decide what platform brings the best combination of financial benefits with the necessary intrusion in their registration process.
Then, you’ll want to know what you deem appropriate as both a minimum and maximum deposit amount. Whatever number you feel comfortable lending, ensure that the program you want to lend to facilitates that chosen amount.
The Risks of USDC
Generally, the USD coin presents a very low risk. However, for both the asset and the premise of borrowing and lending USDC, there are some that should be discussed. Specifically, in the counterparty and regulatory risks associated with the stablecoin.
There is always the risk that the USD held in reserve is under threat of insolvency. This is not likely, but there is always the chance that Circle, as the issuer, could fail on their end of the deal. Alternatively, the issue of regulation continues throughout the industry. Those developments could impact the entire cryptocurrency sector. USDC is not safe from those risks as well.
Finally, there are always inherent smart contract vulnerabilities. USDC operates on a secure blockchain, but a possible vulnerability in the smart contract code is always a potential risk. Susbeuqnelty must be discussed when pressing the options of lending.
Conclusion
Despite the risks that have been presented, USDCS is as stable a digital asset as any. Thus, it is a fantastic option to lend and earn some passive income. The digital asset market is ever-evolving, but being pegged to the US dollar presents a very rare assurance to the industry. One that you can take advantage of by lending your holdings.