Coinbase launches a 4.5% Interest Rate to compete in the market. Is the yield-bearing stablecoin targeting bank deposits really risk-free?

Coinbase has launched a USDC savings plan in Canada with an annual return of 4.5%, and Curve Finance is also planning to provide yield functionality for its token CRV. With these yield-generating stablecoin products, the traditional banking sector is being shaken. However, is this trend a boon for investors or just a different form of risk?

Coinbase Strikes: Canadian Users Enjoy 4.5% USDC Yield

Coinbase CEO Brian Armstrong recently announced that against the backdrop of Canadian users earning nearly 0% interest on their savings, Coinbase will offer a 4.1% APY unlimited USDC yield, which can be increased to 4.5% if subscribed to Coinbase One.

A few months ago, Binance also announced the launch of a new yield product linked to US Treasury bonds, RWUSD, which offers users a stable annual yield of 4.2%.

Major exchanges are frequently taking action, not only challenging traditional banks' ability to retain users but also further highlighting that stablecoin-based "yield products" are gradually entering the mainstream market. For many investors seeking stable returns, this could become an incentive to move funds out of banks.

(The American banking industry demands to close the "GENIUS" loophole: stablecoin interest may trigger a $6.6 trillion deposit outflow)

Curve's new weapon: turn CRV into an income-generating asset

At the same time, Curve founder Michael Egorov also proposed a plan to mint 60 million dollars worth of crvUSD through the new protocol "Yield Basis" and invest it into three Bitcoin pools (WBTC, cbBTC, and tBTC), providing token holders with a more direct way to earn yields.

The flow of fees from the Curve liquidity pool used in the Yield Basis protocol.

Specifically, 35% to 65% of the revenue will be directly returned to veCRV holders, while an additional 25% will be allocated to the Curve ecosystem, symbolizing that Curve is also keeping up with the recent trend of "yield-bearing tokens."

The next battle of offense and defense: the outflow and regulation of funds

Bankless co-founder Ryan Adams predicts that yield-bearing USD stablecoins will gradually siphon off bank accounts in various countries, as most currencies are weaker compared to the dollar. Governments will certainly respond to this by implementing measures such as 'capital controls'.

(The Bank of England plans to limit individual stablecoin holdings, and the industry criticizes it as "absurd": it could cause the UK to fall behind globally)

Adams believes that this type of regulation will rapidly spread in the next 6 to 12 months, but it will also force more people into DeFi, in pursuit of borderless financial freedom.

Another answer: Profit = Risk

In a wave of chasing profits, macro analyst Luke Gromen also reflected: "The absence of native yield is not a flaw in itself; it can also be an advantage."

Even though Gromen's remarks are a debate on the topic of "Bitcoin lacking native yield and therefore being unappealing", the author believes that his statement "yield equates to risk" also applies to any existing traditional and cryptocurrency financial products.

Your money in the bank earns interest on deposits because in a capitalist society, you are taking on risk. That is not the user's money; that is the bank's money.

He emphasized that from bank interest to the staking interest promised by FTX back then, it ultimately revealed the nature of the risks.

Is the future of yield-generating stablecoins an opportunity or a concern?

In summary, high returns also represent higher uncertainty. Especially now that various companies are starting to issue their own stablecoins, participants may end up just losing money. At this moment, "yield-generating stablecoins" do not mean that there are no risks.

(Is issuing stablecoins really that profitable? From Tether to Aave GHO, let's look at the profit truth for later participants ).

While yield-generating stablecoins are being heavily promoted with the slogan of disrupting the banking industry, investors should not forget that returns and risks always go hand in hand.

In this article, Coinbase offers a 4.5% interest rate to capture the market. Is the yield-generating stablecoin targeting bank deposits really risk-free? First appeared in Chain News ABMedia.