USDC Yield

Earning Yield on USDC: The Complete Guide to High-Yield Digital Dollar Accounts

Earning Yield on USDC: The Complete Guide to High-Yield Digital Dollar Accounts

Team Circle Team Circle February 10, 2021

Circle is securing spots on our waitlist for a new yield generation product* that enables USDC holders to earn up to 7%** APY by depositing their digital dollars in a High-Yield Account. 

In this guide, you will learn what a Digital Dollar High-Yield Account is, how it works, and why you should consider signing up for the waitlist

 

The Evolution of Yield in the Crypto Markets

When cryptocurrency first emerged with the birth of Bitcoin in 2009, one of the earliest points of contention with the new “internet money” was that — unlike fiat currency — cryptocurrency does not pay interest. 

Digital currencies don’t pay interest when held in digital wallets, whereas money deposited in a bank account typically pays interest — albeit very little. 

However, as the crypto markets matured, the first interest-paying accounts emerged to allow crypto asset investors to earn yield on their dormant holdings. 

In the first wave of interest-bearing crypto accounts, a handful of service providers enabled crypto investors to deposit bitcoin in an account to earn interest. The service provider was able to pay interest on bitcoin by taking the deposited funds and lending them to margin traders on digital asset exchanges on behalf of the account holder. 

Additionally, several exchanges started to offer their users the ability to earn interest by lending to margin traders directly on the platform. 

The second wave of crypto yield products came with the entrance of institutional investors and professional traders. As the crypto markets evolved to become an established alternative asset class, more and more professional market participants entered the foray looking for leverage to take advantage of market opportunities. 

The institutional demand for borrowing crypto then enabled a more sophisticated class of yield products targeted at both retail and institutional investors looking to earn interest on their long-term crypto holdings. 

Now, we are in the third wave of crypto yield products, where you can find both decentralized lending protocols in the burgeoning DeFi market and professionally-managed, secure yield accounts in the CeFi (centralized finance) market. 

The DeFi lending market is currently worth over $12 billion, while the CeFi lending market is in the tens of billions, thanks to increasing institutional investor demand for both borrowing and earning yield on crypto assets. As a result, yield-generating accounts are typically able to pay above-average interest rates to depositors. 

 

Digital Dollar High-Yield Accounts

Circle’s Digital Dollar High-Yield Account will* enable USDC holders to deposit digital dollars to earn 4%** APY on open term and 7%** on twelve-month fixed term deposits. 

share-yield

With the introduction of short and medium-term yield accounts, Circle empowers businesses and financial institutions to leverage the power of digital dollar stablecoins to earn above-average yields. 

Through a partnership with leading institutional crypto lender Genesis Capital, Circle is able to offer 4%** APY on short-term deposits and up to 7%** on long-term deposits to Circle Account holders looking to earn yield on idle liquidity or investment capital. 

With our High-Yield Accounts, an internet business can earn yield on working capital held in digital dollars for every day it isn’t put to use. Additionally, we want to give financial institutions who are bold enough to venture into the world of crypto assets the ability to generate higher yields for holding digital dollars than they currently could when holding ‘physical’ US dollars.

— Jeremy Allaire, Circle CEO

 

 

The new High-Yield Accounts provide access to these crypto lending markets while remaining user-friendly to businesses and institutions around the world*.  

 

How Can Circle’s High-Yield Accounts Pay Up to 7%** APY?

If you are placing US dollars into a retail money market account, you will earn around 0.50% APY. In the institutional money markets, the rates are even lower due to today’s historically low interest rate environment in most major economies. 

As a result, businesses and institutions are looking for new ways to earn yield to meet their liquidity management needs. The crypto markets offer this opportunity.  

Circle can pay high yield on digital dollars through its partnership with Genesis Trading, which lends the deposited funds to institutional crypto market participants. 

Crypto funds, hedge funds, proprietary trading houses, and institutional investors borrow cryptocurrency from Genesis Capital to amplify their earnings potential in the crypto markets. As there are plenty of opportunities to generate crypto trading revenues, market participants are willing to pay high borrowing rates. Crypto lenders can, therefore, pay depositors much higher yields than in the traditional financial markets. 

As a result, Circle can pay 4%** APY for open term deposits and 7%** for twelve-month fixed-term deposits because of its relationship with Genesis, which acts as an intermediary between Circle and institutional borrowers in the crypto markets. 

 

High-Yield Account Use Cases 

Circle’s High-Yield Accounts* offer various use cases for banks, real estate investment firms, large commercial enterprises, crypto startups, internet businesses, fintechs, and traditional financial institutions. 

Let’s look at some of the most powerful use cases for High-Yield Digital Dollar Accounts. 

 

Earning Yield on Working Capital

Regardless of whether you are an internet business, a bank, a crypto startup, or a financial institution, you can convert your working capital from fiat currency into digital currency and deposit digital dollars in a High-Yield Account to earn above-average yields while your cash is not being deployed.  

For treasurers looking to place funds into something other than low-yield money market products or corporate debt, High-Yield Digital Dollar Accounts are a welcome change that can generate 4%+** yield on working capital.

As part of a company’s corporate treasury cash management operations, Circle Account holders can seamlessly move digital dollars into a High-Yield Account to automatically earn yield on unused cash liquidity. 

 

Generating Above-Average Returns 

Circle’s High-Yield Dollar Digital Accounts provide treasurers and institutional investors with a novel way to allocate capital in an asset class with a different risk profile than otherwise found in the traditional money and capital markets. 

For example, the open-term account provides market participants with the opportunity to passively deploy capital in the crypto capital markets while remaining in the US dollar. 

High-Yield Digital Dollar Accounts could also offer a substantially higher yield potential than comparable products in the legacy financial markets — currently between 4%** and 7%** yield per annum. Compared to the annualized returns of major traditional asset classes, those may be higher yields. 

The current 10-Year US Treasury yield is at an all-time low of under 1%, making it challenging for investors to earn real returns on the risk-free rate. 

Aaa-rated US corporate bonds have a long-term average yield of 6.68%. Currently, however, high-rated corporate debt will earn you around 2.50% per annum. While corporate bonds offer slightly higher returns than US Treasury bonds, the low-interest rate environment is also making life harder for investors with exposure to corporate debt. 

High-yield corporate bonds have historically outperformed government bonds and high-rated corporate debt, but they come with a much higher level of risk, which is too high for most treasurers and non-specialist fixed-income investors. 

US stocks, measured by the S&P 500 Index, have historically generated average annualized returns of close to 10%. However, if you are entering the market at the end of a rally or in the middle of a correction, your returns can be substantially lower or even negative, making stocks a risky investment for conservative investors, such as corporate treasurers.  

All of these allocations are not without risk. Entering into these digital currency lending markets through High Yield Digital Dollar Accounts poses credit, market and operational risk that may result in loss of principle and should be carefully vetted before comparison risk adjusted payments. 

 

Asset and Liability Management

For financial institutions who are looking to balance their assets and liabilities, depositing digital dollars in an open term High-Yield account can be an exciting new avenue to manage the interest rate gap. 

By converting US dollars into digital dollars to earn a minimum of 4%** APY, and being able to access these almost immediately***, allows asset and liability managers to hold more funds in cash while earning potentially higher yields than riskier asset classes. 

 

Where to Start? 

Sign up here to join the waiting list to be notified as soon as the Digital Dollar High-Yield Accounts go live*. 

High-Yield Digital Dollar Accounts will be natively integrated into Circle Accounts to enable account holders to seamlessly move their funds via the Circle Account and through our APIs into a yield-generating account.

Circle Accounts can be opened by businesses and financial institutions from around the world, but we will be rolling out to a restricted set of countries to start for High Yield Accounts. 

 

* Offering subject to business approval, geographical availability, and regulatory authorization, and there is no guarantee that the product will become available in a specific timeframe or geography. Service offered through Circle International Bermuda Limited. It is anticipated that Circle International Bermuda Limited will enter into lending arrangements with one or more institutional borrowers, including Genesis Global Capital, LLC. You should conduct your own investigations and analyses in connection with any participation in this product and the information set forth in these materials. All prospective participants in the products described herein are advised to consult with their legal, accounting and tax advisers regarding any potential participation. Additional information is available upon request. Customer-facing offering subject to regulatory requirements and business account approval. Please contact Circle to discuss eligibility.

** Rates are purely indicative and are subject to change pending availability, approval and market conditions.

*** Withdrawal requests for open and fixed term accounts could take up 72 hours in high withdrawal periods.



Subscribe to our blog

Get Circle updates right in your inbox.