How BlockFi, DeFi and Co. bring back interest

Albert Einstein was already convinced of the power of compound interest. Since the central banks declared the interest rate to be a relic of the past few days, however, the following applies: no interest, no compound interest. But there is hope. In the crypto sector, interest can be earned on Bitcoin and Co. In the current crypto compass we show how.

Some may remember the relic of interest. The principle is actually clear: Those who forego liquidity will be rewarded for it. The interest rate is therefore also known as the “risk premium”. After all, the transfer of liquidity to third parties such as credit institutions is not risk-free and must be remunerated accordingly.

But the interest is broken. At least since the central banks made it clear in spring 2020 that “liquidity does not have to fail”, in other words, they started the printing press, it is clear: there will be no more interest in the traditional financial sector for the time being. On the contrary: the comparison portal Verivox currently lists 392 banks that charge penalty interest of minus 0.5 percent from a credit balance of EUR 100,000 at the latest, with some starting at EUR 50,000.

But it’s not all evening yet and we wouldn’t be BTC-ECHO if we didn’t take on the alternatives from the crypto sector. Because in the current cover story of the Cryptocompass is it about exactly this topic: How do I earn interest on Bitcoin and Co.? To do this, we dedicate ourselves to two options: Lending and DeFi.

What are lending services?

With lending services like BlockFi Users can deposit crypto values ​​such as Bitcoin (BTC), Ether (ETH), UNI, DAI and USDT and earn interest on them.

The range of interest rates, however, is enormous. While Bitcoin pays 0.25 to 4 percent interest at BlockFi, investors can earn dream returns in the range of 5 to 7.5 percent with the stablecoins Tether (USDT) and US Dollar Coin (USDC). Things are even hotter on the platforms of competitors: the centralized lending service, for example, pays out up to 10 percent. You can find more details and an overview table with the current interest rates in the new crypto compass.

Of course, there is no “free lunch” in the crypto sector either. Double-digit returns do not come without risk. One example is the counterparty risk – crypto lending companies do not have deposit insurance, so the investor bears the full risk of a total loss.

Be your own bank: what speaks for a decentralized credit solution

But the crypto space would not be the crypto space if it did not also provide decentralized credit solutions as a counter-offer to lending services with a tendency towards centralization. And this is where DeFi comes in. Using the example of AAVE, we explain how smart contracts bundle credit volumes and automatically coordinate them via blockchain. There is no single point of failure as with BlockFi and Co. However, DeFi interest rates are not entirely risk-free either. Smart contracts are fallible and DeFi protocols are increasingly being hit by hacks.

You can find the entire story in the current crypto compass.

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