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*[TRENDING Reddit Review/Survey Reference: “Best Crypto Lending Platform Comparisons 2022 | Celsius vs. Nexo vs. BlockFi vs. Anchor Protocol“]
Are you feeling the pains and pangs of high inflation yet? Yeah.? Well there’s no doubt we’re nearing historic levels of dreaded Inflation yet again.
It seems stock and crypto market volatility trudges on as a bearish constant, and yet sustaining returns on gold, silver and other ‘safe haven’ commodities remain unseen.
Amidst the reality of this Inflationary environment investors are now looking for investment options with healthy, safe returns and controllable risks.
Let’s explore 4 high potential crypto contenders, shall we?
What is Inflation Anyway?
Inflation constitutes the increase of prices or the fall in purchasing power of your fiat currency (USD, Euro, GBP, etc.)Typically, inflation runs hot when there’s more demand than there are products or services to meet that demand. Therefore, price increases (in numerical terms).
A high CPI means high inflation. The official US CPI data shows that inflation in January 2022 rose 7.5% year over year. The increase is the highest since 1982 Inflation accelerated at its fastest 12-month pace in nearly 40 years in December 2021. Yet, the real inflation is even higher than 7.5% as CPI has been manipulated over the years. Shadow stats puts inflation closer to 12.5%-15%:
How to preserve your purchasing power during the inflation?
With many bank savings accounts earning less than 0.05% interest in fiat, investors are looking to place their money elsewhere. To preserve the purchasing power, one should earn an interest rate which is equal to the rate of inflation. Ideally, your investments should yield a positive real interest rate, meaning that your return on investments should be higher than inflation. Given current inflation rates, you need to earn 12.5% -15% on your investments just to break even and keep up with the inflation!
Crypto savings platforms have been growing in popularity lately as they offer significantly higher returns on your investments than traditional banks. They also present lucrative opportunities for investors looking to diversify their portfolios, earn returns on idle crypto assets they HODL or generate returns during crypto winter or stock market decline.
Centralized Crypto Savings & Lending Platforms (CeFi) such as Celsius, Nexo and BlockFi are the most reputable and best-known in this space. You can convert your fiat into crypto stablecoins and earn up to 12% interest on these CeFi platforms.
With DeFi Savings Platforms, such as Archor Protocol, you can get a 20% yield on your stablecoins.
With more sophisticated and complex DeFi investment strategies, technically savvy crypto investors can earn up to 75% interest on their stablecoins!
Now how does this compare to a 0.05% interest you can earn in your bank?
Let’s review some of these options in details and compare risks and benefits of each. But first, let’s understand what stablecoins are and why you may want to use stablecoins to earn interest.
What are Stablecoins?
These tokens are meant to function the way their name suggests — with stability. Stablecoins bridge the gap between fiat currencies like the dollar and cryptocurrencies. Due to the fact that stablecoins are price-stable digital assets that behave somewhat like fiat, but maintain the mobility and utility of cryptocurrencies, they present a unique solution to crypto volatility: their price stability is built right into the assets. Stablecoins can be categorized into four types based on their collateral structure: fiat-backed, crypto-backed, commodity-backed, and algorithmic.
In 2020–21, the stablecoin market exploded and its market cap expanded by nearly three times. Most popular stable coins backed by fiat currency are Tether (USDT), the Gemini Dollar (GUSD), TrueUSD (TUSD), and Paxos Standard (PAX). DAI is the most prominent crypto-backed stablecoin and TerraUSD (UST) is the best known algorithmic stablecoin.
You can buy stable coins on any major exchanges. My favorite crypto exchanges are Binance and Coinbase.
What is the difference between CeFi vs. DeFi Savings Platforms?
One difference between CeFi and DeFi is the presence and absence of the ‘middle men’. CeFi relies on middlemen to regulate transactions, while DeFi uses smart contracts.
A second difference is that smart contracts are run on computers, which means DeFi can be accessed from anywhere in the world, at any time, and at any location. Smart contracts are unbiased. This makes DeFi transparent, private and reliable.
The final difference is the custodial status between CeFi and DeFi. This refers to whether a user has full control over their crypto assets. In CeFi, there is still a third party that manages money on behalf of the user. With DeFi, however, the user has full control over their funds.
Considering these features, DeFi can be considered fascinating but riskier in a way than CeFi. Those who decide to interact with DeFi apps must be aware that nobody can assist them if something goes wrong.
CeFi Savings Platforms (Nexo, BlockFi, Celsius):
What is Nexo?
Nexo, founded in 2017 by Antoni Trenchev, Georgi Shulev and Kosta Kantchev is a subsidiary of a company called Credissimo, a company who have been in the lending business since 2007 so backed by a team with a wealth of experience.
What Services do they offer?
Nexo allows you to buy and exchange crypto, earn interest and get crypto loans. It also offers Nexo debit card in select jurisdictions.
- $15B+ assets under management
- 3.5M+ users
- Available in 200+ jurisdictions
- 40+ fiat currencies available
- 200+ crypto pairs supported
Nexo Loyalty Program
Nexo Loyalty program bases rewards tiers on the ratio of NEXO Tokens vs. the value of all the assets in your Portfolio Balance, which must be at least 1%, 5%, or 10% respectively for each tier.
The Loyalty program’s tiers progressively give you greater rewards the more NEXO Tokens you hold, simultaneously reducing your borrowing rates, increasing your yields, and increasing the number of free crypto withdrawals you can make per calendar month:
Nexo Interest Rates
Nexo offers very high rates, especially on stablecoins where you can earn up to 12% APY when choose to “Earn in NEXO”. “Earn in Kind” rates are lower by 2% from those displayed below.
How Does Nexo Generate Interest?
Interest generated from lending to institutions and customers who provide collateral for loans. If the loan goes south, collateral is liquidated and used to pay interest.
- $375 million insurance on custodial assets
- Nexo uses BitGo as it’s custodian, a company backed by Goldman Sachs and is CCSS Level 3 and SOC 2 compliant
- Ledger’s institutional-grade security system, Ledger Vault, backed by $1 billion in crime insurance.
- Real-Time Reserves Audit
- Assets are stored in military-grade Class III vaults
- 2FA Authentication
- Biometric Identification
- Address Whitelisting
- Nexo only loans your assets to credit lines that are overcollateralized between 200-500%
Read more about Nexo’s security here.
What is Celsius Network?
Founded in 2017 by Alex Mashinsky and S. Daniel Leon, Celsius Network is a financial technology platform that offers interest-bearing savings accounts, borrowing, and payments with digital and fiat assets.
What Services do they offer?
Celsius Network allows you to buy and exchange crypto, earn interest and get crypto loans. Celsius also offers a product called CelPay, which lets customers send and receive crypto for free.
- $18B assets under management
- 1.6M+ users
- Available in 150+ jurisdictions
- 40+ crypto assets supported
Celsius Loyalty Program
Rewards tiers are based on the proportion of holdings that are held in CEL tokens. You can earn a higher reward rate if you choose to earn your rewards in CEL. You can choose which coins you want to earn in CEL on individually. Earning rewards in CEL is currently not available in the United States.
Celsius Interest Rates
Celsius offers a wide selection of stablecoins. You can see a full list of supported coins here.
Sign up for Celsius Network
How Does Celsius Generate Interest?
The Celsius finance team generates returns for our community by lending out our community’s digital assets to institutional and retail borrowers. We aim to return up to 80% of the revenues made from lending out our community’s assets back to our community on a weekly basis.
Due to the rate of returns we can achieve in the lending market change nearly every day, we adjust the rates that our community earns on their digital assets on a weekly basis.
- Security ISO certified
- 2FA Authentication
- Whitelisted withdrawal addresses
- “HODL mode” which can be activated to restrict withdrawals
- Fireblocks and PrimeTrust (their custodians) both provide insurance on digital assets held by Celsius
- Borrowers are required to post collateral of up to 150%
- $30 million in insurance for assets stored in the Celsius wallet app
Read more about Celsius’s security here.
What is BlockFi?
Founded in 2017 by Zac Prince and Flori Marquez, BlockFi was created to provide credit services to markets with limited access to simple financial products. BlockFi is based in New York. They use Gemini, a New York trust company regulated by the New York State Department of Financial Services, as their primary custodian. They have major institutional backing from investors such as Valar Ventures, Galaxy Digital, Fidelity, Akuna Capital, SoFi, and Coinbase Ventures.
What Services do they offer?
Cryptocurrency savings accounts, loans and trading. BlockFi also offers the first Visa Credit Card that pays rewards in Bitcoin.
- $15B+ assets under management
- 500,000+ users
- 13 coins supported
- 66 crypto-to-crypto trading pairs supported
BlockFi Interest Account (BIA)
The interest-bearing account is called the BlockFi Interest Account. You can earn interest in BTC, ETH, LTC, USDC, GUSD, and PAX. A minimum balance is not required.
Interest in your BIA is paid out monthly in Bitcoin, Ether, Litecoin, USD Coin, or Gemini Dollar. You get to choose which coin interest is paid in. The benefit of choosing the payout coin is that you can diversify your portfolio across various coins.
BlockFi Bitcoin Rewards Visa Credit Card
BlockFi recently launched a Bitcoin Rewards Visa Credit Card. Similar to cash-back credit cards, the BlockFi Visa will earn you rewards in Bitcoin!
The card is set to earn 1.5% rewards rate in Bitcoin on all card purchases with no annual fee. Plus, you’ll earn 3.5% back in Bitcoin during your first three months with the card. That’s a pretty sweet deal that puts it ahead of most other Bitcoin rewards products.
There are fees for withdrawing currency from your BlockFi account. BlockFi allows one free crypto withdrawal per calendar month.
How Does BlockFi Generate Interest?
BlockFi generates interest on assets held in Interest Accounts by lending them to trusted institutional and corporate borrowers. To ensure loan performance, BlockFi lends crypto on over-collateralized terms (similar to the structure of our crypto-backed loans).
Furthermore, BlockFi’s automated risk management system monitors positions 24/7, providing the same trusted risk management system used with BlockFi’s crypto-backed loans. BlockFi has the ability to terminate a borrow in a timely fashion and also manages reserve balances to facilitate clients withdrawals from Interest Accounts. Reserves are stored securely with our primary custodian Gemini, a New York trust company regulated by NYDFS.
- Majority of assets kept in cold storage
- All “hot wallet” storage servers have a security rating of FIPS 140-2 Level 3 or higher
- SOC 2 Type 1 security compliant
- Digital asset insurance provided by Gemini protecting against against the loss of cryptocurrency related to security breaches, fraudulent transfers, or employee theft
- Two-factor authentication
- Asset balance sheets only get lent to trusted institutions and corporations
- “Allowlisting” allows you to ban all cryptocurrency withdrawals, or restrict withdrawals to a list of known addresses only
Read more about BlockFi’s security here.
DeFi Savings Platform
What is the Anchor Protocol?
The Anchor Protocol is a decentralised (DeFi) money market saving and lending platform.
Like a bank, Anchor Protocol facilitates deposits and loans but with one key difference. Unlike traditional banks, there is no intermediary.
Instead, the deposits and loans are automatically processed by the protocol’s smart contract.
Key features of the Anchor Protocol:
- Principal protection: Anchor implements a liquidation protocol that liquidates borrower collateral when any loans exceed the 60% loan to value (LTV) threshold, thus protecting the principal of depositors.
- Frictionless: There are no minimum deposits, account freezes or sign-up requirements.
- Instant withdrawals: Terra deposits are instantly withdrawable — no lockup required.
- Stable interest rate: Anchor stabilizes the deposit interest rate by passing on a variable fraction of block rewards from collateral assets to the depositor.
The protocol actually has a native governance crypto token: ANC which can also be used for staking.
FYI: Governance tokens are tokens that grant holders voting rights on a blockchain project. Holders can vote to influence decisions like the adding and removing of features or a revamp of the governance system and more.
At the time of writing, the APY for Anchor’s savings protocol or Anchor Rate as it is known stands at 19.47% APY.
FYI: The Anchor Rate benchmark interest rate for Anchor’s savings protocol and is derived and shaped by the collateralized assets staked on Acnhor. This rate can also be changed by governance proposals.
The attractive 19.47% APY entices lenders to deposit their stablecoins (e.g. UST) into the Anchor Protocol.
On the borrower’s side, they obtain UST loans by staking assets from the biggest proof-of-stake (PoS) blockchains as collateral.
In return, the borrowers will get what Anchor calls bAsssets, tokens that represent a right to the staked assets.
At the start, Anchor only offered yields for UST deposits. But subsequently, it partnered with Orion Money to launch its EthAnchor
Now, you can deposit Ethereum-based stablecoins like BUSD, DAI, USDC, USDT and evens wrapped UST onto EthAnchor.
Not to mention that Anchor Protocol has plans to offer non-USD pegged stablecoins, such as EUT, KRT and THT somewhere in the near future..
How Can You Benefit From The Anchor Protocol?
So here are some of the ways you can earn from the Anchor Protocol:
- Stake ANC
- Provide liquidity
This is to most straightforward and relatively less risky strategy. All you have to do is to deposit your UST onto Anchor Protocol to earn that 19.47% APY return.
Risks of Anchor Protocol
So what are the risks of using Anchor Protocol? Here are a few you need to be aware of:
1. Anchor Protocol Hacking Risk
As the Anchor Protocol is a DeFi protocol, you can never rule out the risk of a hack.
But on balance, Anchor has not been hacked so far. It has also taken precautions like carrying out audits of its smart contracts:
Not to mention that it has a bug bounty program where ethical hackers get rewarded if they can discover vulnerabilities within the Anchor Protocol.
Anchor will pay a reward of US$500 to US$150,000 for eligible discoveries according to the terms and conditions.
2. UST Depegging
UST is pegged to US$1 using a mechanism that is algorithmically based.
An important to note is that stablecoin is 100% algorithmic and not backed by any collateral.
Here’s how UST’s mechanism works.
It revolves around two cryptocurrency tokens UST and Terra (LUNA).
Terra’s network will always value UST at US$1 and work towards maintaining the US$1 peg algorithmically.
The value of UST is derived from factors like the fluctuating value of the US dollar and the supply and demand forces acting on UST.
When the value of UST is worth more than US$1, LUNA holders are incentivised to sell their tokens for UST. LUNA is then burnt and UST is minted.
On the flip side, when the value of UST falls below US$1, UST holders are incentivised to sell their tokens for LUNA. UST is then burnt and LUNA is minted.
These actions and the algorithm work in tandem to bring the UST price back to the target peg of US$1.
If UST is not able to maintain its peg, it may cause huge losses for users.
3. The 19.47% APY is Not Fixed
Currently, the Anchor Protocol has set the Anchor Rate at 20% APY.
But, it can always be adjusted by Anchor’s governance system.
This rate can also fluctuate when the ratio of lenders and borrowers changes. Basically, more borrowers means that it will be easier to maintain the Anchor Rate.
4. Yield Not Sustainable During a Crash
However, when a market crash suddenly happens the yield will not be sustainable.
Back in the May 2021 cryptocurrency flash crash where about US$1 trillion was wiped off the total cryptocurrency market cap, the LUNA token crashed to a low of US$4.10. (for context LUNA is currently trading at around $56).
This caused a few problems:
- It reduced the amount of interest being earned by the protocol to pay depositors as there are fewer borrowers paying interest.
- Borrowers who were burned might not be incentivised to come back.
- It increased the borrower incentive paid in ANC tokens by a ridiculous amount (currently at 164% APY), which means the supply of ANC tokens is super high now, and with demand low during a bearish period, it could cause ANC to dump.
When this happened, the 20% APY fixed yield was still being paid to depositors. But there was not enough capital to make payout the yield.
As a result, the yield reserve was tapped.
This brings me to my next point.
5. Anchor Protocol Yield Reserve Running Out
After the May 2021 crash, the yield reserve almost ran out.
To prevent this from happening Terraform Labs pumped in $70M UST to Anchor Protocol’s yield reserve to stabilise things.
It is unlikely that this will happen again. But, the good news is that Anchor Protocol at the time of writing still has $67M UST in its reserves.
6. Foreign Exchange Risk
According to Investopedia: Foreign exchange risk refers to the losses that an international financial transaction may incur due to currency fluctuations. Also known as currency risk, FX risk and exchange-rate risk, it describes the possibility that an investment’s value may decrease due to changes in the relative value of the involved currencies.
Since the UST stablecoin is pegged to the U.S. dollar, you have to contend with the price fluctuations of the dollar.
-Depositors Funds Are Still Safe
But an important thing to note is that there is an assurance from Anchor that your capital will still be preserved.
This is due to Anchor’s liquidation protocol and over-collaterisation requirement.
Even if the Anchor Rate falls, you can always withdraw your money any time and park your money somewhere else.
However, this does not cover risks like smart contract hacks.
–Anchor Protocol Insurance
You can actually buy insurance on Anchor Protocol.
The insurance covers you against events like a UST depeg or smart contract hacks.
The cost is also quite low as it tops out at about 2.5% of your insured value a year.
But do carefully read the terms and conditions of the insurance before committing to anything.
In addition, Terraform Labs is actually building a native insurance project called Ozone which will be providing insurance on the Anchor Protocol so keep a look out for that!
-Anchor Protocol via this site
As you can see by now, there are multiple options available to hedge against inflation AND earn healthy returns. Please consider your risks and benefits carefully before choosing the best option that fits your needs. Remember to always do your own research since nothing in this article is an investment advice.
Disclaimer: The information provided on this page does not constitute investment advice, financial advice, trading advice, or any other sort of advice and it should not be treated as such. This content is the opinion of a third party and this site does not recommend that any specific cryptocurrency should be bought, sold, or held, or that any crypto investment should be made. The Crypto market is high-risk, with high-risk and unproven projects. Readers should do their own research and consult a professional financial advisor before making any investment decisions. CelsiusCow.com does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is CelsiusCow.com an investment advisor. DYOR. Please note that CelsiusCow.com participates in affiliate marketing.
-Via this site: “Earn Up to 20% Interest on Stablecoins | Nexo vs. BlockFi vs. Celsius vs. Anchor Protocol“
-*TRENDING Reddit Review/Survey Reference: “Best Crypto Lending Platform Comparisons 2022 | Celsius vs. Nexo vs. BlockFi vs. Anchor Protocol“
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