Crypto Stablecoins Double US Junk Bond Yields
Interest rates in lending out stablecoins remain higher than those offered in traditional finance markets in the US. This is why the decentralized finance market has seen so much success in the past year. Investment options that would normally be the go-to choice for investors in the country are returning less interest, so the move to DeFi has been massive.
Investors stand to earn more returns when they convert their money to crypto and then lend out their crypto for a return than they would with traditional markets. There has never been a clearer signal to move into crypto than there is with interest rates from banks and bonds.
Stablecoins Lending Beat Out Banks And Bonds
Bank interest rates have been one of the lowest in recent times. Interest returns on savings accounts in the US have dropped so much that they are barely being maintained above 0. Interest rates on standard savings accounts only return 0.06%, whereas putting the same amount in a DeFi protocol would give the investor a higher yearly yield.
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Bank interest rates are not the only ones being outperformed by crypto lending. Although bonds usually have low-interest rates due to the low risk associated with them, it is still not enough pull for investors. Junk bonds in 2021 are returning a 4% annual yield, nearing an all-time low. These rates are in no shape to compete with the returns on leveraging stablecoins on lending protocols.
Stablecoin interest outperforms bonds | Source: Arcane Research
This is another avenue where the crypto market is proving to be more valuable than traditional finance markets. Interest rates on savings accounts and bonds are so low that they do not prover any cover for investors against inflation. But with the yield percentages offered by lending protocols, investors are completely insulated against inflation while making a healthy profit from their savings.
DeFi Market Not Taking Prisoners
Services being offered by protocols in the decentralized finance markets are fast becoming the preferred way to store savings. Investors can earn a yield by converting their savings to stablecoins like USDC. Then using centralized crypto lending platforms, earn as high as 8.9% in yearly yields. These returns are twice that offered by junk bonds, also significantly higher than the inflation rate.
Total DeFi market cap reaches $189 billion | Source: Crypto Total DeFi Market Cap on TradingView.com
DeFi market also offers decentralized lending platforms like Have and Compound, although these have a lower interest rate compared to their centralized counterparts. However, the interest rates on decentralized platforms remain more attractive than those offered in traditional finance platforms.
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As more investors move into the DeFi space, the yields on these platforms have continued to drop. Currently, there is about $14 billion locked in various DeFi protocols, representing massive growth in the market. It is expected that as more users move into the space, the yields on the products will continue to decline. But for now, DeFi still provides the best interest rates compared to traditional finance markets.
Featured image from ForumPlay, chart from TradingView.com