Comparing Returns Between Bank Fixed Deposits and Crypto Stablecoin Lending

Seek a balance between risk and reward

Last updated on 08 Aug, 2022 4 min read Blog

Table of Contents

IMPORTANT

This post is not sponsored by any entity and the views expressed herein are my personal opinions. I am not advocating the use of any service, and nothing in the article constitutes investment advice.

Crypto asset investments are inherently high risk, so one should always perform due diligence, research in depth, and do not risk more than one can afford to lose.

(Update 8 August 2022)

The platform Hodlnaut used for comparison in this article has announced that it will be halting all withdrawals, token swaps and deposits with immediate effect.

This is further evidence that crypto asset investments are very high risk.

Introduction

I personally know people categorised as ‘risk averse investors’, who are skeptical about crypto asset investments, because they are worried about the possibility of suffering significant losses.

Their worry is not unfounded, as massive losses do and can occur in situations like:

getting scammed or phished into revealing crypto wallet credentials.
investing in shady or high risk crypto projects that fail
crashing of the crypto market in general
engaging in leveraged in trades
government and regulatory policy changes
hacks on crypto exchanges
…

However, with due diligence by an investor, many of these risks can be managed and the risk-to-reward ratio can be improved.

In this post, I will attempt to do a simple comparison between (A) allocating all capital into traditional banking fixed deposits, and (B) allocating 10% to the relatively conservative crypto investment strategy of lending out stablecoins.

Comparison

Premise:

Let’s start with an investment capital of $10,000.
For simplicity sake, we will ignore all currency conversion, funding and transaction fees in our calculations.
We assume the USD/SGD currency exchange rate to be the same at the start and end of the investment period.
We will also assume that the interest for lending out crypto remains constant over a one year period.

Scenario A: 100% Fixed Deposits

If we were to place the entire capital into a 12-mth fixed deposit at a local bank, it would yield approximately 1.15% in interest (as of January 2022).

Projected returns after a year:

Fixed deposit interest on $10,000: $115.00
Total returns: $115.80

Scenario B: 90% Fixed Deposits, 10% Crypto Lending

What would happen had we decided to allocate 10% of the portfolio into a crypto savings platform instead?

Using the Hodlnaut platform as an example, if we were to deposit $1,000 worth of USDC into Hodlnaut, we can expect returns of 12.73% based on the January 2022 interest rates published.

What is the Hodlnaut Platform?

Hodlnaut is a platform based in Singapore that allows cryptocurrency investors to earn interest on their crypto holdings by lending them to vetted institutions.

Pros:

High interest rates on deposits.
No minimum deposit requirement.
Pays out weekly to your wallet.
no lockdown period unlike fixed deposits.

For the remaining $9,000, we can still opt to place them into a fixed deposit.

Projected returns after a year:

Fixed deposit interest on $9,000: $103.50
Stablecoin lending interest on $1,000: $127.30
Total returns: $127.30 + US$103.50 = $230.80

Conclusion

From the calculations, one can see that allocating 10% of the capital into crypto investments has the potential to double one’s return across a one year period.

The strategy discussed is not entirely risk free, but the risks have been managed by:

exposing only a minor percentage of one’s portfolio into crypto assets;
investing in stablecoins which are by nature, not susceptible to price volatility;
choosing a crypto platform that:
- is committed to getting licensed by the Monetary Authority of Singapore (MAS)
- vets who it lends crypto assets out to
- has strict security implementation to protect assets

There is a plethora of platforms offering similar services to Hodlnaut. We cover some of these in the “Platforms -> Lending (HODL to earn interest)" section, where you can also discover sign-up referral offers.

Hodlnaut Lending Stablecoin USDC