Coinbase will pay 4% annual yield to users holding USDC

Major cryptocurrency exchange Coinbase has announced that users will be able to earn 4% interest on USDC through one of the company’s products, compared to alternative fiat savings accounts.

Coinbase users can earn a 4% annual percentage yield (APY) by lending their holdings of USD Coin (USDC), a stablecoin pegged to the U.S. dollar, the cryptocurrency exchange said in a blog post on Tuesday. The cryptocurrency exchange appears to be targeting banks with its service, claiming that the returns are higher than a typical U.S. savings account.

However, Coinbase said that unlike typical savings accounts in the U.S., loaned USDC is not protected by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation, and the exchange does not offer crypto interest accounts that "provide attractive interest rates on customer assets." While most savings accounts in the U.S. offer returns of less than 1% on U.S. dollars, many other crypto platforms offer interest rates of around 8% for lending stablecoins pegged to the dollar.

“While high interest rates are attractive, they may carry varying degrees of risk,” Coinbase said. “You may find that your assets are loaned to an unidentified third party and are subject to their credit risk, which could result in the total loss of your crypto assets.”

The exchange initially began offering a 1.25% yield on USDC in October 2019, and in June 2020 it unexpectedly announced that it would reduce annual rewards to 0.15% for users holding the stablecoin. A 4% yield means that Coinbase could potentially increase the interest of USDC holders by more than 2,500%.

At press time, USDC is the eighth-largest cryptocurrency with a market cap of over $25 billion. Tether (USDT) remains the most popular stablecoin in the crypto market, ranking third with a market cap of $62.5 billion.