USDC Lending: What to Know About Rates, Exchanges, Risks & Benefits

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When it comes to crypto assets, there are tons of coins and tokens on the market to choose from. In addition to staples like Bitcoin, thousands of altcoins and stablecoins have been added to the crypto ecosystem over the years, giving crypto users a slew of options to utilize and invest in.

While most people are familiar with altcoins — which are categorized as any cryptocurrency other than Bitcoin — stablecoins are another story. Not every crypto user is familiar with what a stablecoin is or what it does. The good news is, though, that there isn’t a huge learning curve to get up to speed on stablecoins. In fact, the idea behind stablecoins is pretty simple. A stablecoin is simply a crypto coin that is backed by reserves in non-volatile assets, and the price tends to stay “stable” in any type of market.

In the case of USD Coin (USDC), a stablecoin on the Ethereum blockchain, there are not only large cash reserves but also short-dated US treasuries. As with other types of stablecoins, USDC is designed to stay at a price of exactly $1. Circle, the company behind USDC, maintains a site dedicated to explaining why USDC will always be worth $1. But while the price continuity can be attractive to more conservative crypto users, there isn’t much money to be made by trading USDC — or other types of stablecoins — due to a lack of volatility with this coin. Still, crypto enthusiasts still have the opportunity to make money on the USDC they hold in their crypto wallets through other means, like lending it to borrowers in return for interest.

Key takeaways

  • USDC is a stablecoin designed to be worth exactly $1.
  • Lending USDC allows you to put this asset to work with minimal risk compared to trading it for more volatile cryptocurrencies.
  • As demand for stablecoins increases due to the rise of DeFi, the interest rates are expected to go up even more.

What is USDC lending?

While USDC lending falls outside of the obvious banking system that we’re all used to, the parallels are pretty clear. Rather than lending traditional fiat currency, the entire focus is on letting others borrow USDC. Those borrowers then pay for the privilege via interest.

How does USDC lending work?

There are two primary ways to accomplish USDC lending: through CeFi (centralized finance) and DeFi (decentralized finance) methods. The CeFi path is what most will select for its ease of getting started: you are essentially letting the provider tap into part of your collection of USDC so they can in turn lend it out to other people. Since they’re doing most of the heavy lifting internally, you don’t get all of the interest.

While USDC lending is done on the Ethereum blockchain, the process is simple — at least on the user’s end. In order to lend USDC tokens to a borrower, you simply have to connect your wallet to, and interact with, an existing decentralized exchange (DEX), like Coinbase or a similar platform. These exchanges already have the code built in that allows you to swap coins, earn rewards, or lend tokens.

If you want to lend tokens, all you have to do is interact with the exchange’s user interface. The smart contract components are working behind the scenes to make it happen.

CeFi USDC Lending

Let’s dive a little deeper into the details of lending USDC. If you want to lend your tokens to borrowers, CeFi USDC lending is typically the easier path because a centralized provider is handling most of the details in the background on your behalf. For beginners, starting with CeFi USDC lending makes sense.

Check the table before for a quick rundown of the pros and cons.

Pros and cons of CeFi USDC lending


  • Simple to use
  • Easier reporting
  • Quick deposits/withdrawals
  • No smart contracts needed


  • Dependent on good company/exchange
  • Higher fees
  • More verification required
  • Lower APY

Pros of CeFi USDC Lending

Simple to use

If you’re connecting to a centralized exchange, the lending process is already built in. That’s a huge plus for beginner users, as the learning curve isn’t steep. You can just connect the wallet you’re holding your USDC coin in to the exchange and then follow a few simple steps.

Easier reporting

Fewer details means that it’s easier to track transactions for tax reporting later. The complicated tax components attached to crypto are a big deterrent for many users, so simplified reporting can be a big benefit.

Quick deposits and withdrawals

Many centralized exchanges even allow for transfers to or from debit cards versus traditional bank accounts. This removes yet another laborious step from the process by streamlining the withdrawal and deposit process. Plus, some exchanges offer rewards for using their crypto debit cards, which means you can earn while spending your crypto gains.

No smart contract knowledge required

Since the exchange is doing the work, there is no need for the user to understand smart contracts — or do anything extra in that regard. The smart contract technology is built into the exchange, so it really is just plug and play when it comes to this type of platform.

Cons of CeFi USDC Lending

Custody is given to the exchange

In order to use a CeFi for USDC lending, you have to give your crypto over to the exchange. This removes the crypto tokens or coins from your control, which may not be ideal for your situation. What if the exchange fails or freezes assets? We’ve seen it a few times before.

Higher verification required

Centralized exchanges have to follow regulations in order to allow U.S.-based traders, which means they need to keep more information about your legal identity. In turn, you’ll need to offer up a number of documents or types of information to verify your identity. This may include a copy of your driver’s license, allowing access to your credit report, and/or communicating with someone at the exchange to verify who you are.

Risk of collapse

While no one expects an exchange to completely shut down, it’s happened before — and there’s always a risk that it may happen again, especially if those running the exchange are making risky decisions with the crypto they have in their custody. And, because you’re giving up custody to the exchange, it means that your tokens may be at risk of going down with the proverbial ship, should that take place.

Higher fees

Convenience always carries a price, and that price is going to be higher fees. These fees vary widely depending on the exchange, but on many platforms, you’ll pay a fee if you use it to buy, sell, lend, or use certain other functionalities.

DeFi USDC Lending

You don’t have to let a centralized exchange lend out your USDC tokens. You can always deposit your USDC with a DeFi crypto exchange (DEX), like PancakeSwap, SushiSwap, 1Inch, and Curve, instead. You may have heard of these types of exchanges in passing.

DEXs are a bit more hands on, just given the nature of cryptocurrency and the blockchain in general. For example, did you know that one blockchain technology doesn’t talk to another natively? This limitation means that if you have a token that’s native to one blockchain, you’ll have to “wrap” it in order to take it elsewhere.

However, there are benefits to using a DEX instead of a CEX to lend your tokens to borrowers. For starters, one major benefit of using a DEX for USDC lending is that it won’t come with strict Know Your Customer requirements like a CEX would, so you won’t have to go through a lengthy approval process to use it. Plus, you can still have smart contracts do all of the heavy lifting, and you may find better APYs compared to the CeFi world.

The downside is that, as you might imagine, using a DEX is a bit more hands on than letting the centralized exchanges do all of the work. In addition, smart contracts aren’t perfect, and you may not get everything you need to handle your reporting requirements.

Pros and cons of DeFi USDC lending


  • More flexibility and customization
  • Fewer verification requirements
  • Lower fees
  • Keep custody of crypto


  • Complex
  • Less technical support
  • Smart contracts can be buggy/hacked
  • Multiple transfers can add hidden fees

Pros of DeFi USDC lending

More flexibility and customization

You’re in the driver’s seat when using a DEX. There is more control on the user’s end when compared to the centralized exchanges, which are typically limited in both functionality and customization opportunities.

Fewer verification requirements

There typically aren’t any KYC requirements at all when using a DEX, which means there’s no documentation to provide on your part. This varies by exchange, of course — but removing the frustrating KYC requirements from the process can be a huge plus for users who are conscious about privacy or security. It can also benefit users who don’t want to have to wait for the verification process, which can take weeks or more with some centralized exchanges.

Lower fees

Since you’re handling more of the details yourself, the exchanges tend to have much lower fees. This tends to make it cheaper to use a CEX — and, in turn, the fees are less likely to eat away at your profits.

Crypto custody is retained

Unlike a centralized exchange, you retain crypto custody when you use a decentralized exchange. Your crypto remains in your wallet, and you can do with it what you see fit. Ultimate power, ultimate control.

Cons of DeFi USDC lending

More complex

If you’re a beginner and want something a bit more direct, it may benefit you to stick with CeFi USDC lending. There’s a steeper learning curve with a DEX, and it may not be the easiest route to navigate for new crypto users.

Smart contracts have their dark side

Nothing is completely secure, and smart contracts can be manipulated by bad actors or just be buggy in general. This isn’t limited to decentralized exchanges, of course, but it is a risk to consider.

Wrapping is often required

If you aren’t used to swapping one crypto for another in order to make trades, DeFi is going to have a bit of a learning curve to reach your goals. That includes the potential for having to wrap your crypto, which means you’re basically creating a crypto that can be used on a different smartchain that it originated from.

Final thoughts on lending USDC

Ultimately, lending USDC is just one strategy of many when it comes to handling this coin — but it’s a great way to earn interest on a crypto that doesn’t offer the same volatility that many investors rely on to make profits.

And remember that just because you decide to lend USDC today doesn’t mean that it has to become a long-term strategy. You can always try it out, see if the returns work for you, and reevaluate at a later time whether you move forward or not. Like most things in crypto, USDC lending is a concept that will grow as new places to lend USDC emerge and the desire for stablecoins increases as the market shifts.

  • Is USDC lending safe?

  • Should I lend my USDC?

  • Where is the best place to lend USDC?

  • What are the risks of lending USDC?

  • How much can I earn from lending USDC?

  • Will I owe taxes on USDC lending?