The average American certainly has their fair share of financial burdens. Taxes, debt, record low-interest rates (APY) on savings, high housing costs, and lower real wages than in previous decades. Toss in the impact of Covid-19 on our personal economic well-being, and you get quite the toxic stew of financial challenges, particularly for low and middle-class households.
63% of Americans can’t even afford a $500 emergency bill.
The old adage, “A Penny Saved is a Penny Earned” doesn’t seem to mean as much when interest rates paid on savings are close to zero, or even negative in some countries. With interest rates so low, most consumers don’t even consider them any longer when choosing a bank to deposit their funds too.
So how can consumers earn more on their savings in the current economic environment? One word, DeFi. We’ve talked about DeFi before, and why we believe it to be the bridge between the average consumer and digital / cryptocurrencies. DeFi is a new modern, decentralized financial system built on an emerging technology called blockchain. But even if alternatives to financial legacy systems are long overdue, will consumers give up the financial systems they love to hate?
It’s no secret that we’ve seen a tumultuous last two years. While the 81% increase in cryptocurrency ownership––all in just under a year––suggests hope, we’ve still got a ways to go. At the climax of crypto-mania, only under 8% of Americans owned bitcoin. The reality was, even though BTC was certifiably viral among people of all demographics, nearly 94% of Americans didn’t own cryptocurrency––in its prime! Now, of course, roughly 14.4%––or 36.5 million Americans own cryptocurrency. Still, it’s hard to imagine a world where bitcoin matches fiat, whether as a complement to traditional currency or as its replacement.
This survey touches on that problem, highlighting these core reasons for the public’s reluctance to jump on the proverbial crypto caravan:
Because DeFi apps provide the option to generate interest with stablecoins like Dai and USDC, the volatility risk that Americans associate with BTC, ETH, and LTC is mitigated. This alone solves America’s core grievance with cryptocurrency––that it’s too risky.
Stablecoins, which are digital assets backed by fiat (government-issued currency), have a bad rap in the crypto space––mostly because they’re entirely pointless to trade. However, they offer a unique solution to volatility fears. Also, they’re arguably a more suitable gateway into the world of digital assets for the cautious American.
Think of stablecoins and DeFi platforms as alternative currencies and banks. Since a given stablecoin’s price will always hover around $1, and since depositors can generate 9% on funds rather than the traditional .01%-.06%, stablecoins are a great alternative to the average savings and checking accounts.
For these reasons and more, we’ve compiled a step-by-step guide of the DeFi platforms Celsius Network and Nexo and how you––the average consumer––can generate more interest using stablecoins. (Of course, for those that do hold and trade cryptocurrency, BTC, ETH, and LTC are options also made available to users of core DeFi apps like Celsius and Nexo.)
Celsius is considered to be one of the most popular DeFi platforms currently active. They offer more cryptocurrencies and stablecoins than any DeFi platform, there is no required minimum balance, and your account balance is made instantly accessible through their app. Like most DeFi apps, Celsius offers accrued interest via their loaning and borrowing services, giving users the ability to earn up to 7.25% APY as of the date of this article, on held digital assets (not including Dai). They also offer insurance protection of up to $100 Million through their U.S.-based qualified custodian, BitGo. It’s safe to say that they’re a fierce competitor among other DeFi apps and platforms.
Alex Macshinsky, CEO of Celsius and creator of VOIP (Voice Over Internet Protocol), founded Celsius back in 2017 with a mission to “harness blockchain technology as a means to provide unprecedented financial freedom, economic opportunity, and income equality for the 99%.” Because his invention impacted our daily lives in such a big way, and because he is a trusted voice in the tech world, we could see Alex changing the world as we know it—again.
Buy, Deposit, and Withdraw Stablecoins
To use the Celsius wallet, download the app and sign up for an account. Once your details are confirmed, you’ll be able to transfer money to your wallet with ease. Simply choose the stablecoin that you plan on transferring to your Celsius wallet from the “available coins” dropdown menu. Currently, Celsius offers deposits in TUSD, GUSD, PAX, USDC, DAI, and USDT. If the app provides a deposit address, then your account is ready to go. If not, you’ll need to complete the verification process before continuing.
(Note: Celsius requires KYC details like your name, date of birth, citizenship status, address, etc. You’ll also be asked to provide one of the following: driver’s license, passport, national ID card. Which is a good thing.)
Copy that deposit address accurately––if you’re even one letter or number off, you’ll inadvertently deposit your funds into someone else’s account! We recommend using your phone or desktop’s copy and paste feature rather than copying it character by character. If this is your first time transferring stablecoins between wallets, we recommend sending a small test amount to ensure everything is correct.
After you’ve copied your deposit address, paste it into your other wallet or exchange’s withdrawal field. Press withdrawal/send. You should see your funds reflected in your Celsius wallet within about 5 minutes. If it doesn’t pop up immediately, don’t panic! Usually, withdrawals take some time to process, depending on what exchange or custodial service you normally use.
Currently, Celsius does not allow the option to buy stablecoins straight from the app, only to deposit them. To buy stablecoins, follow the steps above, only you’ll want to choose the option “Buy ______ from ______” rather than copying the deposit address. The link will lead you to the issuer, where you can buy the coin, and then transfer it back to your Celsius wallet.
Interest earned with stablecoins is higher overall, averaging at around 9% which is paid out weekly. With Celsius, you’re even able to see how much interest you’ve accumulated each week––right on your app’s dashboard!
To convert your stablecoins back to fiat, you’ll need to press withdraw on the same page listed above. Celsius will give you the option to choose the amount you would like to withdraw in USD, and the now converted stablecoins are made available promptly in your bank account as USD.
How is Celsius Able to Do This?
The answer, surprisingly, isn’t very complicated. Celsius Network simply promises to share 80% of their income back to depositors. Why don’t traditional banks do this? The answer is also simple. They don’t have to. Generally, a bank will profit 80% of its earnings, and distribute the rest to shareholders. This distribution of funds is usually in the form of dividends and share buybacks. With traditional banks, depositors get the smallest possible piece of the pie––which is ironic considering that without us they would cease to exist!
Celsius, on the other hand, remains afloat by loaning coins to institutional traders, exchanges, and hedge funds––all by issuing asset-as-collateral loans with an average 9% APY.
Nexo is another leader in the DeFi space, partly because they offer daily interest payouts, as well as financial protection through asset insurance via their partnership with custodian BitGo (similar to Celsius). They’ve become a fierce competitor among other DeFi apps, and a standout among their opponents. They also claim to offer the lowest interest rates on credit lines in the DeFi space, recently announcing even lower rates. Still, it’s good to keep in mind that Nexo is technically a licensed and regulated financial institution, unlike Celsius.
Developed by Fintech team Credissimo, Nexo’s original mission over 10 years ago was to provide consumers with a convenient and optimized online loaning option. Nexo proves themselves to be a long time ally of the financial tech space and facilitates their core ideals through the power of blockchain.
While part of what makes Nexo so unique is its daily interest payouts to users, it only offers interest on specific stablecoins. So, if you were hoping to earn that interest on any of the three major cryptocurrencies like BTC, ETH, and LTC, you’re out of luck.
Buy, Deposit and Withdraw Stablecoins
The first step is to download the Nexo app and create an account/verify your email address. Once you do that, set up a pin and enable face ID. To deposit funds, press the wallet icon at the bottom of the app’s dashboard and choose which stablecoin you’d like to deposit. Press “top-up.” The steps that follow are quite similar to Celsius’, but remember to use your device’s copy and paste feature. Also, make sure you send a small test amount before depositing anything significant. If you don’t, you run the risk of losing your funds forever.
(If you don’t own stablecoins yet, you’ll need to buy them elsewhere. At the time of writing, Nexo accepts DAI, USDT, USDC, TUSD, and PAX.)
Go to the app’s dashboard and press the button that says “Withdraw Funds from Credit Line.” It’ll bring you to Nexo’s basic verification page. Nexo requires a straightforward KYC procedure that only inquires about your name, address, and phone number. However, it can become more invasive depending on whether or not you plan to take out a large loan––which then requires either your social, driver’s license, or passport. There are no minimum payments, no hidden fees, and no credit checks.
(Note: Nexo requires 2FA as an extra precaution in addition to their “military-grade 256-bit encryption”)
To withdraw funds, press “withdraw” under the stablecoin dropdown menu. Keep in mind; you won’t be able to withdraw collateral-based stablecoins that are being used for a loan. Depending on the status of your account, your withdrawal can take up to 24 hours to process. But as long as you’re not a new account and are not holding a substantial amount of assets, processing times are speedy.
Important Things to Remember
Celsius and Nexo both offer a unique alternative to traditional banking. They’re able to extend the same services that a bank can, without all the extra fees, minimum payment requirements, credit limits, and long processing times. Something worth mentioning however, is that stablecoins do not technically retain a true value of $1.00 simply because they’re prone to more fluctuations than fiat is. But the fluctuations tend to be minor.
The Bottom Line
For cryptocurrency enthusiasts, or for those skeptical of crypto’s volatile nature, stablecoins and DeFi certainly provide an unprecedented opportunity for passive income. It’ll be interesting to see these companies grow, maybe offering us even more financial solutions in the years to come.
Until then, do your own research and become familiar with these new alternative methods of earning interest on your savings. DeFi platforms are here to say, traditional banks aren’t your only option anymore. There’s a new and improved choice, and its future looks bright!
Interest rates quoted as of 3/28/2020
This article is for informational purposes only and is not an offer or solicitation to buy or sell any security, investment or other product.
Remember, digital assets are not considered to be legal tender, and therefore are not insured by Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC). Celsius is not a depository institution, and your Celsius wallet is not technically a deposit account. Insurance rates are variable and subject to change at Celsius’ discretion.
View Nexo Disclosures here.