What Stablecoins Are the Best for Earning Interest?

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Contributor, Benzinga
September 6, 2022

Savings accounts or CDs offer interest rates of up to 1% in some cases. To many, these accounts are a sound place to put money. However, crypto has brought about the rise of stablecoins – tokens pegged to an underlying asset, such as USD – that offer interest rates much higher than average. Just as there are many savings accounts out there, many stablecoins also exist. Today, let’s take a look at a few of the best stablecoins for earning interest and how you put them to work to earn passive income.

Disclosure: ²Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts

What Are Stablecoins?

Stablecoins are cryptocurrencies that are pegged to an underlying asset. Most of the time, the underlying asset is the U.S. dollar. Several methods are used to keep these tokens at $1.00. The most successful way has been to back the token supply with real money. By having a USD supply that is equal to the number of tokens in circulation, the price can be justified. Furthermore, the amount of backing can be adjusted to keep the price stable. Despite the promise of fiat-collateralized stablecoins, a key limitation is that they counter the cryptocurrency ethos of decentralization and create a single point of failure.

Another more controversial way to keep stablecoins’ price at $1.00 is through algorithms. This practice involves automatically buying and selling another asset to maintain a stable backing for the token. This process came under scrutiny after the failure of UST, an algorithmically backed stablecoin. The algorithm was not prepared for increased volume, so the token price completely crashed. 

While stablecoins do have the inherent risk of destabilization, keeping the price stable can have its perks.

Why do People Use Stablecoins?

Stablecoins currently have several uses. For starters, they are a predictable form of payment. Some may be hesitant to pay with an asset that is constantly changing in value. Stablecoins solve this issue. Additionally, they can be used as a way to exchange, trade and swap tokens. Stablecoins have become popular for lending and borrowing.

The future of stablecoins is exciting. Governments around the world, including the United States and France, have already begun having talks and experimenting with stablecoins. 

Best Stablecoins for Earning Interest

You can buy several major stablecoins, each with unique features and benefits. However, they are similar in many aspects. It may be more important to take a look at the platform you use when earning interest. You can use centralized platforms, which are run by a company, and decentralized platforms, which are not owned by anyone. 

Tether (USDT)

Tether was originally launched in 2014 on the Bitcoin network under the name RealCoin, but was later renamed USDT and updated for use on the Ethereum, EOS, Algorand, Tron and OMG blockchains. 

Features of USDT

For USDT, stability is achieved through its backing. Tether, the company that created USDT, has a sum of bank deposits, Treasury bills and commercial paper equal in USD to the amount of USDT in circulation. Tether has seen multiple different controversies over its backing. It blatantly lied, saying that USDT was backed 1 to 1 by USD for years. The New York Attorney General forced the company to publish the true breakdown of its reserves, revealing that nearly 50% of the backing was in commercial paper (a type of often risky unsecured debt) at the time. It now updates a breakdown of its reserves quartely and claims to have a much smaller percentage of commercial paper now. The token has a market capitalization of around $70 billion, with a daily volume of around $50 billion.

USDT is the third largest cryptocurrency in the world and the largest and most liquid stablecoin, followed by USD Coin (USDC) and Binance USD (BUSD).

How to Buy USDT?

USDT is available for purchase on any crypto trading platform. However, the best platforms are eToro and Webull.

To get started on any of these platforms, navigate to the website, register an account, verify it, connect your bank account and begin trading.

  • securely through eToro's website
    securely through eToro's website
    Best For:
    Demo Accounts
    Rating:
    Read Review

    Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk

    Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more

  • securely through Webull Crypto's website
    securely through Webull Crypto's website
    Best For:
    Low Minimums
    Rating:
    Read Review

How to Earn Interest on USDT

You can use two main places to earn stablecoin interest: centralized or decentralized exchanges. For centralized exchanges, BlockFi offers high interest rates for deposits. It is also easy to get started on the site.

For decentralized sites, Compound Finance offers high rates as well and is perhaps even easier to use for those well acquainted with decentralized finance (DeFi).

USD Coin (USDC)

Originally launched in 2018, USDC is digital money for the digital age. The token hopes to provide a stablecoin that is accepted by as many wallets, exchanges and decentralized applications (dApps) as possible. While USDC has lower trading volume than USDT, it is widely regarded as a safer store of value since it's backed by more cash and cash equivalents.

Features of USDC

USDC finds stability in 1:1 backing from a mixture of cash and short-term Treasury notes. This makes it one of the best stablecoins for earning interest because it is likely the safest. The token has a volume of around $5 billion, with a market cap of around $50 billion, making it the second largest stablecoin. The token hopes to be used as a safe haven from volatile crypto markets and a form of payment. More merchants are beginning to accept USDC as a form of payment. 

How to Buy USDC?

Though USDC is not the largest stablecoin, it is still available on trading platforms, namely eToro and Webull. 

  • securely through eToro's website
    securely through eToro's website
    Best For:
    Demo Accounts
    Rating:
    Read Review

    Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk

    Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more

  • securely through Webull Crypto's website
    securely through Webull Crypto's website
    Best For:
    Low Minimums
    Rating:
    Read Review

How to Earn Interest on USDC

Coinbase and Aave are two of the best platforms to begin earning interest on your USDC. Coinbase has more recently begun offering interest on USDC. It is a strong centralized platform with security measures in place. 

Aave is a decentralized platform that offers similar rates to Coinbase, but the aspect of decentralization could be more appealing for some users. 

Binance USD (BUSD)

BUSD was launched in 2019 by Binance and Paxos. Though it was released more recently, it has become an integral part of the Binance exchange and has made its way into the Ethereum stablecoin space. 

Features of BUSD

BUSD also uses a 1:1 backing to maintain stability. However, the stablecoin is one of the few to receive monthly audits, which are publically available. It is also registered with the New York State Department of Financial Services (NYDFS). The token is available on Ethereum as an ERC-20, Binance Chain as a BEP-2 and Binance Smart Chain as a BEP20. The token has a market cap of around $20 billion and a daily volume of around $8 billion, making it the third largest stablecoin.

How to Buy BUSD?

BUSD powers the Binance exchange, so that is a great place to get started. However, it may be easier to use FTX if you are looking to take your BUSD off of the exchange you bought it on. This can be useful if you are looking to stake on a decentralized platform. 

How To Earn Interest on BUSD

BlockFi and Binance are the top two places to earn interest on your crypto. Both offer competitive rates and are fairly easy to get started on. Create an account and verify it, fund it and purchase BUSD. From there you can deposit the tokens for staking and begin earning interest.

DAI

DAI is the largest stablecoin that is not directly managed by a company. Instead, it is managed by a decentralized autonomous organization (DAO) called MakerDAO. The token was launched in 2019 and is still managed by MakerDAO.

Features of DAI

DAI is “soft-pegged” to USD, using its cryptocurrency reserves and smart contracts to automatically generate DAI at a rate that keeps the price stable. DAI is easily the most decentralized of the top stablecoins for this reason. By running the operation entirely on the blockchain, the process is much more transparent and less prone to corruption. The token operates on the Ethereum blockchain. The token has a market cap of around $6 billion and a daily volume of around $400 million, making it the fourth largest stablecoin.

How to Buy DAI?

DAI is a bit more of a unique stablecoin, so it is not listed on as many trading platforms as some of its larger competitors. However, it can still be bought on FTX and Gemini. 

How to Earn Interest on DAI

Gemini and Aave are the two best places to earn interest on DAI. Gemini is a leading centralized exchange that offers competitive rates, whereas Aave is a top decentralized protocol with similarly competitive rates. Gemini tends to be a bit easier to use, while Aave may provide more security in the long term.

Which Stablecoin Should You Choose?

Most stablecoins are relatively similar. They all tend to remain around $1.00. Because of this, your own personal preference may be the deciding factor in which stablecoin you choose. You can ask yourself if you prefer a centralized or decentralized token, one that is backed by crypto or fiat and the method by which new tokens are minted. If you can answer all of these questions based on personal preference, then you are well on your way to deciding on the right stablecoin for you.

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About Caden Pok

Caden has been involved with cryptocurrency for several years. He began trading and investing in crypto in 2018. Now, we mines multiple coins and holds positions in Cardano and Ethereum. He is very experienced with DeFi technology.