Chasing Yield - Stablecoin Interest Bearing Accounts


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Hey all, been gone for many years. Had two kids which really drained the time and motivation I used to have for MS. Looks like it's not as busy around these parts as it once was; but, I'm still interested in any expert opinions from you folks.

I've been looking into the DeFi crypto banking world as well as the centralized crypto "banks" recently as a place to store some of my crypto assets and be paid interest while I HODL. Specifically, I am attracted to the ease of use of these centralized firms like Celsius and Blockfi. The interest rates on crypto are attractive at around 5-6%; but, what has really piqued my interest and what this post is about is the yield, 10%, offered on stablecoins like USDC, GUSD, etc which are tied directly to the US Dollar. Tell me why I shouldn't convert a large portion of my cash - currently sitting in a traditional savings account paying less than 1% - to a stablecoin savings account paying 10% APY.

I think the first thing that comes to mind is security. There's no FDIC insurance, no path to recovering stolen crypto coins, etc. But, if I can become comfortable with the security aspect, is there any other glaring reasons why not to chase this yield?

I'm looking at Celsius and BlockFi as the industry leaders in this space. These are not shady, small time firms. BlockFi is registered in London and headquartered in New York. Celsius is an American startup fully regulated by the US. Celsius has $6B+ AUM and Blockfi has $8B+ AUM. Obviously, security is paramount to both firms. Celsius assets are actually insured by their custodians however they earn the interest by lending out the assets. When lent, they are not insured, but they do operate with a 150% collateral requirement (alternate asset class) for all loans.

I'd likely convert my dollars to USDC. While Tether looks to have stabilized nicely, I don't trust it at all after I was involved in crypto back in 2016-2017 and watched it rushed to market and not backed by real $$.

Thanks for any insight, Mike


Level 2 Member
Not FDIC insured says all of it. Did you review & research all the "stable"coins in detail and if they are really tied to the US Dollar?

The first Bitcoin bubble was market manipulation, there are university papers around it.

Regarding the claim to be tied against the Dollar, you even mentioned the concern against Tether - which is under an ongoing legal investigation. But why should someone believe another currency? And how are they tied to the USD? How many of them leverage Tether for this tie? How do the companies even make money longterm when paying you 10% interest, who do they charge 12%+ to make it work? Therefore all these "stable" and USD tied cryptocurrencies come with their own huge risk, unless you find a bullet proof auditing.

I personally advice against any crypto investments. The yield is not worth the risk in my opinion. It could go well for 10 years and you break even at 10% (if you cash the interest out) or it can go downhill any day. There are other risk investments (real estate, stocks with the supposedly 10% average return) with higher yields which I would prefer 100x over crypto and you can diversify it more.

For some background examples of a "stable" US Dollar tied currency, people might want to read an opinion like this one here:


Level 2 Member
Premium Supporter

Really appreciate your response. Upfront, I want to say that I had not read the medium article by Crypto Anonymous, we'll call him Mr. A, before and found that to be an excellent, informative, and entertaining read.

A couple direct responses to your post:

Did you review & research all the "stable"coins in detail and if they are really tied to the US Dollar?
Certainly not all of them; I am but one man. But, I am aware that Tether is likely a scam so I looked primarily at USDC. USDC is an audited stablecoin established by regulated US firms in Coinbase and Circle. This is even acknowledged by Mr. A in his article. They publish their independent audit reports showing 1:1 or greater reserve of actual US dollars. For example here is the November 30th Report from Grant Thorton. It shows $3,004,921,958 held in custody. Looking at CoinMarketCap, you can see the market cap on 11/30 was 2.9M. I did verify that past reports also show a greater reserve than market cap. In conclusion, I'm confident that USDC is reserving fiat to tie to the crypto coin. As an aside, certainly a higher standard than any traditional bank which admittedly does not have cash on hand to cover all of it's deposits.

How do the companies even make money longterm when paying you 10% interest, who do they charge 12%+ to make it work?
This indeed is a big question. In theory, they are earning enough return making hyper short term loans with high interest rates. Maybe they are. Maybe some of it is VC money to build the user base. If they are safe and are paying the interest, does it matter? Yes, of course it does because they hold the keys to your crypto so there is a black swan risk with these firms. More on that later. One thing I will point out that I don't see brought up in discussions of places like Celsius and BlockFi. They aren't saying they will pay 10% long term. In fact, quite the opposite. They re-evaluate and change the interest rates paid weekly and monthly. Therefore, if they stop earning the higher yield on the front end, they can just reduce the interest payments to the depositors.

Therefore all these "stable" and USD tied cryptocurrencies come with their own huge risk, unless you find a bullet proof auditing.
Important time to stress that there is obvious risk. This is a step of diversification such as you reference later in your post talking about stocks, real estate, etc. USDC has solid auditing. Bulletproof? No, but neither do the stocks, startups, or a lot of the real estate portions of my portfolio. As with any investment there is a risk/reward tradeoff.

I see two big risks here. But first let me dispel some frequent ones I see in these discussions:
  • safety/crime/hacking - obviously a risk with all crypto but the safety of your assets is paramount to these firms. They keep their coins in cold storage, insured (though that doesn't cover the lent out portions). It's a risk (not your keys, not your crypto), but one I'm willing to take.
  • loans defaulting - This isn't possible in the traditional sense; that's the beauty of smart contracts. When Celsius only gives loans with 150% crypto collateral, that collateral is cryptographically secured as part of a smart contract. The borrower can not use it as collateral for another loan (like in fiat), or get rid of it when things go south. If the terms of the smart contract are met, it immediately transfers over to the lender. Big pro to Defi in general is the algorithmic enforcement and security of these terms vs trusting (and employing) bank middlemen to evaluate and put in place the terms.
Ok, onto why I'm likely still not going to put a double digit % of my assets into stablecoin savings accounts:
  • Complete collapse of Bitcoin and Ethereum value. I'd imagine that these assets are the most used as collateral. If a borrower puts up $150 of BTC in order to borrow $100, what happens when the value of BTC drops 90%. That $150 is now not enough. Margin call hits and the lender calls back the loans. What if the borrower can't pay? Now we are in the massive, large scale default type scenarios that could bankrupt a financial firm like Lehman Bros. Reading Mr. A's article, certainly paints a picture of this being a possibility, tying the crypto market all back through Tether. I think the real key is what we determine the % of authentic Tether purchases are vs fraudulent. Yes, the tether input has increased exponentially in the latter half of 2020 and now in 2021. But so has legit crypto demand. And most of the world outside of the US accesses crypto through something like Tether. They are paying real fiat for tether to BTC/ETH. There's a scenario where the Tether rug gets pulled. And that scenario would absolutely drop BTC/ETH prices immediately. But, would that have any affect on my USDC holdings which are attributed directly to $$ in custody? It better not. They should still be worth $1. It's really the black swan of that defaulting loans and bankrupting Celsius or BlockFi were the risk comes into play. It's very low, but it's catastrophic if it happens. You are talking about $20B between just those two companies right now.
  • The whole thing is a ponzi scheme. The founders of BlockFi and/or Celsius disappear with everyone's billions. See Quadriga. Another black swan with low risk since we know the partners and investors in these companies. Doesn't remove the risk of a black sheep with the keys though. Again, not your keys, not your crypto. One solace I take here is that they would have done that already at $200M like Quadriga. Why wait for $10B+.
In summary, is it riskier than a traditional savings account? Hell yes. Is the interest rate adequate for the additional risk? Everyone can make their own decision but, for 5-10% of my investment portfolio, I'm leaning toward taking on that black swan risk to capture current 10-12% APY on something resistant to crypto coin value fluctuations like USDC. Your linked article makes me much more worried about my BTC/ETH holdings, then my pursuit of USDC interest bearing accounts.