Coinbase Users Will Start Earning Interest on USDC Holdings

San Francisco-based cryptocurrency exchange Coinbase has announced that from now clients will be able to earn interest for holding the stablecoin USD Coin (USDC) in its crypto wallet. Coinbase users will receive a 1.25% on their USDC holdings per year.

The news had been shared through a blog post on the exchange’s website, stating that Coinbase will pay rewards on literally any amount of USDC held, which will be distributed each month automatically.

Users with at least one dollar’s worth of USDC in their accounts will automatically begin to accumulate rewards on their holdings, with no additional cost or fees. USDC is a stablecoin, whose value is pegged to the U.S. dollar at a 1:1 ratio. It was launched last year by CENTRE, a consortium co-founded by Coinbase and Circle.

Currently, the Coinbase Rewards is only available to eligible U.S. customers, however New York State based users will not have access to this reward system. Furthermore, it will only be available on Coinbase and not Coinbase Pro – Coinbase’s sister exchange for professional traders.

Coinbase product manager Paul Katsen has explained that the exchange is trying to build more ways for customers to grow their wealth on Coinbase.

He further added:

“One of the things we know is a bad customer experience is having to move your money back and forth from Coinbase to a bank account [to] earn a little bit of interest in the bank account. We’re trying to bring some of these experiences together but make them crypto-first and on Coinbase.”

According to Max Branzburg – director of product at Coinbase – the user experience is very simple and smooth. He explained that as soon as a client has USDC in their wallets, they can start earning rewards. All rewards earned on the exchange can be tracked in real-time and used immediately to buy other cryptocurrencies listed on the exchange.

He further stated that the reward system will be financed by the exchange itself, by using pre-existing revenue streams.

“We can pull from the profits we generate as a business to reward our customers for storing their assets on the platform,” Branzburg said, adding:

“We’re fortunate to be able to do that as a profitable business.”

This is an attractive proposal for anyone that trades on Coinbase, as it is more advantageous than moving fiat from a bank to Coinbase and vice versa. Indeed, at 1.25 percent, the interest rate offered by many federally-insured bank accounts trump that of Coinbase. Although it is still higher than the apparent U.S. national average of 0.9 percent, NerdWallet lists a total of 14 savings accounts that offer more than two percent APY.

Meanwhile, Coinbase’s news follows competitor Binance’s launch of a staking platform yesterday, which rewards users keeping coins, including Algorand’s Algo and Stellar’s XLM, on the exchange. Whilst this makes it much easier for users to grow their supply of stake-able coins, it does mean that the exchanges will have sizeable influence over such proof-of-stake blockchains, which is a worrying sign.