Are you seeing more opportunities to generate interest on your crypto but unsure of what that means? How does crypto generate interest? The short answer is that most interest generated through crypto is a floating interest rate based on supply and demand.
Although the rate fluctuates, most larger coins have a relatively stable APY. For example, Bitcoin (BTC) interest rates typically range between 2% to 7%. Stablecoins like USD Coin (USDC) tend to offer higher rates, often 8% or above.
Our guide covers everything you need to know about how crypto generates interest. Read on to discover how you can start generating yield on your crypto holdings.
How Crypto Lending Compares to Fiat Lending
Generating interest on crypto is similar to generating interest on fiat currencies, such as the US Dollar. Both require users to sign up for an account and deposit funds. Besides that, fiat banks and crypto platforms differ in a couple of key ways.
Typically, the yield that banks offer doesn’t outpace inflation. In contrast, crypto platforms reward users with a higher annual percentage yield (APY) that either comes close to inflation or surpasses it. Crypto platforms can provide higher yield for lenders because borrowers, especially institutions, are willing to accept higher interest rates for access to in-demand, scarce digital cryptocurrencies like Bitcoin.
Fiat platforms generally set interest rates based on the policies set by central banks. For example, U.S. banks rely upon the Federal Reserve to determine how much yield savings accounts generate.
Market demand rather than national policies instead set crypto interest rates. If there is a high demand to borrow certain cryptocurrencies, borrowers will have to pay higher fees to borrow. Crypto platforms then distribute yield to savers.
How Does Crypto Generate Interest?
The APY rate crypto platforms offer depends on several factors. For some cryptocurrencies, like Bitcoin, APY might be only around 2%. For other cryptocurrencies, especially stablecoins, APY might exceed well above 10%.
Most crypto interest platforms offer flexible terms for savers. You can withdraw funds from the platform, including interest payments, at any time. This means that you don’t have to commit to locking up your funds for a certain period of time.
Most crypto interest platforms also offer collateralized loan products, which allow users to borrow funds. Users take out a loan in the form of a stablecoin by depositing their existing crypto holdings as collateral. For example, as of this writing, Abra Borrow offers loans with as low as 0% APR at 15% LTV.
Although less common, a few platforms offer fixed terms (i.e., three months or six months) with set APY.
Most platforms don’t require a deposit minimum or have a very low deposit minimum (i.e., $5.00) required to start generating interest.
There are two popular ways to generate interest with crypto: staking and interest accounts. Both use two unique processes to generate yield.
For crypto interest accounts, users deposit funds into an account, then the platform lends those funds to borrowers. The platforms generate yield when borrowers pay back loans with interest. Savers then receive part of that interest payment for providing liquidity to borrowers.
For crypto staking, users commit funds towards a blockchain validator. A validator is responsible for authenticating crypto transactions on a public blockchain network. Then, the network generates new cryptocurrencies and rewards stakers, with crypto for maintaining security. The amount crypto stakers receive varies based on the blockchain network’s rules.
Two Types of Crypto Lending — Stablecoins vs. Utility Coins & Tokens
If you visit any crypto interest platform, you’ll almost immediately notice two major categories of supported cryptocurrencies: stablecoins and utility coins/tokens.
Utility coins are essentially any cryptocurrency that has a specific use case. Some focus primarily on digital payments, while others have utility for decentralized finance (DeFi) applications or gaming ecosystems.
Stablecoins are cryptocurrencies that have their value tied to another asset. For example, many USD stablecoins like USDC and USDP hover around $1.00 per unit. Stablecoins can also tie their value to other assets like precious metals (i.e. gold or silver) and other fiat currencies (i.e. EUR, GBP, or CNY).
Stablecoins often have higher interest rates than volatile cryptocurrencies. They offer a far more predictable store of value over time compared to utility cryptocurrencies like Bitcoin and Ethereum.
Download Abra and Start Generating Interest on Your Crypto
Abra Boost is a crypto interest account that makes generating APY simple.
There are no fixed terms, yield compounds daily, and users receive interest payouts weekly. The app supports popular utility coins/tokens, including BTC, ETH, ADA, LTC, BCH, XLM, and CPRX. It also supports the top USD stablecoins, including USDC, USDP, USDT, and TUSD.
The Abra app provides a crypto wealth management platform that is highly accessible even for beginners, with four convenient ways to fund your account, plus features like recurring transactions that help you automate your crypto purchases.
Download the Abra app and conquer crypto today!Download App
Established in 2014, Abra is on a mission to create a simple and honest platform that enables millions of cryptocurrency holders to maximize the potential of their assets. Abra enables both individuals and businesses to safely and securely buy, trade, and borrow against cryptocurrencies – all in one place. Abra’s vision is an open, global financial system that is easily accessible to everyone.
Based in the United States, Abra is available in over 150 countries and makes it easy to convert between crypto and a wide variety of local fiat currencies. With over 2MM customers, $7B in transactions processed, and $1.5B in assets under management, Abra continues to grow rapidly. Abra is widely loved and trusted – in April 2022, pymnts.com reviewed and rated Abra amongst the top 5 most popular crypto wallets in the market. Abra is backed by top-tier investors such as American Express Ventures and First Round Capital.
How Abra Protects Your Funds
Abra places clients’ financial objectives and security first. Abra practices a culture of risk management across all levels and functions within the organization.
Abra employs a state-of-the-art enterprise risk management framework that comprises a comprehensive set of policies, procedures, and practices detailing all applicable risk-related objectives and constraints for the entirety of the business. Abra has instituted a complete set of requisite systems and controls that continuously enforce these policies, procedures, and practices to manage all operations, including credit and lending. Abra’s independent Risk Committee comprises experienced compliance, risk, securities, and fraud operations professionals with backgrounds in industries ranging from traditional and digital assets banking, payments, remittance, to fintech.
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