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Cryptocurrency and DeFi use cases: Stablecoins for seniors
IMPORTANT NOTICE: This article does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.
Since the creation of Bitcoin - the first cryptocurrency in the world - in 2009, digital currencies have largely remained the realm of younger users. It is true that digital assets require a certain amount of technological know-how, so they lend themselves most readily to the younger generation. However, seniors might be missing a trick by ignoring the digital revolution, as cryptocurrencies, and decentralized finance (DeFi) in particular, hold opportunities for any age group.
Research by fintech Stilt shows that at present 94% of all cryptocurrency buyers are generation Z or millenials, placing them in the 18-40-year-old bracket. However, a report by digital payments platform Wirex, which included a survey of 3,834 people from 89 countries, found that older investors are slowly but surely beginning to utilize digital currencies. For example, 26% of women between the ages of 55 and 64 said they invested in crypto.
At YIELD App, we are committed to making digital wealth management available to anyone, anywhere, and this includes different age brackets. In fact, in our “User Survey” conducted in July 2021, we found that the majority of our user base falls into the 36-50 age bracket, while around 10% of our users are over the age of 50. We firmly believe that DeFi is not just for generation Z, it’s for everyone - including those saving for or already in retirement.
We are already receiving reports of users of retirement age who have discovered the potential of DeFi to supplement their savings. One of our dedicated Tier 5 users, Paweł, a 46-year-old physical education teacher in a primary school in Poland, has told us about how he recommended YIELD App to his 74-year old father, and with great success. “Seeing the effectiveness of YIELD App, he decided to invest some of his savings. In just one week he made more than the rest of his savings for a month!” says Paweł.
Passive income from stablecoins
The experience of Paweł’s father comes as no surprise, considering the meager yields available from traditional savings accounts. Though the interest on a savings account in Poland tends to be a little higher than in the US, for example, it is still well below 1% per year. For example, the average deposit rate on an account with a fixed term of one year (meaning money would have to be locked away for 12 months) was 0.45% in 2020.
IMPORTANT NOTE: Traditional savings accounts are not the same as DeFi investment accounts. The former - as we explain below - are covered by comprehensive insurance policies - while DeFi remains a largely unregulated space where security standards are set by individual providers. All content in this article is for informational purposes only and the two products should not be considered comparable.
Things are quite different in digital assets. Traditional savings accounts and DeFi investment accounts are in no way comparable - they are very, very different. This is underlined by the stark difference in the yields available, with DeFi usually offering annual percentage yields (APYs) of 10% or higher, with the added benefit that these are available on stablecoins – the least volatile of digital currencies.
Stablecoins are cryptocurrencies pegged to “fiat” currencies, such as USD Coin (USDC) and USD Tether (USDT), both of which are pegged to the US dollar. The lower volatility of these assets can be a particular attraction for older investors, who may want to access their money at short notice or at regular intervals to draw income.
YIELD App’s digital wealth management platform allows users to deposit stablecoins and earn market-leading APYs of up to 18%, depending on a user’s Tier level. The Tier levels are dependent on the amount of YLD - YIELD App’s native token - that a user holds in their wallet. The chart below explains the Tier levels in more detail.
Based on the above, the base APY on a USDT/USDC strategy is 12%. The Tier levels add between 2% and 6% to this, resulting in a final APY between 14% and 18%.
Higher yields for older generations
The applications of DeFi strategies for an older investor are a little different than they would be for those falling into the younger age brackets, as they typically wouldn’t be looking to save over the long term. Instead, seniors might be looking to keep their spare cash in an account that will beat inflation or a strategy that can allow them to draw regular income to supplement their pensions.
This might mean that instead of drip-feeding money into the DeFi ecosystem, an older investor might want to save a lump sum and draw on this as and when it is needed. Unlike fixed term savings accounts, stablecoin DeFi strategies do not usually require users to lock their money away for any period of time. In addition, the APY is paid out on a daily basis, so there is no need to wait for the end of the 12-month period to earn one’s reward.
After one year with YIELD App, an investor that holds 20,000 YLD tokens in his YIELD App wallet and invests 10,000 USDC/USDT for one year, would see returns of around $2,520. At a YLD price of $0.35, this means the initial total investment would be $17,000. YIELD App has a handy calculator investors can use to estimate their total earnings after one year.
The same investment in a savings account with an interest rate of 0.45% per annum would generate a total return of just $78.30 over the same time period. Take into account inflation, which in Poland, for example, is currently averaging 5.8% year-on-year, and an investment of $17,400 would be worth just $16,068 after one year.
The brave new world of digital assets
While very, very different to traditional savings accounts, stablecoin DeFi strategies can offer many advantages over other savings and investment options for senior savers, with the added advantage of much lower volatility than that associated with digital currencies.
However, it’s important to be aware that any digital asset still carries risk, even those pegged to fiat currencies. Money held in a traditional bank account in Europe and the UK, for example, is protected up to the value of €100,000, and up to $250,000 in the US. The same cannot be said about one’s crypto wallet, so it’s important for investors to ensure they only put away what they can afford into a stablecoin strategy.
In addition, technological know-how can be a barrier to entry for older investors considering dipping their toes into digital assets. At YIELD App, we strive to ensure our digital wealth management platform is as intuitive and easy to use as possible. It is our aim to compile a library of articles and how-to guides to help anyone, anywhere in the world discover the true potential of DeFi. After all, with inflation rising and interest rates at rock bottom across the globe, there aren’t many other places left to look for attractive passive income opportunities.