Here’s everything you need to know about paid crypto accounts
Cryptocurrency owners don’t just brag about wacky returns, there’s also the return. Today, there are many platforms that help you get high returns just by depositing your crypto assets.
The idea seems to be catching on quickly: Deposits in decentralized financing (DeFi) applications have fallen from around $ 1 billion in June 2020 to just under $ 40 billion at the end of January 2021.
But questions arise: how does it work? What is the interest rate? Are there any risks? Who is it ideal for?
This article covers all of your questions and hopefully more so that you can gain a solid understanding of paid crypto accounts.
How an interest-bearing cryptocurrency account works
The principle of an interest-bearing crypto account is the same as that of a regular savings account. You deposit your Bitcoin or altcoin and earn compound interest on your assets.
The only difference is that the rate of return is significantly higher compared to the rates of traditional savings accounts. You can also receive weekly payments to your wallets and withdraw funds at any time.
Currently, the maximum you can earn with a savings account in the United States is 0.7% Annual Percentage Yield (APY), offered by Sallie Mae’s SmartyPig Account – 11 times the FDIC national average of 0.06%.
Paid crypto accounts offer interest up to 7.5% APY, on average. But some platforms may even allow you to earn interest up to 12.73% APY on your cryptocurrencies – no blocking or deposit limits. Interest is driven by market effects and is paid in cryptocurrency. You may need to pay a withdrawal fee, which is periodically adjusted based on blockchain conditions.
Your platform may be of great interest to you as it lends your crypto assets to individuals, companies or institutions that use it based on their business functions. Borrowers return the assets with high interest, and your platform takes a small portion of the interest and passes the rest to you.
Is it risky?
In fact, a high reward comes with a high risk. But in this case, the risk is directly proportional to the platform on which you choose to invest.
In general, there are 2 main risks you should beware of: hacks and borrower defaults.
Hackers can easily access platforms that have weak security infrastructure, no encryption, and store your tokens in a hot wallet. Additionally, businesses that do not hold a business license may be subject to violation.
When it comes to borrower defaults, it highly depends on who the platform chooses to trust. If a company is transparent about its lending standards and maintains a strict requirement for its counterparties, it reduces the level of risk.
It is advisable to find out about the precautions taken by a platform before filing your interest. For example, crypto accounts remunerated like Hodlnaut Use Fireblock’s multi-party compute wallet infrastructure to secure funds.
It also offers optional user custody protection, an alternative to traditional insurance. In the event of default, the company assumes the loss and pays its users out of its own funds. In such cases, the risk may be rather low.
Are Interest-Paying Crypto Accounts Right For You?
Cryptocurrency investments are a great way to diversify your portfolio. Although many see it as a way to make money in the short term, its true potential will be seen as decentralized finance becomes more mainstream – a reality that is emerging more and more every day.
For crypto owners who want to hold onto their assets for the long term, interest-bearing accounts offer a nice reward for patience.
But, before you deposit your crypto holdings into a paid account, be sure to do your due diligence so that you are comfortable.