Version 4 - Cryptocurrency Interest Accounts

~$150,000 estimated lifetime benefit, based on 20% of someone’s yearly savings going from minimal interest to high interest, over 40 years

Any U.S. resident that is over the age of 18 can utilize crypto lending accounts.

Linking a bank account makes to easier to deposit and withdraw US dollars from a crypto lending provider.

Benefits:

Most crypto lenders pay 8%–12% on stablecoin deposits per year. Larger brands that operate in other areas of crypto, like Coinbase and Gemini, pay lower rates of interest.

By participating in stablecoin lending, you also 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 6% (a relatively pessimistic scenario assuming 50% of crypto providers experience a loss 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.

Over the past several decades, stocks have had a yearly risk of loss of ~20%, and bonds have had a yearly risk of loss of ~15%. Stocks and bonds fluctuate downwards in value, whereas crypto interest accounts do not go down in value when operating normally.

Our testers have opened accounts at multiple crypto lending providers and confirmed that crypto lending services pay their advertised interest rates. Multiple crypto lending providers have been successfully providing high yields for users since 2018, giving us an upper bound on expected risk levels.

Cryptocurrency lending may seem “too good to be true” to some individuals, particularly those with a limited understanding of lending and stablecoins. Users will need to open an account and move cash from their traditional bank accounts to a cryptocurrency lender.

• This NerdWallet article has a simple explanation of how the blockchain, the fundamental technology behind cryptocurrencies, works and some common applications: https://www.nerdwallet.com/article/investing/blockchain
• This Business Insider article is a simple explanation of what stablecoins are, why they are used, and how they work: https://www.businessinsider.com/stablecoin
• This Harvard Business Review article has a more advanced explanation of how crypto lending in general works, with a focus on decentralized finance: https://hbr.org/2021/02/what-happens-when-cryptocurrencies-earn-interest

• This article explains BlockFi and the risks of lending with BlockFi from an unbiased perspective, including key risks like the absence of FDIC insurance, crypto crashes, and borrowers not paying BlockFi back: https://www.lynalden.com/blockfi/
• This article explains specific risk-management processes (margin calls) and why borrowers would pay high interest rates to BlockFi: https://christiandhubbs.medium.com/the-risks-of-crypto-lending-d69b45b8d1e8
• Read BlockFi’s explanation of their risk and security practices as a blog post and video interview: https://blockfi.com/how-blockfi-handles-risk-and-security