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Cryptocurrency and DeFi use cases: Passive income for mom
The world of cryptocurrency, it is often assumed, is only for the young and reckless - and with good reason.
Anyone that has followed the headlines for some of crypto’s biggest coins will know that cryptocurrencies are prone to volatility. This is not least for the biggest of all cryptocurrencies, Bitcoin, which can post gains or losses in excess of 20% in a single day.
These sorts of swings are uncomfortable for even some seasoned crypto traders, but for those unfamiliar with cryptocurrency, this can make the entire market seem like a no-go-area.
DeFi brings yield back to the dollar
The type of person that has, perhaps, been used to saving in cash at a bank with maybe a small retirement plan on the side may simply not consider cryptocurrency: like a hard saving, thrifty, hard working mom, for example.
There is, however, a whole new area of cryptocurrency now flourishing that could be a good match for such people: decentralized finance (DeFi).
DeFi offers savers and investors the ability to earn yields not seen in traditional finance for decades on digital coins that are backed by and pegged to the US dollar, as well as other traditional, real-world “fiat” currencies.
Stablecoins for a quieter crypto life
Known as “stablecoins” these cryptocurrencies do not fluctuate in value like Bitcoin or Ethereum, instead their value matches that of the traditional currency they are backed by and pegged to.
Many, such as USD Coin (USDC), are also backed 1:1 by a physical US dollar and – certainly in USDC’s case – submit their treasuries to regular and independent audits for transparency.
Stablecoins like USDC, USD Tether (USDT) and True USD (TUSD) can be saved with a DeFi banking or wealth management platform in return for an annual percentage yield (APY) that, currently, sit in the double-digit range.
In addition to this, users that deposit their stablecoins on a DeFi platform are also frequently rewarded with the native token of that platform, which can significantly boost returns.
On YIELD App, for example, USDC and USDT earn a base APY of 12%, but then on top-of-that, users can earn an extra 2-6% on their deposits in YLD token when they hold YLD in their wallets, and then a further 2-10% on the total amount of YLD they have on the platform. This can significantly boost returns over both the short and long term.
Risk vs return
DeFi, then, offers the opportunity to earn more than 12% on digital coins whose price behaves in-line with the US dollar. And this may appeal to those, like mom, that in the bygone days of interest rates in the “real” world, saved their dollars at the bank for a return.
That is NOT, however, to say that cryptocurrencies are comparable to hard cash as an asset or in terms of their risk profile.
If you save cash in a bank, depending on your region and jurisdiction, you will have access to certain protections that mean – were the bank to go bust – you wouldn’t lose all of your money. In the UK and Europe, for example, this is true for cash held at a bank up to the value EUR €100,000.
With cryptocurrency, however, no such broad-brush guarantees exist. While the use of innovative new insurance products designed to protect users against theft, hacks and failures is on the rise among DeFi platforms and protocols, risk remains when buying, transferring and holding cryptocurrencies.
It is largely up to the user to manage their crypto and make sure they store their all important passwords and seed keys safely.
What DeFi banking and wealth management platforms can offer over brick and mortar banks, though, is an actual, real return on dollar-pegged assets.
As most will know, in many developed economies interest rates have been languishing at or near zero for more than a decade now, and this situation is unlikely to change.
This means that mom - who numerous studies tell us is ever the conscientious saver - is actually losing money in real terms every time she puts cash in the bank.
This is because the rising cost of goods and services (aka inflation) is higher every year than interest rates. If you are only getting 0.5% on your $2,000 at the bank, for example, but inflation is 2% (or more), then next year it will only be worth $1,970.
Passive income for mom
But mom doesn’t have to keep losing money. While no-one should ever, ever put all their eggs in one basket, mom could stand to earn some solid passive income by putting a bit of that $2,000 into stablecoins and then into a DeFi banking or wealth management platform.
In the YIELD App platform, for example, $1,000 saved in USDC would earn mom $140.70 in passive income over the year provided she also held 100 YLD tokens in her wallet.
This compares to $5.01 mom would earn at a bank paying 0.5% per year - a pretty standard interest rate today.
(Check out the YIELD App calculator, here)
There will be transaction fees attached to depositing with a DeFi banking or wealth management platform, however for those interested in saving over the long term these fees will have much less of an impact.
In addition, by being part of the DeFi token ecosystem, users also stand to benefit from potential token value and utility.
As with any type of non-cash investment, when thinking about purchasing or investing in cryptocurrency of any kind it is essential that you never put in what you cannot afford to lose.
While stablecoins do not have the same type of volatility as Bitcoin and many of the other cryptocurrencies, they do not enjoy the same type of protections afforded to cash savings with major banks.
However, DeFi is increasingly opening up passive income opportunities for savers all over the world willing to take advantage of one of the newest and most innovative areas of finance today.
By simply depositing a non-essential sum and allowing it to earn interest over a year, mom – or any saver that might not have considered crypto before – could enjoy returns on their savings not seen on cash for half a century.