Benefits:
Most crypto lenders pay 8%–12% on stablecoin deposits per year. By participating in stablecoin lending, you support the emergence of alternative, decentralized institutions and the creation of interest-earning products that are more advantageous to consumers.
Costs
The time required to open and use a crypto “interest account” is similar to that of a savings or brokerage account. Crypto interest accounts do not have any costs, and earn money by taking a fraction of the interest before it is paid out to lenders. Potentially inconvenient deposit and withdrawal limitations alongside the necessity to report interest earnings as cryptocurrency transactions rather than normal interest may be the most significant negatives relative to a savings account.
Risks
The risk of loss is higher than an FDIC-insured account at a large bank, but lower than many common investments like stocks and bonds, many of which regularly experience partial drops in value. Much of the risk of crypto lending comes from the risk of borrowers not being able to pay loans back. This is a significant risk when lending normal cryptocurrency given that lenders could lose their ability to recover money from borrowers if their collateral, cryptocurrency, falls rapidly in value. This risk is largely mitigated with stablecoin lending because stablecoins are linked to the US dollar and very unlikely to experiences crashes compared to normal cryptocurrencies. No losses, either with stablecoins or standard cryptocurrency, have emerged from any provider since crypto lending accounts emerged in 2017. Based on the base rates and underlying risks, we estimate the annual risk of partial or full loss at any stablecoin lending provider at between 0.5% (a typical bank) and 12.5% (a pessimistic scenario assuming a loss occurs for every single crypto lender every 8 years). We think the risk is closest to the low single digits and significantly more likely to be a partial account loss than a full account loss.