Coinbase, the most popular retail cryptocurrency exchange in the United States, has announced that customers can earn 1.25% interest annually simply by holding the USD Coin (USDC) stablecoin in their accounts.
Notably, Coinbase is a co-Founder of CENTRE, the organization which created USDC.
This is similar to a regular bank, where users hold money in a savings account and earn annual interest. For example, Ally bank which has some of the highest interest rates, offers 1.9% per year for savings accounts.
Generally, banks are able to offer an interest rate because they lend and invest money held in savings accounts. However, Coinbase says none of the USDC held in accounts will be lent or invested, making it unclear how exactly Coinbase is paying for the interest.
Additionally, unlike banks, users on Coinbase will be able to see their interest profits accrue in real-time. Due to the law of compounding interest, this could lead to significant profits for users long term, especially since USDC is pegged to the USD and does not lose value due to market fluctuations.
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