Today, America's central bank took a huge step to combat the Covid-19 and oil inspired economic downturn by cutting the interest rate target a full 1.25% down to 0%.
That's right, banks are encouraged to target an interest rate of 0% on savings and loans.
This means that it is probably a good time to buy a house or start a business, as the payments you need to make back will be little more than what you took out. However, it also means that those who save their money with the banks get absolutely no reward for doing so.
If anything, many savers might be losing money as the account fees will be more than whatever minor interest earnings they may get.
To me, this seems an incredible call and push towards people providing lending liquidity into DeFi cryptocurrency spheres.
What is DeFi?
DeFi, short for Decentralized Finance, is a term given to cryptocurrency projects which aim to automatically and non-administratively fulfill the role that the financial sector plays in the fiat world, in the cryptocurrency world.
Essentially, DeFi allows for people to lend their cryptocurrency to earn interest, similar to saving in a bank.
It also allows others to take out loans, similar to a bank.
All this is accomplished wholly without the need for an institution to oversee the whole process. This allows people to swiftly either deposit or take out a loan, unhindered by the rules, regulations and fees of normal dealings with the financial sector.
Is DeFi better than the banks?
If you're wanting to make money, YES! If the American banks are being told to provide depositors with a 0% interest rate to earn money with, then why would you ever save money with the banks?
You'd be much better off converting your money to DAI, or USDC, or BUSD, which are all tied to the value of the USD. What this means is, you'll never lose out on your investment because the price of these tokens you purchase will never change.
DeFi offers crazily high levels of interest rates equivalent to the 1980s on your USD tokens. For instance, dyDx offers over 11% on DAI, and Poloniex offers over 8% on USDC. If you don't want to put your eggs in one basket, there are helpful websites to show you the best stablecoins at the best interest rates.
And that's it! If you want to save money, 100% you should convert your USD into USD stablecoins and start earning interest on DeFi projects. They are a brilliant way to make good money.