Over the years, staking in DeFi has evolved as new pools are introduced on DeFi platforms, giving market participants the opportunity to explore the use of different tokens for staking.
The use of stablecoins like USDC for staking in DeFi has also been prominent over the years, and it is quite intriguing to know if staking with USDC and other stablecoins is the smartest move to make.
In this article, we will consider whether USDC is the best option for staking in DeFi compared to other tokens in the market and compare the pros and cons involved.
How Staking Works in DeFi
Staking in DeFi involves locking up your assets in a liquidity pool on a decentralized platform for a period of time, after which you earn interest on your locked asset depending on the period of the lockup and the APR attached to the pool by the decentralized platform.
Different cryptocurrencies, such as Bitcoin, Ethereum, Solana, and stablecoins, like USDC and USDT, can be used for staking. Still, they may have different yields at the end of the staking period.
Why Use USDC for Staking in DeFi
Before deciding whether USDC is the best option for staking, it is important to consider some of the pros of using USDC for staking in DeFi.
1. Stability of Price
USDC is a stablecoin pegged to the US dollar in a one-to-one ratio, which gives it a high degree of price stability. This stability will ensure the preservation of traders’ investments and returns and shield them from market volatility.
2. Lower Risk
Investors and traders are exposed to less risk as they stake with USDC because of its price stability and exclusion from risky market movements.
3. Widespread Adoption
USDC has gained massive market adoption and reputation, as it has been used on many DeFi protocols for lending, borrowing, staking, etc.
Limitations of Using USDC for Staking in DeFi
Whilst there are lots of pros to the use of USDC for staking in DeFi, there are also some limitations to using USDC for staking in DeFi.
1. Lower APY Compared to Other Assets
Compared to other assets like Bitcoin, Ethereum, etc., USDC might yield a lower reward for stakeholders, mainly because there is no opportunity for its price to grow like other tokens.
2. Centralisation Concerns
USDC is controlled by centralised entities, which raises concerns about centralisation. Users may fear asset loss or freezing when staking with USDC. This may not be a major problem, but it is a security concern, especially for users willing to stake for a long time.
Comparing USDC with Some Stablecoins for Staking
1. USDC VS USDT
Although USDC and USDT are both stablecoins, USDC has been more transparent over the years in touching its reserves and publishing reports occasionally. However, there has been some level of uncertainty with USDT’s reserve over the years because some of its reserves are held in assets other than cash equivalents, which has raised concerns about the stability of its price by the general public.
Also, USDC is regularly audited by third-party firms and agencies, reinforcing its continual commitment to security. USDT, on the other hand, offers investors a higher return on staking.
Ultimately, if you are more concerned about the safety of your crypto asset, you should consider staking with USDC.
2. USDC VS BUSD
USDC and BUSD are both stablecoins with high-level transparency. USDC is regulated by Circle and Coinbase, while BUSD is regulated by Binance.
The major advantage of USDC over BUSD is that it is more widespread in adoption, as it is listed on many non-binance platforms. BUSD, on the other hand, is more prominent on Binance-based DeFi platforms, unlike USDC, which is prominent on both.
Frequently Asked Questions About USDC Staking in DeFi
What is staking in DeFi, and how does it work?
Staking in DeFi involves locking up your crypto assets in liquidity pools on decentralised platforms for returns in the form of interest over a period.
Why is USDC a popular choice for staking?
USDC is popularly a choice for staking primarily for its price stability and transparency of its audit reports.
How does USDC staking rewards compare to other assets?
Compared to other assets, USDC staking rewards are not that high because its price does not move up or down unnecessarily like other assets, eliminating the potential for a price surge.
Is USDC safer to stake than other cryptocurrencies?
Yes. USDC undergoes regular security audits by third-party firms and is transparent to the public by sharing reports on its reserve backings.
What are the downsides of staking USDC?
The downside of staking USDC is that it misses out on an opportunity for growth amidst market movement, as it is pegged to the US dollar and designed to be stable in price.
Conclusion
There are many options for staking on DeFi platforms, but USDC stands out as it offers price stability, lower risk, and higher liquidity on decentralized protocols. If you are aiming for higher returns, however, you can browse other categories of assets available for staking on DeFi protocols to maximize profitability.
