How to Earn Interest on USDT - The Expert Guide

One of the best aspects of the crypto industry is that you can earn interest on most assets on the market. This is true for top-performing cryptocurrencies, altcoins, and even stablecoins. With this in mind, many people find themselves wanting to know more about how to earn interest when it comes to specific digital assets at their disposal. Let’s take a look at this, with a focus on USDT, the world’s leading standard for coins pegged to the US dollar.

Can You Earn Interest on USDT?

You can absolutely earn interest on USDT. In fact, with some services, such as Ledn’s Growth Accounts, you can currently earn up to 8.50% APY on your USDT.

How To Earn Interest on USDT

There are several methods of earning interest on USDT. Let's examine these and see how they differ from one another.

Savings Accounts

Opening a crypto savings account is arguably the top way of earning interest on USDT. These function similarly to a traditional fiat savings account, with the major difference being that they work with digital assets, which involve higher risks, and they often have higher interest rates available. They are a fantastic choice for people who are looking into gaining a passive income on their finances.

Savings accounts are typically managed by a central party, making them a CeFi service. This means that you must place your trust in the people running the company, as they are the ones handling the digital assets held in those accounts. For this reason, it is paramount that you pick somewhere that has a good reputation for transparency, as well as somewhere that offers good interest rates.

With this in mind, Ledn is a great option. Dubbed “Growth Accounts”, this is a service that lets you earn interest on USDT, currently reaching up to 8.50% APY, a highly competitive rate. Not only this, but Ledn is dedicated to being open and transparent with its user base, and works hard to enact serious risk management tools to improve digital assets safeguards.

Yield Farming

Yield farming is another huge choice for crypto enthusiasts. This is the process of lending your USDT to a decentralized crypto service, and in return for providing them with liquidity, you are given a digital asset reward. This liquidity is then used to help support DeFi exchanges, lending services, and other projects. In practice, this is very similar to a savings account, however, under the hood there are some significant differences.

For starters, as mentioned, yield farming is a decentralized endeavor, whereas savings accounts typically are managed by centralized companies. Rather than placing your trust into a third party, you must trust the code, network, and smart contracts that manage the projects in question. For some people, this is seen as better, as they find centralized companies too scary to work with, whereas others may find this more worrisome as decentralized protocols are still relatively new in this world, and therefore experimental in some capacity.

Related Content: Stablecoin Yield Farming: Is it Worth it?

Staking

You may find some projects offering staking services for USDT, with them stating that you will earn a certain amount of interest in the process. In a strictly technical sense, this is a lie, as USDT cannot be staked, because it does not run on its own specific proof-of-stake blockchain. However, the word is often used by projects as a catch-all term that signifies that people can earn interest by handing their USDT over to somewhere.

You can find both centralized and decentralized projects offering USDT “staking”, and they may use it to mean different things. In this context, staking could refer to opening a savings account of some sort, or it could mean yield farming. In truth, the only way to know for sure is to take a detailed look at the service using the term, and see how they are generating the interest they are offering. This will give you an indication of what your digital assets  are actually being used for.

Keep in mind that USDT is not like assets such as Ethereum, where you actually can stake it on its own blockchain and earn a reward for your contributions towards keeping the chain operational. This is not something that USDT is capable of, and therefore you must always research what a project means when they use this term.

Lending Services

You can engage with lending services to earn interest on USDT. Typically, most services that offer savings accounts allow people to borrow crypto, or fiat using crypto as collateral, from them as well. The digital assets earned from this often makes up part of the rewards that savings account holders receive. In this sense, opening a savings account, such as Ledn’s Growth Accounts, is essentially like earning interest via a lending service.

A similar process happens with some decentralized lending protocols. If the service uses liquidity pools to offer DeFi loans to its user base, then the returns made from this are often distributed partially to the yield farmers who provide liquidity to the pools being accessed. However, it is also possible to earn interest via directly lending to another party.

This is relatively rare nowadays, although some services exist that connect individual lenders with individual borrowers. By lending your USDT to somebody specific, you can still earn rewards, with the difference being that they are directly extracted from the other party in question. A custodial third party may handle escrow or communications between the two parties, or a decentralized protocol might have smart contracts set up to enable the process.

USDT Interest Rates vs Traditional Banks

One thing you might notice about USDT interest rates is that they are typically higher than what you will find with traditional banking interest rates. This is true for all methods of gaining interest. There are several reasons for this. For starters, crypto projects are able to offer higher rates because they have much lower overhead costs as they rarely have physical offices, and generally employ fewer people than their traditional counterparts.

Not only this, but crypto services are able to use a range of different methods for building profits, some of which traditional organizations will be deeply unaccustomed to. A perfect example of this is yield farming and adding liquidity to various pools. Some services, including centralized ones, might build interest for their users via this. There is a lot of demand for liquidity in the crypto industry, and so it is possible to supply this at a premium which can be returned to a project’s customers.

Another possible reason is that the inherent risks associated with the crypto industry are often higher than those in traditional finance. The volatility of crypto assets, the experimental nature of many DeFi projects, and potential vulnerabilities in smart contracts can all introduce risk. To compensate users for taking on these risks, platforms may offer higher interest rates as an incentive. By offering attractive interest rates, they can ensure higher user adoption, liquidity, and overall platform security. In this sense, the higher rates can be viewed as a reward for participants who are willing to navigate the more complex and risk-prone waters of the crypto world as compared to the tried and trusted realm of traditional finance.

The Risks Associated With Earning Interest On USDT

Just like all activities in the crypto space, attempting to earn interest on USDT has its own risks and complications that people should be aware of. Let’s take a look at a handful of these.

Computational and Developmental Vulnerabilities

If you are using a decentralized service to earn interest, then there is a risk that the project will become faulty at the programming level, and will therefore stop functioning as expected. This could happen via smart contracts getting hacked or breaking, the underlying blockchain returning errors, or some other development issue that halts the process.

A recent example of this happening was with Curve, a DeFi lending protocol. The project was the victim of a hack that drained several stable liquidity pools, with over $40 million worth of assets stolen. To avoid situations like this, it is best to use decentralized services that have had their architecture and smart contracts audited by reputable projects. This can reduce the chances of this risk, but in truth, it cannot completely prevent them, as this industry is still experimental, and the fact that the technologies used in the blockchain space are ever-evolving means that there will always be new methods and opportunities for hackers to explore and (attempt to) exploit.

Bankruptcy and Insolvency Risk

When it comes to centralized companies offering interest on USDT, the major risk is related to bankruptcy and insolvency. While these are two different financial scenarios, by nature they are interlinked. If a company is insolvent, then it can no longer meet its financial obligations anymore. Bankruptcy, on the other hand, is the legal process of a company using its assets to pay off its debts due to lack of funds, typically initiated by an insolvent company.

Both are serious situations, and they can affect end users in a very direct way. If you are using a savings service to gain interest on USDT, then insolvency and/or bankruptcy could result in your own finances disappearing or becoming inaccessible. In reality, this type of negative impact only occurs when using a service that has little regard for risk management and for protecting its users’ funds.

With companies such as Ledn, even if they became insolvent or bankrupt,  Growth Account assets would not be affected by this, as the company has put a ring-fenced method in place to prevent assets from getting harmed in such a way. This is an important factor, as it allows their community to rest easy knowing that even if Ledn struggles financially, it will not impact their Growth account assets.

USDT Depegging

There is a very specific type of risk that comes with using USDT, and that is the possibility of it depegging from the US dollar. This is because USDT is a dollar-backed stablecoin, meaning that its value is meant to represent USD as accurately as possible. Its primary utility is to be economically identical to the dollar. If something happens that prevents this parity between the two, then it could cause the asset to fluctuate rapidly in value.

This is because it would be a stablecoin in name alone, as it would no longer offer an equal rate to USD. This could trigger panic selling in the industry, and cause its value to drop tremendously. If you have your USDT locked up in a centralized savings account or a decentralized yield farming protocol, then you may be unable to access it quick enough to also sell, leaving you in a financially vulnerable position.

It is hard to assess just how likely or unlikely this outcome is. In reality, it would possibly be caused by some sort of structural issues with Tether, the company behind USDT. For instance, if audits proved they had been dishonest about having a 1:1 reserve of US dollars and equivalent assets compared to the amount of USDT in circulation, then it could spell disaster. This used to be a serious concern back when Tether was not as transparent as it is nowadays, although those worries have faded significantly. This sort of an issue could also occur if there is something architecturally unsound about USDT, such as a programming error or a hack that exploits the company.

Regulatory Risk

With the cryptocurrency industry being so new, and with countries around the world still grappling with their own understanding of it, there are always regulatory risks to keep in mind. These could take the form of a regulator demanding that Tether performs some type of operation to ensure its continued use (such as registering USDT as a security), or it could be regulators banning crypto savings accounts from operating within their jurisdiction.

These are just two examples, however, in reality, a regulator could make a whole range of demands or legal requirements that could halt the process of earning interest on USDT. When it comes to matters like this, it is good to question just how likely something like this would be. Typically, media organizations will catch onto whether a regulatory issue is about to arise and become pressing a little before it actually happens. Keeping abreast of the news regarding your country’s crypto regulations, the origin country of the project you are working with, and the country where Tether is based, is the best way to stay up to date on this.

Is Earning Interest On Your USDT Worth The Risks?

Every individual needs to assess how significant the risks of earning interest on USDT is, compared to the potential rewards for themselves. All the issues raised are certainly serious, although there are definitely methods of avoiding most of them, and so this should also be accounted for when making a judgment of this sort.

In reality, nobody can say for sure whether any risk is worth it, as this is a deeply personal decision that relates to the benefits on offer, the methods of avoiding issues, and a person’s overall risk tolerance. Generally speaking, earning interest is less risky than something like trading, but there are obviously still pitfalls that can occur.

Some individuals may find themselves more tolerant to the risks at hand due to the opportunities they offer. This could be especially true for people living in countries that have unstable fiat currencies, and who are unable to access US dollars due to their nation’s shaky relationship with the US. For these individuals, working with a dollar-backed stablecoin like USDT might be the norm for them, or their best method of gaining financial freedom and autonomy.

Other people, such as crypto traders, might find themselves highly tolerant of risk due to the nature of their typical work. They may also find that it is beneficial for them to keep some of their assets in the form of crypto so that they do not need to constantly convert fiat to crypto before they make a digital asset trade. 

The Best USDT Savings Account For Earning Interest

There are a range of savings accounts on the market for earning interest on USDT, however, one of the top options available is Ledn’s Growth Accounts. Ledn currently offers competitive interest rates of 8.50% APY, meaning they are perfect for passive income. Not only this, but Ledn is well known in the industry for being transparent about its actions by publishing its monthly open book reports and biannual proof-of-reserve attestations.

Ledn also protects users against being affected by its own financial situation, should any serious issues occur (such as insolvency or bankruptcy). This is in part, because Growth Accounts are “ring-fenced”, meaning they are only exposed to the counterparties that actually help generate interest for the user. Any potential losses from Ledn’s other activities or an unlikely event of bankruptcy will not impact Growth Account assets. This is just one of the major risk management safeguards that Ledn has put into place, separating it from the vast majority of crypto savings account services.

One of the perks of using Ledn is that users can transfer their assets out of their Growth Accounts and move them over to one of non-interest bearing Ledn's Transaction accounts with ease. This is perfect for people who have decided they have earned enough interest for the time being, and would like to perform other actions with their USDT.

Trading USDT vs Earning Interest

Earning interest is one method of making profits from your USDT, but realistically it is not the first one on most people’s minds. Typically, people associate crypto with trading, but how exactly does this avenue differ? For starters, the risks involved in trading are tremendously higher, perhaps to an incalculable degree. Trading USDT, like any other cryptocurrency, is unpredictable, making it only suitable to certain individuals.

On the flip side of these risks are the rewards that are possible. Trading can be used to generate huge profits, and not only this, but these profits can happen very quickly. This is unlike earning interest on USDT, where profits will be slower and smaller. This is definitely enticing, but it can never be understated how easy it is to lose your digital assets doing this, due to volatility and the sheer unpredictability of the market. In truth, trading is much more in-line with gambling than interest-earning methods, such as savings accounts. This means higher risks and higher rewards.

What Do I have To Do To Start Earning Interest On My USDT?

To begin earning interest on your USDT, you can find a service that offers this, and send your assets to it. Each project or company will have different rules for this, but with Ledn it is a simple process which involves setting up an account and inputting your funds into one of their Growth Accounts. You will begin to earn interest practically immediately after this!

Conclusion

As you can see, there are several methods of earning interest with USDT, as well as a range of risk factors and technical details to consider. If you make a personal evaluation that this is a good option for you, and you have assessed it from all angles, then you are ready to begin earning interest very quickly by setting up a Ledn Growth Account and sending your funds over. Of course, it is completely fine if you make a decision that this is either too risky, or not suitable for your needs, as earning interest on USDT is just one way you can turn profits in the crypto industry.

Sponsored by 21 Technologies Inc. and its affiliates (“Ledn”). All reviews and opinions expressed are based on my personal views.