[OrlandoHakim]

Not sure how familiar many here are on the difference in savings rates available in crypto stablecoins vs traditional banks.

My US FDIC savings account offers a measly interest rate of 0.03% APY right now. By contrast rates on crypto stablecoins are often 7-10% APY easily with some such as UST on a Terra offering an amazing 19.53% APY.

Yes the crypto stablecoins are riskier in some ways than USD and FDIC insurance is still the gold standard, at least up to their limit. On the other hand, there are now decentralized insurance protocols available on stablecoin yields which cover risks of a stablecoin or an unintended behavior in a smart contract for ~2% APY.

Everyone should do their own research of course, but crypto can be compelling in that at the very least it can allow your savings to preserve their purchasing power net of inflation, something that isn’t possible with a traditional bank savings account.

[sdoering]

I have no knowledge of stablecoins. But are my savings secured? As in if the bank breaks down, becomes insolvent and dissolved my money is still backed by the government and I will not loose a dime?

Else I don't care about 0.03% or 7 to 10%.

Regardless of me thinking that a growth economy is eating the planet. When it comes toy savings I am more conservative as a mythical pope mixed with Ronald Reagan. I don't care about it growing. I care about it not vanishing in the blink of an eye.

Everything else is just playmoney. No problem if I loose it or use it to light a fire in my fireplace at home. Just printed paper (virtual) that I can spend for whatever.

[OrlandoHakim]

As I mentioned in the GP, for 2.5% per year you can insure any amount of stablecoin savings against risk of loss, so yes they are secured. In a traditional bank your savings are only secure up to a specific limit which is $250k in the US and less everywhere else in the world (e.g. $6,600 USD in Ukraine). Also in a bank your savings are not secure against inflation which is currently -7.5% in the US and as high as -54% in Turkey.

In other words, for a US resident, putting money in the bank is currently virtually guaranteed to lose at least 7.5% of it’s purchasing power per year. It brings new meaning to the expression “safe as money in the bank.”

Here is an example:

1. Purchase UST on an exchange on a 1:1 basis with USD

2. Send it to the Terra Station self-custody wallet on your phone

3. Deposit the UST into a decentralized app (dApp) at www.anchorprotocol.com to earn 19.53% APY accruing every 6 seconds

4. Purchase the equivalent of FDIC insurance for ~2.5% APY from any of Nexus Mutual, InsurAce or Bridge Mutual

5. Enjoy a nice safe net ~17% APY on a USD stable deposit

* Bonus: Because of the payout mechanism this fixed APY yield is considered a capital gain and not interest income so it is taxed more favorably than a traditional savings account and you don’t trigger a taxable event until you sell.

I would suggest it is worth investigating and maybe trying it out with a small amount to see for yourself.

[kenniskrag]

Nexus Mutual InsurAce is a small insurance, which isn't backed by a bigger insurance. Traditional insurances can cross protect the risks e.g. fire & water, europe & asia or sell some risks to a reinsurance company. Maybe there is no regulation on how much reserves in fiat they have to keep. So no not the same protection.

[OrlandoHakim]

Nexus Mutual and InsureAce are two independent entities but still those are fair points.

However did you know that FDIC insurance only requires 1.35% reserves? Of course they can also have the FED print money which drives further inflation for everyone.

Net, net, no the guarantees are not the same but government-backed insurance isn’t as safe as we would like to assume.

Also, outside the US, deposits are only 100% insured up to very modest limits. Banks offer no insurance above these modest limits.

As a timely example in Ukraine only deposits up to 200,000 UAH are insured. At the current UAH:USD conversion rate, that means only up to $6,600USD of deposits are protected. Anything over that amount has zero coverage.

Crypto stablecoins can provide options for those in need. Please don’t immediately dismiss them simply because you personally may not see the use-case.

[whatshisface]

It sounds like those insurers are offering insurance that's way too cheap for the risks of a deal purporting to give you 20% APY in free money. That, or the insurers are planning to run off with the cash too...

[mardifoufs]

Yeah, they are basically just currently picking the pennies in front of the soon to come steamroller. Though in this case, the "insurer" has basically no regulatory obligations so the owners are probably making out like bandits. If the insurer has no money and no FDIC like scheme to back up any insurer failure, then it's just going to be the "investors" who will get wrecked.

[OrlandoHakim]

As I mentioned in a sister comment, I don’t endorse any of these insurance products as I personally haven’t done the research. Also, as with any insurance product the devil is in the fine print and it pays to understand their ability to payout in a crisis.

That said, this is a fast-moving space with new entrants coming online all the time.

For example I just Learned about Ozone Insurance which claims to be a 100% trustless on-chain insurance plan [0]

[0] https://cointelegraph.com/news/risk-harbor-set-to-take-over-...

[tacon]

"fast-moving space with new entrants coming online all the time" insurance is an oxymoron.

[OrlandoHakim]

Three separate insurance companies offer similar rates to protect stablecoin savings so the market seems to disagree. These are all well capitalized insurance programs run by well-known entities so - not fly by night outfits. That said none have been stress tested in a market crisis as yet.

My only argument is that anyone dismissing crypto as a scam with no use case who hasn’t taken the time to investigate is doing themselves a disservice.

This is a rapidly evolving field with lots of innovation and while it pays to be skeptical, it also pays to be curious.

[whatshisface]

Having an insurance company guarantee your 20% APR for 2.5% APR is not a use case, it's one of:

- The insurance company scamming you,

- The insurance company using you to scam their investors.

- All of the above.

[OrlandoHakim]

Read my response to user SketchySeaBeast below. The 19.53% APY payout rate is not fixed and not guaranteed, just as the interest rate paid in bank savings is not fixed nor guaranteed.

The principle and any interest earned to date is insured if you purchase the insurance. Again, I don’t endorse the insurance products as I haven’t done the research, but elsewhere on this thread I mention Ozone Insurance which claims to be a trustless on-chain stablecoin insurance protocol.

[SketchySeaBeast]

If you're making a company guarantee you 17% APY that feels like either some sort of insurance fraud or a ponzi scheme.

[OrlandoHakim]

The current payout rate is 19.53%, so nets to 17% after paying for insurance to a 3rd party.

The accounting is transparent and on the Terra blockchain so it certainly isn’t a Ponzi scheme. However the payout rate is not guaranteed or constant and does fluctuate from time to time. The UST/Anchor Protocol payout is likely not sustainable and should come down overtime. That said the Terra Foundation recently put an additional billion dollars into the incentive pool so the rates should continue for at least another year.

I would never advocate putting money into anything without investigating the risks for oneself. That said, even money in the bank isn’t always safe as savers in Cyprus learned the hard way after the GFC when their government decided the banks needed a bailout more than depositors needed their savings.

[SketchySeaBeast]

I took a look at Nexus mutual - where do they claim they'll pay out 17% guaranteed if the investment fails? It looks like it requires a loss of at least 20% of the cover amount to make a claim, and that's due to either a network failure or a theft of some sort.

[OrlandoHakim]

They claim they payout if the stablecoin:USD peg is broken by x% for more then y days OR if the smart contracts are expoited in unintended ways (read hacked) The other insurance products provide similar payout policies.

The Anchor Protocol offers the accrual of UST at a specified rate (currently 19.53%) but just like your bank does not guarantee the interest rate paid in savings deposits for any fixed period of time, the payout rates on Anchor and other similar protocols can and does vary over time, though Anchor Protocol has paid just shy of 20% APY for over a year and the fund has been backstopped with an extra billion dollars so should be stable for at least another year.

Notably due to the mechanics of the Terra blockchain recording these transaction, you deposited UST balance (which is protected by insurance if purchased) is updated every 6 seconds.

Therefore, while the payout rate varies (like a bank) and is not guaranteed over time (like a bank), you can move your funds if it ever drops below an acceptable level for you and you would only be out the interest on a few seconds to a day - depending on how closely you watch it.

Since this is all on-chain via smart contracts it is transparent to monitor or move programmatically for the paranoid.

[astrange]

> Everyone should do their own research of course, but crypto can be compelling in that at the very least it can allow your savings to preserve their purchasing power net of inflation, something that isn’t possible with a traditional bank savings account.

This is not possible unless there's production available denominated in the stablecoin, you have to buy whatever currency they'll accept first.

Even then it's not possible to "preserve purchasing power" by keeping a currency, because that's not what currencies do - they're a medium of exchange not a store of value. Imagine if everyone held a stable currency, but one day got tired of going to McDonald's and stopped trading with them. Eventually they go out of business; now you can't buy it anymore. You have failed to store value measured in McDonald's purchases. If you want to invest to rebuild it, then it's more expensive and that's supply shock inflation. This is more or less why central banks target 2% and not 0% inflation, to encourage occasional maintenance spending.

There isn't really much that can actually store value. Gold and bitcoin obviously rely on bagholders. But in general "storing value" means compelling other people to do work for you, and they're not always going to be there to do that.

[anchpop]

> On the other hand, there are now decentralized insurance protocols available on stablecoin yields which cover risks of a stablecoin or an unintended behavior in a smart contract for ~2% APY.

I hadn't heard of this, how would someone get set up with something like this?

[OrlandoHakim]

Three options I am aware of are Nexus Mutual, InsureAce and Bridge Mutual.

Fair warning, I am not endorsing any of these as I haven’t done the research on the insurance options yet.