I started out this morning sifting through various news sources and scouring #cryptonews on Twitter to do a weekly recap of the week's most important crypto news, but the more I looked, I saw that most of the news involved involved Circle's USDC stablecoin in one way or another. It has been a big week as USDC launched on the Tron blockchain with over $100 Million issued while Coinbase announced its plans for a savings program that will pay users 4% interest on their USDC balances. In this post we will discuss the most important USDC developments as well as comparing DeFi vs CeFi interest rates.
USDC Takes Over
Those of you who have followed my work know that I never take a "one coin to rule them all" approach to crypto and believe that different coins have different use cases as well as strengths and weaknesses. For ages, Tether has been the leading stablecoin (by market cap as well as the number of blockchains that support it), but USDC has shown the potential to challenge Tether's dominance. This week USDC launched on the Tron blockchain with over $100 Million in USDC issued.
This $100 Million issuance is a huge benefit to Tron users who are looking for a Tether alternative, and it now means that USDC is operational on four blockchains with plans to expand to up to 10 more chains including Avalanche, Celo, Tezos, Kava, and Polkadot in the future. If everything goes as planned, USDC could soon be a native asset on more chains than Tether itself.
Simply having more choices is almost always a good thing, but I think the growth of USDC is especially important given that Tether has once again come under scrutiny for the way it documents its reserves, its lack of transparency, and its close association with Bitfinex.
Coinbase USDC Savings Program
While the launch on Tron is big news for USDC, so is the announcement that Coinbase will be offering a savings program that provides users with a 4% interest rate on USDC that they hold on the platform. With DeFi interest rates hovering at a miserably low 1.3% on Compound Finance and inflation rates in the US starting to pick up, I'd venture to say that the currently low rates on DeFi are hardly even keeping up with inflation and that users are actually loosing money in inflation adjusted terms.
While I fully understand that there is a tradeoff between DeFi and CeFi and that users must balance security and decentralization against higher returns, I think that the addition of the Coinbase savings program is a great OPTION for the people who choose to use it. The higher interest rate is necessary (in my opinion) to outpace inflation, and many people are familiar with Coinbase which should make the process easy. I do have to point out that this program is NOT automatic and you will have to apply if you want to be eligible for the higher rewards.
Although the focus is on USDC this week, there are more updates with CoinMarketCap introducing an easy to use tool that will directly interface with Uniswap and allow users to trade ETH compatible coins simply by clicking on the button on CoinMarketCap's official website.
As I hinted on previously, DeFi interest rates as a whole are quite low at the moment, and this graph does a great job of illustrating the point that interest rates on CeFi platforms such as Nexo are currently about 6X higher than the rates that could be expected in DeFi platforms.
Should you switch from DeFi to CeFi? That choice is always yours to make, but I would encourage you to factor rising inflation expectations into your decision. If you lend at 1% but inflation is 3%, then you are loosing 2% purchasing power in real terms....I'd hardly call a loss of 2% a good investment. For more of the pros and cons of CeFi vs DeFi, feel free to check out this article I wrote over a year ago on the same topic.
Discussion and Summary
Overall, I would have to say that it has been a good week for crypto. Most of the leading coins are in the green over a seven day period, and prices seem to be recovering from the massive losses of the past few weeks.
Personally, I like to see the growth of USDC on multiple blockchains as I feel that having alternatives and different choices is one of the main benefits of crypto, and I think the Coinbase lending program is a great option for people who are already using the platform and like crypto, but don't feel comfortable leaping into DeFi just yet.
As always, thanks for reading, and nothing is financial advice.