Last Updated on October 2021
What are the best interest rates for your stablecoins and ethers? Here is the September 2021 overview of several leading CeFi end DeFi crypto lending platforms.
With the growth of DeFi & CeFi applications, it can be difficult to keep track where are the best yields for your stablecoins. On this page, I will collect the interest rates of the major crypto lending platforms, in order to find the best place to generate passive income and reach financial independence!
CeFi USDC and ETH yields. October 2021
DeFi USDC and ETH yields. October 2021
What is DeFi?
DeFi, for decentralized finance, is trying to bring on the blockchain traditional banking activities like lending, borrowing and trading.
The DeFi protocols are not controlled by a single entity like traditional finance. Instead, they are governed by a community of token holders, which will decide the future of these protocols.
Every transaction/operation is automated by the code of the platforms, preventing the need to have a middleman like in traditional finance. Most of the DeFi platforms right now interact on the Ethereum blockchain. Thus, anyone in the world can create its Ethereum wallet and start interacting with the DeFi protocols, with no restrictions.
Altogether, DeFi is a unique, global, composable, permissionless, automated financial ecosystem.
- Composable: different DeFi applications can integrate and build on top of one another.
- Permissionless: anyone can interact with the DeFi protocols of their choosing.
- Automated: “code is law”, everything is automated through smart contracts, thus removing the traditional middleman of traditional finance.
How does DeFi work?
There is no single answer to that question. All protocols have different ways of generating yields. Let’s see the most iconic one: Aave and Yearn
Aave is a lending platform, which generates yields by pooling together all the lenders’ assets. Borrowers can then borrow from these pools given some conditions. Supply and demand (in this case, supplied to borrow assets in a given pool) then determines the yields. For example, if lots of people want to borrow USDC on Aaeve but not enough USDC are lent, then the lending interest will surge, thus incentivizing more people to lend USDC to the platform due to the high interest rate.
The conditions for the borrowers to get a loan depend on platforms. Usually, they need to deposit some collateral to be able to borrow. Borrowers will have to deposit assets that are higher than the value of the loan they receive (it’s called over collaterization). As borrowers could use volatile assets as collateral, if their collateral drops in value below a certain threshold, borrowers will get liquidated. So always be careful when you lend! It’s very easy to get liquidated.
Now, Yearn is an auto-compounding platform. You deposit your assets, and Yearn implements automated strategies to generate yields on your assets. An example of a strategy: Yearn uses your deposited assets in its vaults to place them on Curve. Curve will reward Yearn for the placement. Yearn will sell automatically the rewarded tokens from curve (such as CRV or Lido in this case) to compound back into the strategy, thus increasing its (and yours) position on curve.
How secure is DeFi? How to assess the risk of a DeFi protocol?
First of all, only invest money that you are ready to lose. Then, have a look at my different advices on how to stay safe in DeFi.
The best resource to check the security of a DeFi platform is https://defisafety.com.
Make sure to follow them on twitter.
In defisafety, look if the code has been audited. This should reduce the risk of bugs in smart contracts exploited to drain the protocol funds.
You can also look for the Total Value Locked (TVL) on a protocol. The higher it is, the more assets have been deposited on the protocol. It shows how much people trust the protocol with their money.
What is CeFi?
In CeFi, for centralized finance, there’s a middleman in the lending process. This is typically the old organization way, like banks being the central point of decision-making for approving or declining loan requests.
BlockFi, which is the best CeFi for me, is an example of a centralized finance business in the cryptoeconomy. Still, being centralized, it means that BlockFi can decline your account, chose whom your money goes to and who pays you interest, unlike in DeFi.
As there is a central authority, hence a central point of failure, CeFi platforms will try to offer many protections to their investors. They are doing their best to appear trustworthy like Nexo. If you want to use CeFi all comes down to “can you and do you trust this company”.
Another important difference is that usually CeFi platforms are more regulated than DeFi. That’s why there is no anonymity of privacy on CeFi and you need to do a KYC (give your name and address, and other information to get yourself approved to access their services). In DeFi there is almost complete anonymity.
Last but not least, Exchanges are now offering CeFi like services. FTX, the best exchange by far for me, is offering very attractive rates on USDC lending for example.
How secure is CeFi and how to assess risk in CeFi?
Well, this is really different from assessing DeFi risk, where code is law. For each CeFi company, you actually need to do your due diligence: look around the official financial statements, their founder’s history, etc. It’s still the wild west. Most CeFi won’t transparently publish how they generate their revenue stream. You might end up putting your money on a platform that lends your funds for Chinese micro-loan like it was in Cred’s case.
Have a look at my BlockFi vs Nexo review, to see how I evaluated the risks.
DeFi and CeFi lending interest rates difference
Why is there such difference between DeFi and CeFi interest rates?
It’s simple, on DeFi applications the constant fluctuation of supply and demand for margin trading or borrowing results in yields that are volatile. Centralized crypto lending companies, CeFi, on the other hand, have a more centralized way of loan origination: the lending middleman sets the interest rate itself and not the pure market supply and demand.
Generally speaking, interest rates on CeFi seem higher than large and well adopted DeFi platforms. However, on a recent DeFi platform, hence riskier, it’s possible to achieve higher yields.
What is USDC and why USDC and not USDT?
As seen in the table above, I only display rates for the USDC stablecoins, and not the most popular one, USDT. Why? Well, on my blog you will find only stuff that I personally use. I don’t have the will to present you things that I don’t trust, just to get more views. I stay away from USDT. And so should you.
What is USDC?
USD Coin (USDC) is a digital stablecoin pegged to the dollar and runs on Ethereum. USD Coin is managed by a consortium named “Center” that includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain, an investor in Circle.
USDC has seen a strong adoption in the past year in the DeFi and CeFi ecosystem. I particularly like USDC to meddle with DeFi applications because of its stability. USDC is more stable (i.e. more pegged to $1 dollar) than other stablecoins like DAI, UST etc. So less apparent risk of getting liquidated. USDC is also now widely available on different platforms, it is thus easy to move funds from one platform to another, without having to change your tokens.
How does USDC work?
The total number of USDC tokens is fully and transparently viewable (check here to see on etherscan the contract), and each are backed 1:1 by real USDs. This is attested monthly by the accounting firm Grant Thornton. The USDs are also deposited “in accounts held by the Company at federally insured US depository institutions and in approved investments on behalf of the USDC holders.”
Update September 2021:
We finally have some breakdown on the USDC reserves. Well, it’s better than USDT, but Center’s claim of “every USDC is “backed by a dollar in a bank account” is not 100% true. They have things other than cash in the balance sheet backing USDC. Nothing really concerning as you will see below, but it means that Center will have to update this marketing statement.
See more details here: USDT: The Time Ticking Bomb, Why You Should Hold 0!
Can I trust USDC?
In lack of a better alternative: yes. Still, it’s a highly centralized stablecoin so things could get dirty. I always keep an eye on USDC news, and we’ll let you know if I move away from it.
Who accepts USDC?
Well, most DeFi and CeFi platforms now accept USDC. If you find a platform that only accepts USDT and USDC, I would stay away from it. Here is a non-exhaustive list of the platforms that accepts USDC
- Kyber Network
How and why do some platforms offer higher interest rates?
Usually, newer platforms will offer higher yields, in order to attract capital on their platforms. Platforms will try to provide some additional apy compared to the market rate. Cave: newer platforms also come with higher risks (see above how to assess risk in DeFi)
How to use DeFi?
Simplest answer: use metamask. There are countless tutorials on how to use metamask. You just need then to buy and deposit some eth on your metamask address.
What are stablecoins and why using them?
Generally, stablecoins are tokens that reflect the price of the US dollar. The two most popular are USDT and USDC. Stablecoins come in different forms. USDT and USDC are centralized stablecoins. They are issued by companies that are supposed to be 1:1 backed by real dollars. Decentralized stablecoins like DAI are not issued by a company, but are collateralized by crypto assets. People use stablecoins on DeFi protocols to earn passive income on less volatile cryptocurrencies like eth or btc.
Why are lending rate so high in Defi?
What seems high for oneself is probably not high for someone else. DeFi offers the opportunity for easy and fast liquidity to traders that found a way to make money if they are willing to pay some interest rates for this liquidity.
How are interest rates paid to me and how do I see how much I have earned?
Returns vary across all lending protocols. Usually, you can sit back and watch in real time your balance accruing. Usually lending protocols will show returns in their own dashboard, otherwise you have to use third parties like apy.vision to see how much you are earning.
In case you liked my take on Lido and learnt interesting things, or if you want to support me, please feel free to send me a coffee over.