GUSD Lending: What to Know About Rates, Exchanges, Risks and Benefits

Written by

Best lending rates available from top lending platforms for October 7, 2022

Offers

cefi

Gemini

Best for intermediate traders

4.0
Lending Rate
5.75%
Borrow Rate
N/A
cefi

BlockFi

Best for simple yields

4.0
Lending Rate
7.50%
Borrow Rate
4.50%

Stablecoins are the next big talking point in crypto. It’s something that people can understand and use for their benefit. In fact, stablecoins have taken off so much that Congress is definitely keeping a close eye on things; additional oversight for stablecoins is on the horizon. The only question is when it will take effect.

GUSD is Gemini’s answer to the stablecoin game, with a few twists. For starters, it’s an ERC-20 token already set up for smart contracts. It is native to the Ethereum blockchain, allowing it to remain a compelling option for DeFi enthusiasts.

Key takeaways

  • There are no fees to buy or sell GUSD on the Gemini Exchange.
  • GUSD is a stablecoin and is pegged to the value of the U.S. dollar, so lending is one of the only ways to passively increase your investment.
  • The best place to lend Gemini Dollar is on the Gemini Exchange, since GUSD is its native token.

What is GUSD lending?

GUSD lending is straightforward: you’re taking the GUSD you have and lending it out in exchange for interest earned on the token. GUSD, in this case, stands for Gemini Dollar, and it is a stablecoin designed for easy exchange. It is always pegged to the price of the U.S. dollar, matching it exactly. Similar to peer-to-peer loans in traditional finance, GUSD lending isn’t lending your tokens out directly to a borrower, it’s supplying the tokens to a pool with other investors for borrowers to lend from.

How does GUSD lending work?

Lending GUSD works similarly to traditional peer-to-peer lending platforms like Prosper or Lending Club. You're not necessarily matched with a borrower who you directly lend to. Rather, you deposit funds into an account that is available for the platform to lend to borrowers on your behalf or a pool with other investors from which users borrow. Some lending platforms have requirements for minimum amounts and minimum term lengths to get the best returns on your GUSD, while others do not.

When you deposit GUSD for lending, it’s either deposited to a CeFi exchange account in your name or into a supply pool on a DeFi lending protocol. Then, borrowers can request funds and your deposit helps fund that loan. While the borrowers are using their loans, the lenders are paid yields as a reward for making their funds available for lending. These rewards either accumulate an account or are paid directly into a wallet, depending on the platform and if it’s DeFi or CeFi.

CeFi GUSD lending

The easiest way to get started with GUSD lending is to go to a centralized exchange. Since GUSD is Gemini’s native token, it makes sense that the Gemini exchange is often the first destination to exchange fiat currency for GUSD. Gemini allows users to lend their GUSD for advertised rates of around 7%, which is high compared to other tokens.

When you lend out your GUSD on CeFi platforms like Gemini or BlockFi, you typically deposit the tokens into an earning account on the platform, and your earnings are paid out back into that account. On Gemini, the rewards are paid out every day at 4 p.m. EST and add to your loan balance so your rewards are compounded.

When you want to redeem your GUSD rewards on Gemini, you can redeem some or all of your earnings in a process that takes up to five business days, and the balance is moved from your earning account to your trading account where you can trade or withdraw.

Pros and cons of CeFi GUSD lending

Pros

  • Easy for beginners to start
  • Earnings paid out daily on Gemini
  • Higher, stable interest rates

Cons

  • Custodial lending, so you don’t have control of your tokens
  • KYC process means less anonymity
  • Earnings redemption not always instant

Pros of CeFi GUSD lending

Easy for beginners

If you’re new to the crypto lending space, but want to make a little passive income with relatively little upfront investment, CeFi GUSD lending is an easy first place to start. Once you sign up with Gemini and purchase Gemini Dollar, you can create an Earn account and allocate how much you want to deposit for lending. It’s relatively simple, and Gemini’s sleek user interface makes each action easy to understand

Daily payouts

Payouts for GUSD lending rewards are every day at 4 p.m. EST the following business day funds are moved to an Earn account on Gemini. If you deposit GUSD into an Earn account on a Thursday morning, you’ll get your first payout of rewards at 4 p.m. on Friday. These rewards accumulate in your account and you can redeem them or allocate them to lending to boost your earnings potential.

Higher rates

As of mid-August, BlockFi advertises 7.5% for balances under $20,000 and Gemini advertises 7.91% APY on GUSD lending. Assuming that those interest rates don’t vary wildly, they can be higher (and more stable) than DeFi GUSD lending platform rates. With stable and predictable interest rates on your tokens, you can better calculate how much you’re earning.

Cons of CeFi GUSD lending

Custodial lending

When you use CeFi platforms, the exchange actually takes custody of your tokens and you have to request or initiate a transfer to withdraw or move them, which the exchange then processes. If the lending platform goes down, files bankruptcy, or otherwise fails, you can lose your funds with no recourse.

KYC process

CeFi platforms are required to verify the identity of every user, which can involve invasive tactics like facial recognition or even supplying your Social Security number. In the event of a data breach, this information is at risk, and you can’t protect your data.

Slow redemption process

While Gemini states that its process can be instant, if there is a high volume of redemption requests, the process can take up to five business days for your earnings to transfer to your trading account. This timeline can hinder your fund movements and make it difficult to take advantage of prime market conditions with your GUSD lending rewards.

DeFi GUSD lending

As mentioned earlier, GUSD is an ERC-20 token. It lives natively on the Ethereum blockchain, and is already set up for smart contracts. You can lend GUSD on decentralized exchanges, work with automated market makers, and earn interest on the tokens you decide to lend out.

Unlike with centralized exchanges, everything in the DeFi space is between you and the borrower, with the exchange taking a passive backseat. When you lend on DeFi platforms, you place your tokens into a pool that other suppliers have deposited their tokens into. Then, borrowers interact with the protocol through smart contracts to borrow their desired amount, while putting up collateral. If the value of their collateral drops below a certain threshold, then they are automatically liquidated and their collateral is used to replenish their borrowed amount, protecting the lenders from losing their tokens in the pool. Demand and supply impact DeFi; some tokens will have a higher yield than others based on the number of tokens in supply pools.

Pros and cons of DeFi GUSD lending

Pros

  • Non-custodial GUSD lending
  • No KYC process
  • Smart contracts

Cons

  • Fewer options
  • Smart contract vulnerability
  • Volatile interest rates

Pros of DeFi GUSD lending

Non-custodial lending

When you use DeFi GUSD lending protocols, you retain custody of your tokens. Opposite of CeFi platforms, you don’t have to request transfers from the pool or earning account to another account or wallet. You can simply pull your tokens whenever you're ready and bring them back into your main wallet.

No KYC process

DeFi platforms operate outside of government regulations and don’t require identity verification. To get started, you just connect your compatible wallet of choice to the platform, whether it be a browser or software wallet, and you can start supplying GUSD to a pool immediately.

Smart contracts

Smart contracts run the DeFi world and are the reason why DeFi is decentralized. Instead of interacting with a platform and initiating trading order requests or withdrawals, you initiate actions through smart contracts that will fulfill the actions automatically, making it easier — and faster — to trade and earn.

Cons of DeFi GUSD lending

Fewer options

Because GUSD is a stablecoin created by a CeFi platform, you won’t find many protocols that include it. One of the only DeFi lending protocols we were able to find that supports GUSD lending is Curve. This severely limits your options in finding the best DeFi lending platform to lend GUSD.

Smart contract vulnerability

Because DeFi lending protocols run on smart contracts, those smart contracts — like any piece of code — can have bugs and exploits. CeFi platforms aren’t completely safe from hacks, but DeFi smart contract hacks can result in millions of user funds stolen from the platform. Make sure you use DeFi lending platforms with a history of third-party audits and high security measures.

Volatile interest rates

Interest rates on DeFi lending protocols can be incredibly volatile. Because the yield rate relies so much on supply and demand, the rates can fluctuate wildly. For example, Curve’s rates for GUSD lending are anywhere between 4.132% and 10.33%. The latter rate is alluring, but not guaranteed.

GUSD lending taxes

Taxes are just part of life, and a discussion around crypto lending is going to also have to include a few points about GUSD lending taxes. In general, any income generated by lending GUSD is going to create a taxable event, and thus, you may owe taxes on it. As always, talking to a qualified tax professional that can take your passive income into consideration against the greater picture of your finances is always best.

Your country’s specific tax laws will come into play regarding all forms of taxable income, including income earned from crypto lending.

Final thoughts on lending GUSD

As mentioned before, lending out GUSD is a great idea as it puts passive tokens to good use. Because Gemini Dollar is Gemini’s native token, the easiest route to managing an earnings account is with Gemini itself. Its rewards are paid out daily and can accumulate in your Earn account until you’re ready to withdraw and trade with it. However, be aware of any risks with cryptocurrency and only lend out what you can afford to lose.

Frequently asked questions

  • Is GUSD lending safe?

  • Should I lend my GUSD?

  • Where is the best place to lend GUSD?

  • What are the risks of lending GUSD?

  • How much can I earn from lending GUSD?

  • Will I owe taxes on GUSD lending?