How to Get a High-Yield Savings Account on Ethereum
The world of decentralized finance opens up unique financial opportunities on the Ethereum network. Historically, the interest rates earned on stablecoin lending in Ethereum have had a large spread to what can be earned in the traditional finance sector, presenting a nice opportunity to earn extra yield on cash. This guide will show you how to earn high-yield interest on USD using the Ethereum blockchain.
If you are brand new to Ethereum, we suggest first reading our new user guide.
1. Acquire Stablecoins
The key to this guide is understanding the concept of stablecoins. These are 1:1 representations of USD on the Ethereum network, essentially digitalizing your dollar. In order to earn yield using decentralized finance, you will need to acquire a stablecoin. We suggest either Dai or USDC, both of which can be acquired on Coinbase.
Coinbase offers a feeless onramp for USDC, however Dai is the more trustless option and usually offers a higher yield.
If you'd like to go with Dai, the feeless route is to go fiat > USDC via Coinbase and then trade USDC > Dai on dYdX.
2. Pick a Lending Protocol
Now that you have stablecoins, you need to find borrowers that are willing to pay you yield in order to borrow your coins. There are many of these protocols built on Ethereum and you can easily find what rates are being offered on the stablecoin of your choice. Please note that some protocols have a longer history and better security standards than others, which should factor into your decision as well.
For this guide, we will use Maker's Dai Savings Rate.
If you picked USDC, we suggest using Compound.
3. Start Earning Interest
At this point you're ready to start earning interest on your stablecoin.
The website to interact with the Maker protocol is called Oasis. Navigate to the save section and you will be presented with the current APR%. Follow the guide to deposit your Dai and your savings account will then be open:
Below is an image from Maker on how the mechanism functions:
Now you can watch your interest earned count up in real time and withdraw at any point.
There is always the possibility that smart contracts have bugs. If you are worried about this, it's possible to insurance your savings account using Nexus Mutual. This gives you coverage on the smart contract you picked to lend on for a small fee.
5. Rate Movements
Most lending rates on Ethereum are variable, meaning they can move up and down at any time, much like traditional savings accounts. Different protocols handle rate movements in different ways but all are derived on the function of supply and demand. If there is more demand than supply, rates will go up, and vice versa.
DISCLAIMER: EthHub is a completely independent and open-source initiative founded by Ethereum community members. Nothing contained in this Github repository should be considered financial or investment advice - it is for informational purposes only.