Earn interest on cryptos with staking
GAINS: RETURNS FROM 4 TO 10% A YEAR
Benefits are that you can see interest being earned within about 15 minutes and earn 7.32% on US dollar Tether.
It’s been a great year for cryptos, with bitcoin up more than 300% over the last year and Ethereum up 700%. These gains have been so exceptional that the idea of earning a return of 4% or even 10% seems trivial in comparison.
That would be a mistake. Earning interest on cryptos is becoming huge. It’s called “staking” in crypto-speak, but it works much like you would earn interest on deposits with a bank.
In January, AltCoinTrader launched its EasySave facility offering annual returns of 4% on bitcoin, 4.4% on Ethereum, and as high as 10.4% on Tron. In the last three weeks the volume of cryptos at AltCoinTrader gathering interest has grown to R62 million and is expected to hit R100 million in the next few weeks.
“The majority of people who own bitcoin or Ethereum have little intention of selling them, so this is a way that they can now earn a passive return on their cryptos,” says Richard de Sousa, founder of AltCoinTrader.
One of the benefits of staking your crypto coins is that you can see interest being earned within about 15 minutes.
You can also earn 7.32% on US dollar Tether (USDT), which is a stable coin backed 1:1 with the US dollar.
You can claim the interest on a daily or weekly basis and can reinvest the interest to compound the gains.
Those who bought bitcoin at R200 000 a few months ago and stake their coins at the current price of R550 000 are earning close to 10% on their original investment amount.
Evolving ecosphere
Until recently, most cryptos were sterile assets in that they earned no return.
That’s changed with the rapidly evolving financial ecosphere known as decentralised finance, which offers alternative ways to lend, borrow and earn interest using cryptos – outside the banking system.
Staking involves placing your cryptos with trusted third parties in return for rewards, with no fixed lock-up periods. You can unstake your cryptos at any time.
Last year Luno launched a new savings wallet offering customers interest of up to 4% a year on their bitcoin holdings. Interest is paid monthly and there are no fixed terms or administrative fees.
Staking is not risk-free, though the risks are relatively contained.
The cryptos are invested with carefully vetted and trusted third parties, so the risk is that the third party goes bust.
De Sousa says every effort has been made to minimise the risk by investing only with the most financially robust third parties.
The largest crypto-based lending platform in the world is BlockFi, which offers 6% annual returns on the first 2.5 bitcoins on deposit, whereafter the rate drops to 3%. It offers 5.25% on Ethereum and 9.3% on USDT.
De Sousa says the reason AltCoinTrader is able to offer 10.4% a year on Tron is that the company has accumulated a large holding in the crypto coin, so is not reliant on outside parties to generate a return.
“We will be able to hold our interest rate on Tron at 10.4% for some time, but at some point, we expect this to drop more into line with market interest rates for this coin, about 7%.”