Crypto Incentives – Interest
DeFi, General, Lending - August 25, 2020
Can you earn interest on crypto, and can you or is there a crypto interest account? These are important questions for financial advisors to answer, and in this video we address them.
With the development of decentralized finance (or DeFi) several companies now pay interest to hold cryptocurrencies. What’s great is this interest is paid in crypto. So, if you give the company your Bitcoin or Ether, you receive BTC or ETH as interest. Companies like BlockFi, Gemini, and Drawbridge are implementing this.
Before this could be done only by banks. You couldn’t borrow a large sum of money from your neighbor or your friend. You needed a financial institution. Through crypto and DeFi, this is happening through companies, operating a peer-to-peer model.
The next step from storing crypto and earning interest on it, is the reason for storing it. If you store crypto with someone who can use it better, it is known as ‘lending.’ Crypto lending allows an asset with a volatile price to be deposited (or stored) as collateral for crypto with a stable price, like a stablecoin. Like depositing Bitcoin for DAI. This peer-to-peer lending model has scaled into a lending pool. Further, this pool is automated using smart contracts. What’s great is, since these lending pools are decentralized, the interest rates are dependent on supply and demand. They are not fixed by an institution, like a bank.
Like with lending, borrowing and earning interest, DeFi is building a system for a comprehensive financial system.
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