If you are reading this it is because you are sick and tired of looking around for a savings account that is actually worth putting your hard-earned capital into.
They are tricky to find because there aren’t any…
If you are satisfied with 1-2% returns a year then go for it, although you might want to look up inflation in the dictionary.
That 1-2% is cancelled out by the 1-2% or more that is currently happening. Those stimulus cheques literally grow on trees, which is bad for your savings. This added to the planned increased spending across the US and Europe over the coming years sees a huge spike in the increase of cash.
Increased amounts of cash might look great on paper, although the value of everything else around it will increase, even more, making it effectively more and more worthless.
You must hedge against inflation or your net worth and hard-earned cash will slowly erode away.
Just check the price of Freddo’s in the UK if you don’t believe me.
You would have been better off investing in Freddo’s at 20p back in the day and selling them now for 68p. If you had kept hold of the cash instead you would be left with the same amount of cash and everything around you would have gone up…
How the British measure the inflation rate. pic.twitter.com/CJIhKFPE0i
— No Context Brits (@NoContextBrits) June 5, 2021
It’s basic freddonomics.
So how do you find a low-risk way of hedging against inflation whilst protecting yourself from extremely volatile stocks or crypto?
Well, if you have ever invested in cryptocurrency at all you must have come across what you thought was a good investment at the time and then realised it never went up or down, how strange…
Investing $1000 dollars in Tether in 2015 would have rewarded you with a great $0, which is better than some traders I know to be fair. But no, this isn’t because Tether was a bad investment, it did exactly as it was supposed to do (despite some very close scrutiny regradings its Tether printer).
This is because Tether is known as a stablecoin.
A stablecoin is exactly that… stable.
They tend to hold the value of the US dollar and as such a lot of them are variations of that. USDT, USDC, UST, BUSD etc.
To make the stablecoin valuable and not worthless it needs to be backed 1:1 (at least) by an underlying asset usually a real-world dollar or even another cryptocurrency like BTC.
USDT – Tether, had a little bit of a shady past with the USDT not being fully backed 1:1 with BTC or actual cash.
USDC – Circle and Coinbase owned, highly regulated and seems to be gaining a lot of traction
UST– Terra Money’s stable coin the fastest growing following Luna’s recent rise to fame.
BUSD – A BEP20 stable coin that has been adopted by Binance. They didn’t make it, but they market and promote it as their own.
They all serve the same purpose and that is to act as a safe haven asset if the price of a crypto asset becoming volatile.
You could effectively sell your crypto for USDT when you think it is at a high price and then (if you were correct) wait for the price to come down, for you to then buy back in again.
Until recently, this has been the only relatively useful use-case of stables, and it is a great one, although new uses are emerging.
Visa has recently announced that USDC can be used as a settlement currency using the Ethereum network. This will be made possible by the Crypto.com card which allows its users to spend crypto.
When paying using the Crypto.com card its users can pay directly with USDC. The usual route would be the crypto is technically sold at the instant of paying for a local currency and then the local currency is used to pay. Crypto.com then take the exchange fee…
Other than one of the largest payment providers accepting USDC, stable coins have been adopted as one of the best crypto assets out there in the world of Decentralised Finance.
Decentralised Finance or DeFi for the more experienced, is a world operating purely on code and not with third-party intermediaries that have the potential to act in their own best interest.
Deterministic code is written into things called a smart contract. These are effectively tamper-proof digital agreements.
These smart contracts are then used to offer all the regular financial services you see on the high-street but at much better rates and they won’t call you up every now and then telling you that you owe them money…
Lending, borrowing, insurance and best of all, extremely great returns are standard on DeFi platforms.
Who would have thought, removing the unnecessary middlemen would have saved the consumer money…
So, with stablecoins, we have already established that they are a hedge against volatility but they aren’t a hedge against inflation as they hold the value of the dollar. So, you must put them to work.
There are ways and means of doing this to earn a relatively good yield of 5-10% or more savvy ways of achieving double-digit plus annual returns.
The first and most secure way is arguably lending your stablecoins out to the market using a lending and borrowing protocol like AAVE.
Currently, you can use AAVE on Layer 2 (Polygon/Matic) to achieve a 7% annual interest on USDT.
Another interesting way would be to stake your stablecoins in a yield farming protocol.
One of the top platforms for stablecoins is Nerve Finance.
These guys are strictly dedicated to providing their users with great returns on stablecoins.
Albeit it a little more complicated to understand, with nerve you can see their annual returns start at 15.9% and go up to a nice 40.4%.
What you are effectively doing here is accumulating equal portions of all the stable coins required.
Take the Stablecoin 3Pool, for example.
You need equal parts BUSD, USDT and USDC and then you supply them as liquidity in their vault. This then generates you the interest for effectively lending the coins out to the market to do with what they please.
This can be withdrawn at any time. You are not tied down to any silly lock-up period. Or worse, a savings account that you have to meet a minimum deposit or even pay to join!
For more info on how to do this head to our Patreon and find the post regarding stable LPs.
There are other great platforms that offer these services on stablecoins it just takes a little bit of research and digging.
There are obvious risks using early protocols although AAVE and Nerve have been through rigorous audits. That being said, anything is possible. So please be 100% sure of anything before investing your capital.
Head over to our Telegram and join the conversation with another 250 DeFi enthusiasts, be aware, it is not for the easily offended or faint-hearted…
Thanks for reading, until next time, ciao.
Not financial advice and strictly for educational purposes only.
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