With the advent of decentralized finance, which have emerged with the aim of revolutionizing the financial system, some companies are offering cryptocurrency holders the possibility of earning passive income from their assets digital, in a kind of “cryptocurrency savings”. Depending on the asset, the investment can earn interest of up to 17% per year.
But how does cryptocurrency savings work? Basically, the platforms borrow cryptocurrencies from customers and lend them to hedge funds, other investors and brokers. The client receives, as interest, a part of what borrowers pay to institutions, which is more or less what banks do with the money invested in traditional savings. Therefore, users are compensated with a percentage, just for keeping their digital assets stored on the platforms.
The interest received is not fixed and can vary over time, and also according to the cryptocurrency chosen. In general, savings platforms use the most popular crypto-actives which are cryptocurrencies in some stable asset, such as the dollar.
Normally, interest is received in the deposited currency, that is, if you deposit Bitcoin, will receive in Bitcoin, and so on. The problem with this, experts say, is that the customer can suffer from delays, withdrawal charges or conversion fees if they want to convert them into dollars or a different currency.
Some platforms allow customers to receive a little more interest, for that, it is necessary to choose to receive the income in the house’s own cryptocurrencies.
What are the risks?
Unlike traditional savings, this new modality is not protected by the Credit Guarantee Fund or by the responsible US authorities.
Due to the lack of regulation in the cryptocurrency market, there is no guarantee that the client will recover its investments if the custodian company goes bankrupt, for example.
In addition to this risk, experts warn the “money” invested could be worth half tomorrow, or twice as much.
Another risk mentioned by the executive is the exchange rate, considering that payments are made in cryptocurrencies.
Is it worth using cryptocurrency savings?
But, after all, are these risks worth taking? It depends on the person’s situation, since those who have other currencies in their portfolio have exchange risk.
You may be getting 30% a year in dollars, but if your accounts payable are in other currency, and the dollar can easily go up or down 30% in a year, you can make a lot more money or you can lose all your benefit per account of this exchange variation.
Ryan Myers is a business blog author and writer. He graduated from the University of California, Berkeley in 2009 with a degree in Political Science. His favorite topics to write about are blogging for small businesses and becoming an entrepreneur.