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USD Coin (USDC) is a fiat-currency-collateralized stablecoin created by the Centre Consortium. Each USDC is designed to maintain a peg to the US dollar, fully reserved by cash and short-dated U.S. treasuries. Circle provides monthly attestations to show all USDC in circulation is backed by its equivalent value.
USD Coin’s backing is held by financial institutions based in the U.S, including Blackrock and BNY Mellon. This makes it a kind of “digital dollar” in some sense.
By tokenizing dollars onto the blockchain, USDC becomes a digital currency that is composable with the internet. Global remittances become instantaneous, hedging against the volatility of cryptocurrencies is enabled while using blockchains, and Web2 commerce can integrate more smoothly into Web3 crypto markets. Yet, one of the most sought-after use cases is still earning interest on USDC holdings through staking.
Staking as a term is used liberally and can have a variety of meanings. Initially, the term referred to crypto assets that were staked to secure blockchain networks like Cardano and Ethereum. Stakers deposit their assets as collateral, verify the networks’ transactions, and get paid a reward for doing so. The term then began to be used interchangeably for earning interest on any crypto asset, like stablecoins or altcoins.
USDC staking can encompass different methods of earning yield, like lending and borrowing, market making, or locking with exchanges offering yield on USDC. However, depositing USDC tokens on centralized exchanges poses some risks, as yield may not be generated sustainably, evident by the collapse of several platforms such as Celsius and Voyager. Circle and Coinbase are also centralized entities, so have some counterparty risk.
The opaque nature of a crypto exchange made users worry about the safety of their funds, turning them to the DeFi crypto space which offers transparent and safer yields.
The first option for staking USDC is with the Centre Consortium itself, which can be done through Coinbase. This option has essentially no added risks, as users would be staking with the issuers of USDC themselves.
The other options besides centralized platforms and cryptocurrency exchanges would be on DeFi protocols. Due to the permissionless nature of Web3, anyone can create a smart contract application. This has led to innovations such as smart contract based lending applications, decentralized exchanges, algorithmic market making, yield aggregators, and more.
On the flipside, these smart contracts can also be programmed maliciously. Lending platforms could be built with backdoors, allowing the creator to drain digital assets deposited into their platforms. Even if they were not programmed maliciously, potential bugs and exploits could also allow external hackers to do the same.
Over time, protocols were battle-tested via live deployments demonstrating the resiliency of their algorithms and code. Holding billions of dollars worth of assets, bad actors were enticed to exploit or hack the protocol, but were unable to do so. These protocols became regarded as DeFi blue-chips, and include Curve, Aave, Convex, Uniswap, and Compound, which can be used to earn yield on USDC.
Though not everyone has access to Coinbase Earn, the USDC interest rate on it currently sits at 1.5% APR.
A list of DeFi USDC staking rates on respective platforms is expanded upon below, summarizing their attributes and methods of generating yield.
Aave is a lending and borrowing protocol launched in January 2020 on Ethereum. By issuing overcollateralized loans, the USDC lending rate currently hovers around 2.05%.
Compound is the original lending platform that piloted the current model. Though Aave has overtaken in popularity, Compound is still regarded as one of DeFi’s most resilient protocols, offering around 1.87% APR to USDC lenders. Users of the protocols also earn rewards in COMP tokens.
Curve is a decentralized exchange with an automated market maker. Users are able to provide liquidity on the protocol to earn trading fees and CRV rewards. However, stakers are unable to simply deposit USDC, as they would have to provide liquidity for trading pairs that consist of more than one asset, such as the USDC, DAI, and USDT pool, currently yielding around 1%.
Origin Dollar (OUSD) earns boosted yield while using the same battle-tested applications that earn between 4% to 8% APY on stablecoins. Origin Dollar is fully collateralized, doesn’t take on any leverages, and is completely liquid at all times. The APY boost comes from a large stake of OUSD that earns interest for users. OUSD held in smart contracts forgoes the interest earned, effectively boosting yields for real holders.
We have established that DeFi staking is preferred over staking on centralized platforms due to its transparency and sustainability. On the other hand, DeFi yields are highly variable and can change over time. Stakers would have to spend time and transaction fees to switch protocols and optimize yields for themselves.
Instead of doing all that work, users can simply acquire OUSD, which helps users passively generate the best DeFi yields.
OUSD is a yield-bearing stablecoin that actively rebalances between DeFi strategies to earn the highest yields. These proprietary strategies are built on top of DeFi protocols by the DAO’s engineers. Integrated protocols include Aave, Compound, Morpho, Curve, and Convex.
Due to the efficiency of OUSD’s strategies, holders have been enjoying yields between 4-5% APY. All of OUSD’s strategies and stablecoin reserves can be viewed on-chain, ensuring holders feel assets are safe.
Furthermore, OUSD does not require staking or lock ups, sending yield directly into users’ wallets. Like a high interest savings account, users remain completely liquid while earning the best risk-adjusted yields via DeFi.
OUSD can be bought through exchanges such as Uniswap, Kucoin, or Gate, or directly via OUSD.com. A Web3 wallet is required to hold OUSD, and if storing more than $1000 worth of assets, it is generally recommended to use a hardware wallet like a Ledger.
What are the safest platforms to stake USDC for earning interest?
The safest platforms to stake USDC are reputable DeFi protocols such as Aave, Compound, and Curve. They’re known for their robust security measures and transparent operations. OUSD also offers a passive income model by automatically rebalancing between DeFi strategies for optimal yield.
How does USDC staking compare to traditional banking savings accounts?
USDC staking offers significantly higher interest rates compared to traditional banking savings accounts. Platforms like Aave and Compound provide rates from 1.87% to 2.05% APR. Plus, USDC staking in DeFi can be more transparent and flexible. It allows users to withdraw or reallocate funds without the typical banking restrictions.
What are the risks involved in USDC staking and how can I mitigate them?
The primary risks in USDC staking include smart contract vulnerabilities and liquidity issues on certain platforms. To mitigate these risks, choose established DeFi protocols with a strong track record and continuous audits. Diversifying across several reliable platforms can also reduce potential losses.
