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Company/Blog/Everything You Need To Know About Using Stablecoins In DeFi | Part 3: Decentralized Lending

Everything You Need To Know About Using Stablecoins In DeFi | Part 3: Decentralized Lending

Welcome to Part 3 of Stably’s series on using stablecoins in DeFi. In this article, we’ll talk about how to leverage stablecoins to earn interest using decentralized lending protocols.

Lending stablecoins to earn interest through decentralized lending protocols is one of the simplest ways to earn money using stablecoins.

While we touched on Decentralized lending in Part 1, here we’ll go further in-depth. As a reminder, these lending protocols enable lenders to earn interest by making funds available to borrowers, who in turn agree to pay the interest to lenders for making liquidity available.

Thanks to the smart contracts that govern these lending protocols, lenders and borrowers can exchange tokens without a physical intermediary – and the rates offered by these money markets is nothing to scoff at. Below are the interest rates provided across 6 different dApps, for the stablecoins DAI and USDC. Note that these rates are from May 2022, and have likely lowered since. This is especially likely because the market has been dropping, leading investors to flee from volatile crypto assets like Bitcoin or Altcoins (e.g. SOL or MATIC) to stable crypto assets like stablecoins, in turn increasing demand and lowering expected returns.

Compound Aave Fulcrum Nexo Gemini

DAI

2.69%

2.16%

7.87% 9.91%

6.43%

USDC 2.23%

2.32%

3.23% 9.91%

7.99%

With rates ranging from four to fifteen times as high as the 0.06% currently offered on most high-yield savings accounts, earnings interest using stablecoins can be a great way to put idle cash to use.

There are a number of different platforms that can be used to lend stablecoins on different blockchains. When selecting a platform, it’s important to consider the risks associated with using a given stablecoin, lending platform, or blockchain.

While a full assessment of these risks is outside the scope of this article, diversifying holdings in terms of using different stablecoins, platforms, and networks could be an effective way to help manage the risks associated with lending stablecoins.

Lending USDS using Omm

To demonstrate how to use a decentralized lending platform, we’re going to share a simple walkthrough explaining how to lend Stably USD (USDS) using OMM Finance.

OMM Finance is hosted on the ICON blockchain and is governed by a DAO using the OMM token. In addition to USDS, we’ll need to obtain ICX, the native cryptocurrency of ICON, to pay for transaction fees on ICON.

The first step to using OMM is to head to their website: https://omm.finance/. Click “Go to app” in the top-right corner to access the market. 

OMM displays the total supply as well as the current rates for lenders and borrowers. Click the area around “Stably USD” to open a dropdown display showing historical rates and a sign-in button.

Click “Sign in to supply” and select the wallet you want to connect.

Once your wallet is connected, the app will display how much USDS you have available and you’ll be able to select how much USDS you want to deposit.

Keep in mind that interest rates on OMM are variable. Some platforms offer fixed-rate loans over varying lengths of time but most offer variable, indefinite-term loans.

OMM also distributes OMM tokens to users as a reward for using the platform, increasing the overall value of the rewards earned for supplying tokens. At the time of writing, supplying USDS offers 4.17% interest alone and 6.16% including OMM token rewards.

It should be noted that lending is not available in every jurisdiction. Some websites are required to block access to certain regions in order to comply with local regulations. 

Ready for even greater earnings?

For those looking to maximize the value of their stablecoins, we’ll talk about yield farming by supplying liquidity to liquidity pools and staking LP tokens in Part 4, the final installment of this series. Note that this is more complex and comes with greater risks, and investors should be fully aware of all risks entailed and do significant research beforehand.

— — — — —

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