Coinbase today announced that they are taking pre-enrolled applications for their USDC 4% APY. This will be a significant jump from their .15% available to holders of USDC on the Coinbase platform. With this jump some increased risk is also included though. Lets break this news release and think about why Coinbase might be doing this.
Once someone is taken off the waitlist and they start earning 4% on their USDC, Coinbase is actually lending out your USDC for people to use. This means that your USDC could no longer be under Coinbase custody. Just like with using Nexo, Blockfi, Uniswap, or any other DeFi or CeFi. your crypto is let out to people to use while those platforms earn interest from the crypto loans. But that could lead to loans being liquidated and possible you don't get your coins back. Always know what could happen and never put more money in than what you are willing to lose. Coinbase isn't a bank so FDIC or SIPC (both for Americans) insurance does not apply.
Reasons Behind the Change
Now, this is all speculation but I think this is a trial run or test for Coinbase. They look around the crypto-space and they can see the money companies like Blockfi and Nexo are making by othering high interest rates on crypto while they lend that same crypto out and charge interest. To expand their business and revenue, this could be beneficial for them. Many users use Coinbase to buy crypto so why not keep them inhouse and within the Coinbase ecosystem? It provides an option for users (especially new ones) to buy crypto and make interest without having to do research about other platforms and worrying about addresses and wallets. The longer you have a user your ecosystem, the more money you can make from them. I can see Coinbase expanding this feature to other assets if this trial run goes well.
What You Get
With this increase users could make 8x the national average on high interest savings, says Coinbase. Why wouldn't you want to earn more interest on your money? And with USDC being pegged to the dollar, you don't have to worry about dips. Also, you can still trade, send and withdraw your USDC. You are not putting it into a separate pool and locking it in for a set amount of time. Coinbase also says that your principal is guaranteed by them, so that might calm some fears of losing USDC.
I think this could be a great oppourntiy for both users and coinbase. I have signed up for the waitlist and can't wait for those higher interest rates. My USDC generally isn't a token I move around much so it will be nice to earn returns while it is in Coinbase. I also hope to see them expand this to more assets that other platforms already utilize.
If you don't have a Coinbase account, use this link for $10 of Bitcoin after a purchase of $100 of any asset.
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