As inflation continues to soar, many people (myself included) are looking for ways to protect their capital while maintaining low risk. We are looking for a unicorn asset- and in some ways, stablecoins may be the unicorn we are looking for.
To understand the pivot to stablecoins, we first need to understand why most people have a saving account in the first place. It comes down to three simple things: liquidity, convenience, and security.
Before we dive into those metrics, we need to talk about returns. According to Bankrate’s February 2022 report, The average US savings account returns a measly .06%. This abysmal rate means your funds are losing 6-7% of their value to inflation when you hold them in savings. To make things worse, most banks take your capital and lend it out at much higher rates. A convenient way to think about this is as follows: Would you loan a stranger thousands of dollars for just .06%? Most people would not. Why lend to your bank at those rates? As we’ll discuss later in the article, stablecoins offer much higher returns on your money, while maintaining low risk.
Now let’s dive into our core metrics for savings accounts: liquidity, convenience, and security.
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Liquidity:
Savings accounts are about as liquid as money comes, meaning that at any time, a user can spend/move their funds with ease. There is no selling/transferring occurring on the user side to access usable funds. This is a big advantage for traditional savings accounts, but this competitive edge might not last for long. Two years ago, stablecoins were very non-liquid, meaning it took a lot of work and knowledge to buy, sell, and trade them. Today, that’s not the case. Innovative apps like Voyager, Celcius, and Crypto.com make crypto investment and management very simple. (Think Robinhood for crypto) Simply create a profile, link your bank and send funds, purchase stablecoins, and you’re earning yield automatically. This can all be done in less than 10 minutes. Want to sell your stablecoins? This is just as simple. The only caveat here is varying ACH transfer periods (1-3 days), but for most users, that is liquid enough. Even better, some apps are offering cards that allow you to spend your crypto directly like you would a credit card, making it even more liquid.
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Convenience:
Savings accounts are incredibly convenient to open, manage, and spend from. Most banks offer simple to use apps to move funds around. Thankfully, crypto is trending this way as well. The aforementioned apps and cards bring the convenience of traditional financing to higher-performing asset options such as stablecoins. The introduction of “crypto credit cards” is also boosting the convenience factor for those adopting stablecoins as their liquid asset.
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Security:
Most savings accounts are backed and insured by the FDIC and their associated banks. While most stablecoin options do not have this formal backing, they still tend to be secure, low-risk options. Security methods and strategies are very dependent upon where you place your funds, so do your due diligence before proceeding. Many of the mainstream apps offer insurance, collateralized holdings, and more to ensure your funds stay safe.
The Deciding Factor - Flexibility and Performance:
One last variable I would like to address is flexibility. Savings accounts are traditionally rigid with their rates. Stablecoins are portable and enable users to find yield options that suit their risk tolerance. Simple to use crypto apps offer high rates in comparison to traditional savings accounts (9% on USDC with Voyager, 7% with Celsius, etc), but stablecoins can be scaled even further on DEXes through liquidity mining and yield farming. Some popular options like Anchor Protocol offer 20%+ on stablecoins. This is something to keep in mind if you are looking to add stablecoins to your portfolio.
While I have aped most of my extra capital into stablecoins, I encourage new users to always start small. Find which options make sense for you, start with funds you are comfortable learning with, and dive in. (and stay tuned for another article on getting started with stablecoins)
As always, DYOR. Crypto moves fast, but #web3.0 innovation is truly benefitting users of all backgrounds and levels of expertise.