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Using Defi to Collect Interest

Published Apr 12, 2021

I have been doing a fair amount of researching into decentralized finance and what I can do to take advantage of this. Specifically around staking my crypto so that it can be used to collect interest. Currently, if I have my money in a centralized bank account there are a lot of restrictions to what I can do with my money. I can only spend so much in a day, week, and month timeline depending on the type of account I’m willing to pay for. If I move money around between accounts I run the risk of being locked out of them, and not having access to my money. While trying to invest into crypto, I ran into both of these issues. I couldn’t buy as much as I wanted due to restrictions on what I could spend, and when moving some money between banks for investing I had accounts locked at my bank. After I did get the money I wanted in crypto, it was much easier to take a look at the landscape to think of what I can do with it now. I should note, I do understand why some of these things exist for the bank. If I am moving large amounts of money in and out of accounts in a short period of time then it will raise red flags, but it doesn’t make it any less frustrating or restricting. As for the spending limits, that is a problem for me. That is largely to protect the bank, not me.

When looking at different savings accounts at the banks around me, it really shows how decentralized finance and crypto have shaken things up. If I look at BMO, I can open up a savings account but only get up to 0.35% interest on my savings. Meanwhile, the bank can use my savings for their operation, and earn way more than 0.35% while keeping the lions share. This doesn’t sit well with me as they need my capital in order to do this, so how is it I don’t get more of the cut. One solution may be investing it in the market, but maybe I need to keep my savings liquid for some reason and that isn’t the best option. This is where decentralized finance starts to come in. Suddenly, through smart contracts there are ways for you to have your savings used like at a bank (margin, loans, etc), but your return is now a much more reasonable percentage of the operation. In applications like Aave which are fully decentralized you can earn between 7-11% on stable coins. Even more centralized applications like Blockfi will give you similar rates of return on stable coins. Which bears the question, why am I only getting 0.35% in a traditional savings account? Is there that many middle men that I lose out on around 7% of the returns?

Companies like Blockfi, exchanges like Gemini, Coinbase, Binance, Kraken,, etc, all provide easy ways for you to buy crypto, and often stake them as well. So, even without needing to go into learning a lot about how crypto works, or how the financial system works, you can take advantage of a better rate of return quite easily. The downside to all of this though is that there is a higher rate of risk holding crypto assets. Banks are backed by insurance and regulated so that if something were to happen you will at least be guaranteed that your money is there. There has been a lot done in the past decade to regulate exchanges, and make them safer for customers of those products though. With all the failures and scandals in the past, better regulations for these centralized exchanges have made it safer for users to hold their money in crypto assets. Even decentralized protocols like Aave logic around their loans too to make sure that you won’t lost money and protects the people taking loans. I probably am taking for granted my technical background, and my financial literacy from researching this. That being said, is it really fair that it takes that skillset to just avoid some middle men taking that much of a return?