Blockchain.com raises interest rate on bitcoin and stablecoins as hunt for yield among traders soars
August 17, 2020, 9:00AM EDT · 2 min read
- Blockchain.com is now offering a 12% annual interest rate on stablecoin deposits
- The move would put them ahead of other leaders in the market, including BlockFi and Celsius
- Blockchain.com is able to offer high rates because it has been able to charge a higher rate from institutional borrowers
Blockchain.com has added nearly $100 million in customer deposits since launching its interest-bearing retail accounts in June, and now it is looking to offer those clients an even higher rate.
The firm told The Block that it has raised the annual interest rate offered for deposited bitcoin from 4.5% to 6%, while the rate for stablecoins PAX and USDT has been increased from the current 7% to 12%. The move puts the company ahead of market leaders BlockFi and Celsius, which offer an interest rate of 8.6% and 8.69%, respectively, for select stablecoins. Blockchain.com began offering high-yield interest account services in June. It also lends crypto to retail and institutional clients.
Underpinning the adjustment by Blockchain.com is a broader hunt for increasing yield opportunities across the crypto market among traders, coupled with breakneck growth in the lending business. BlockFi, for instance, adjusted its own rates in March, boosting the annual percentage yield for clients holding 5 bitcoin from 3.6% to 6%. On the borrowing side, Genesis Global Trading reported earlier this month that demand to borrow crypto added more than $2.2 billion in new originations.
Blockchain, meanwhile, is originating $500 million in new loans per month, The Block has learned. To ensure the firm is running a healthy book, it has a risk committee that oversees the business. The firm runs a majority collateralized book and has yet to have a client default or miss a margin call.
In an interview with The Block, Blockchain.com CEO Peter Smith said that the growth on the institutional side of the business has made it possible for the firm to offer even higher rates for its retail customers. In a sense, the firm is passing on more of what it makes from lending out crypto to institutions to its retail clients in the form of higher yields. That brings the rates closer to what they offer institutions who store their own crypto with the firm.
Smith said the firm will still be profitable at these levels because it can command such a high fee from firms looking to borrow. Internal documents reviewed by The Block showed that the firm is currently profitable on its loan book. The firm is able to command such high borrow rates, in part, because there is such "an incredible demand for inventory." Trading firms and large investors in the space want to borrow stablecoins—such as PAX and USDT—to engage with the burgeoning DeFi market and trade more seamlessly across fragmented crypto markets, said Smith.
As recently explained by The Block's Ryan Todd in his column, "simple supply and demand amid attractive risk-reward opportunities is helping to drive these higher yields. But there's also another subtle difference to point out that persists in this market, relative to traditional dollar funding markets."
To be sure, it is not clear if Blockchain.com will be able to maintain these rates in the medium to long term.
© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.