I’m heavily considering moving more of my portfolio into stable coin lending programs. What are some realistic cons?

Hey all, I’m considering moving about half of my remaining portfolio into a centralized stablecoin lending platform like CDC or NEXO for 7-9% APY and was wondering what sort of events would have to happen for USDC to lose its peg to the USD?

I know nexo has insurance for this program, and USDC is making a concerted effort to be damn near 1:1 backed, but with the threat of prolonged recession/possible depression, I’m feeling hesitant. I ultimately want passive income and this is better for re-buying later as well since it’s earning more money than I’d be able to do in fiat and it’s technically crypto.

I know that lending is essentially letting the entity use your money in exchange for interest and it’s almost like a high yield savings account, but what happens if the coin de pegs while you’re lending and the institution is unable to pay you back? What sort of events can cause fluctuations in fiat collarerized stablecoin price?

Furthermore, we know that rates tend to decrease over time as more people use these platforms and it becomes harder for an entity to maintain higher payouts. Does anyone know if you’re grandfathered in to a rate when you start or they automatically change over time no matter when you’ve entered the agreement?

TL:DR- Is stablecoin lending really secure in the face of widespread recession? Why and what sort of precautionary measures should one take before putting a substantial sum in a program for the short-mid term?

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15 thoughts on “I’m heavily considering moving more of my portfolio into stable coin lending programs. What are some realistic cons?”

  1. Realistic cons:

    – Stable coins can become unpegged (which we have seen in the past), which can cause large capital loss
    – You are locking up your coins for a large period, so can miss out on good opportunities

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  2. USDC should be extremely safe, though if you want to diversify a bit you could consider GUSD from Gemini which is also backed 1:1 with USD. Don’t keep all your funds in one CEX, either- spread them out to different services if you can to ensure there isn’t a single point of failure.

    > Does anyone know if you’re grandfathered in to a rate when you start or they automatically change over time no matter when you’ve entered the agreement?

    Definitely not, these services would go out of business if there was rate grandfathering, lol. They adjust rates as they see fit.

    > Is stablecoin lending really secure in the face of widespread recession?

    Some think we’ve already been in a recession for a few years, but if we really head down into the dumps economically you can expect stablecoin yield to crater as well. They’ve already been falling from 10%+ to mostly 5-10%, and if the economy continues to worsen you can probably expect sub-5% yields later this year. But even then, I think USD-backed stables will hold their value in the face of pretty much anything short of a full-on depression.

    > what sort of precautionary measures should one take before putting a substantial sum in a program for the short-mid term?

    Pick your stables wisely and use multiple services for yield. Do research on the companies you pick and don’t shy away from reading FUD against them.

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  3. I’d like to ask what your goal is — what’s your endgame?

    Farming stablecoin interest has its use cases, i.e., when you need to pull out from short-term market volatility because you *may* need to use the capital before your long-term goals are met, etc.

    As a long term investment, you’re capping your gains at 20% (if you’re using DeFi, for CeFi even less) and that number will absolutely go down in the long-term there is no question about it. Not to mention that the stablecoin market is a prime target for regulators.

    On the other hand, BTC has a 10 year CAGR of ~147% and even if that’s cut in half over the next decade, you’re still coming out better than stablecoin lending (and better than any other asset on earth).

    So you have to ask yourself — do I trust the decentralized granddaddy of them all to protect my investment, or something else that generates less gain, and something that with the stroke of a pen could be over and done with?

    Just a thought.

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  4. These aren’t banks, where if the bank goes under your money is insured (up to 150k I think) and all you do is move it to another. Obtaining 8% off Gemini, BlockFi, celsius or CDC has a number of risks. They are:

    Whoever they loan your money to may go bust and never pay it back (there is sometimes insurance offered by the platform on this aspect).

    The place your staking your money may go bust (wiped out by a hack aswell), especially young companies which they all are. There is no guarantee like a bank that you could ever get your money back except to stake a claim in liquidations court. Even then it’ll take years and you’d get cents back on the dollar, think mt Gox proceedings. Companies will only tell you they’re failing when the roof is on fire.

    The underlying stablecoin itself may fail. The fact is a stablecoin isn’t a US dollar, you’re relying on trusting a company to say it’s all good. Circle is better than others but it’s not great, for example they changed their wording from backed 1 to 1 to now backed in equivalents like Tether.

    Everything could be fine in regards to the above 3, but the space is only now being looked at for regulations. A law can be passed that could ban the above offerings, and then who knows how it will impact your holdings.

    It’s why they offer such high interest, as these are still high risk. No such thing as a free lunch.

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  5. Your liabilities when lending to a centralized exchange like Nexo are two fold:

    1) Exchange solvency: If the exchange goes bankrupt, wallets are compromised, founders mysteriously disappear, etc … then you’re out of luck. There is no FDIC insurance like a bank, and so you have to consider this counter party risk.

    2) Stable token solvency: If the stable token fails reserve requirements or is compromised in some way, there is the chance that you won’t be able to redeem it 1:1 for dollars. This risk seems lower with more established tokens like USDC which are open source and undergo 3rd party reserve audits.

    [Here is a long and useful write up examining risks associated with centralized crypto lending.](https://prohashing.com/guides/earning-interest-on-crypto)

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  6. I have all my usdc on voyager and get 9% APY, paid monthly. I also have some ust on nexo that earns 17%,but that’s only about 10% of my cash because I don’t entirely trust ust.

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  7. Look at stablecoin APRs over time, they always get reduced eventually. Crypto.com had 6% flexible when I started, now it’s 2%. BlockFi and others have done similar moves. I started putting lots of my crypto and stablecoins into lending/interest accounts the last couple years and have seen every single one drop their APR when they become popular. It’s a marketing tactic to get ppl and as more sign up they can’t sustain it. So my advice is don’t put your money in thinking it’ll stay that high for too long but in general it can be better than a savings account.

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  8. Take a look at bhome, its a mortgage backed stable coin with staking that gives you baconcoin a governance token. 40% APY in USD. Baconcoin.com

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