USD Coin is an ERC-20, fiat-backed stablecoin created by CENTRE, a consortium founded Coinbase and Circle. The company has issued nearly $1 billion in USDC since it’s inception and is one of the more popular fiat-backed stablecoins on the market. USDC can maintain a stable value as every USDC is backed 1:1 by US dollars held in reserves. In other words, 1 USDC is always redeemable for 1 US dollar.
Starting today, Coinbase customers with more than $1 USDC will begin earning a passive return on their USDC holdings. Users can watch their earnings grow in real-time, however, rewards are distributed monthly. Coinbase claims that customers will maintain complete control over their USDC at all times and users are free to transact with the coin at any point.
How Does This Compare to Other DeFi Lending Apps
This announcement comes amid the DeFi boom in 2019. While 1.25% APY is substantially higher than traditional savings rates at banks, it’s still lagging behind the broader DeFi lending market. As of writing, Compound currently offers 5.34% APY on USDC holdings while dYdX offers 3.85% APY – View current USDC lending rates. This doesn’t account for other stablecoins, such as Dai, where holders can earn upwards of 8%.
What Coinbase does offer over DeFi applications is ease-of-use. It’s free to buy USD Coins with fiat directly through Coinbase and users don’t have to interact with smart contracts or face any of the risks that come with using an immutable ledger. Users simply have to purchase USDC and they’re earning interest.
USDC Rewards are a great introduction to the world of DeFi for the broader crypto community. Coinbase customers will begin to see the benefit of earning interest in real-time, and at a much higher rate than most banks would offer. With this, it would come as no surprise if some of those users expanded into other DeFi platforms in search of higher yields.
More Coinbase Lending Assets Coming Soon
A recent tweet from Jesse Pollack, Head of Engineering at Coinbase, also hinted that this move may just be the beginning for Coinbase in the lending space. Coinbase currently supports 16 crypto assets on its platform where a handful already have existing DeFi lending markets including ZRX, BAT, REP, and DAI.
step #1 towards a global financial system: make it dead simple for anyone to earn interest on their USDC. more coming soon…
super proud of all the teams that worked on this (and excited to move more of my money into crypto)!
— Jesse Pollak (@jessepollak) October 2, 2019
Ultimately, Coinbase’s launch of USDC rewards is a big win for DeFi and the broader Ethereum ecosystem. It will be interesting to see how interest rates will evolve, and if Coinbase will offer any other assets to its reward program in the future.
Analyst at Bankless – one of the leading resources for open finance. Lucas is an active contributor to the DeFi ecosystem with appearances in other notable DeFi outlets including The Defiant and Our Network. He has years of experience working with dozens blockchain and token startups where he focused on token economics, marketing, and growth.