“Savings” is a misnomer. It should be called “Hemorrhaging.”
If one takes the top 10 Bank US Banks and averaged their savings interest rates, the result would be .33% APY. In other words, a third of a percent per year. If you invested $10,000, that would net you $33 by the end of the year.
At the high end of interest rates (0.6%) , by the end of the year you’d net $60.
If you think that’s a lousy interest rate for parking your money, you’d be right.
What if I told you that there was a way to consistently get 1,883% more in interest when compared to the “high” rate of .6%? At the high-end that would be around 11.3% APY. A $10,000 investment by the end of the year would net $1130.
That’s more like it!
Stablecoins are dollar equivalents. And for the US dollar the top 3 stable coins are DAI, USDC, and USDT. These stablecoins track the price of the US Dollar, with the goal of keeping a price consistent with the underlying asset.
From their website: “Fulcrum is a powerful DeFi platform for tokenized lending and margin trading.”
Through their website, you are able to trade crypto assets, as well as lend your crypto out, receiving high-yield returns.
“The interest paid to lenders comes from the fees paid by borrowers in exchange for access to liquidity when trading on margin. Fulcrum extends the bZx protocol by giving users the ability to create tokenized loans and margin positions.” ~Fulcrum Lending
For the purposes of this discussion we will not go over non-stablecoin asset lending rates, such as for ETH (1.19%), or LINK (2.80%).
I want to compare the top interest rate you can get with the US Dollar on the largest Banks in the US, versus what a Fulcrum could offer for depositing US Dollar equivalents (USD stablecoins).
This makes it more of an apples-to-apples comparison.
The interest rate on Fulcrum fluctuates minute-by-minute, with intraday rate changes. I am using whatever the interest rate that I pull on a daily basis. It is not at a specific time, just when I decide to pull the data.
I have the lending rates for 10 days I’ve pulled from the Fulcrum website for the 3 stablecoins of DAI, USDC and USDT:
You’ll notice that the dates are not sequential; I skip a day or two. The percentages are simply to take a sample APY for 10 days selected. The highest APY 13.30% (Averaged) on 11/8/2020, with the lowest being 8.99% (Averaged) on 11/11/2020. If you take an average for the 10 sampled days this equals 11.3% if you placed equal amounts in all three stablecoins.
You’re essentially lending money to margin traders who pay for the use of your stablecoins in making margin trades. Much like how you deposit money into a savings account, the bank can use these assets to reinvest (at a higher rate) giving you back a minuscule amount back as an interest rate.
The same is happening with Fulcrum, with the difference being that you lend your money directly to margin traders. Fulcrum, acting as a middleman, pays you back a high portion of the margin loan rates.
Savings Optimizing Strategy
Since each stablecoin has an interest rate that fluctuates based on the margin traders use of each token, one strategy is to put equal amounts into each of the 3 top stablecoins, in order to take full advantage of the top interest rate payout, while minimizing the lowest.
If you look again at the chart above, the lowest interest rate for DAI occurred on 11/20/2020 for 7.71%, while the highest was 14.86% for USDC on 11/18/2020.
But if you averaged all of the interest rates for the 10 days it would result in 11.30%.
That’s a huge 1,883% increase from the highest .6% savings rate that the big banks are willing to part with.
$10,000 in each of the 3 Stablecoins
What if we took the top 3 Stablecoins, and deposited $10,000 in each using the percentages for those days?
For a $30,000 investment, if percentages remain consistent, you’d make $3,394 worth of US dollar Stablecoins by the end of the year. Compare that to the top 0.6% bank rate yielding only $180 dollars.
Any way you slice it, it’s a huge percentage gain. It’s the kind of gain that stock brokers delight their customers with.
But isn’t Crypto Risky?
Risk is relative. Risky compared to what? Losing 1.4% in interest due to 2% inflation?
Are big financial banks more safe? I’d argue that the banking meltdown during 2007–2008 put that myth to bed.
Yes, Fulcrum doesn’t have the FDIC guarantee. What it does do is prudent financial management:
- Overcollateralized. “Borrowers must maintain the collateral-to-loan ratio specified by the terms of the loan or the collateral will be liquidated to repay the lender and maintain sufficient liquidity for dApps using the protocol.”
- Audited Smart Contracts. “The bZx base protocol has been successfully audited by leading blockchain security auditor ZK Labs…”
- Insurance fund. “10% of the interest paid by borrowers goes to an Insurance Fund for mitigating potential losses suffered by lenders in the event that undercollateralized loans are not properly liquidated.”
~ from Fulcrum.trade.
With increased reward comes increased risk.
But if your money is currently deposited with one of the big banks with extremely low savings interest, with inflation on top of it all, you are not saving, you are hemorrhaging money.
How to do it
Without getting into the specifics, broadly you do these steps:
- Buy Stablecoins. You can do this through the Coinbase exchange, for example.
- Deposit to MyEtherWallet with MetaMask. These stablecoins, DAI, USDC and USDT are based on the Ethereum protocol (ERC20), and MetaMask makes it easy to view and transact with your ERC20 tokens.
- Lend your stablecoins on Fulcrum. Once you deposit your stablecoins, they will immediately start earning interest. You can remove your assets at any time.
You look at your so-called “Savings” at the end of each month, Not even making a full percent a year. Stock investing seems like a bad place to put something you might need for a rainy day. So, do you just grin and bear it? Or do you do something about it?
Well this is one alternative.
This is not for everyone, and maybe not for most. It is an alternative to the negative rates (once you add inflation) you are currently receiving from the big banks.
Nothing in this article is to be construed as investment advice. Neither the author nor the publication takes any responsibility or liability for any investments, profits or losses you may incur as a result of this information.