On Feb 2, US-based cryptocurrency exchange Gemini announced the arrival of a new interest-bearing product.
Dubbed Gemini Earn, the Winklevoss-backed exchange will reportedly offer interest on select crypto’s up to 7.4% in annual percentage yield (APY).
“We are thrilled to announce the launch of Gemini Earn. You can now earn up to 7.4% APY on your crypto held at Gemini. Interest is earned and compounded daily, and you can redeem your crypto at any time. Please note that interest rates will vary by crypto.”
The service seemingly comes with no restrictions – no minimum balance, no fees, and no lock-up period. Earn is already available to US customers and supports the 26 different cryptocurrencies on offer at Gemini.
Gemini Faces Major Competition From DeFi
The move is likely a response to the overwhelming popularity of Decentralized Finance (DeFi) protocols built on Ethereum (ETH). In a world of zero interest rates, protocols like Aave offer attractive alternatives to crypto investors with idle assets.
Aave, for example, currently offers depositors anywhere between 10% and 15% APY on US dollar stablecoin deposits. Anonymous early ETH whale investor Tetranode observes the growing ETH outflows heading to Ethereum 2 staking and, of course, DeFi.
“$ETH sitting on exchanges is $ETH not in DeFi earning double-digits. This outflow will continue until CEX starts paying the market makers.”
Total Value Locked (TVL) in DeFi continues to balloon, according to DeFi Pulse. Users face custodial risk with centralized exchanges and have so far had limited earning potential.
High-Risk High Reward
But before you rush to your crypto wallet and look for a platform or protocol with the highest APY, it’s worth keeping the risks in mind. DeFi is a rapidly evolving and somewhat risky sector.
While there is practically no counterparty risk, there are still risks from smart-contract bugs and hacks. At the end of January, a hacker stole 81 ETH from the SushiSwap Decentralized Exchange (DEX).
And in December, a white hat hacker compromised an insurance protocol designed specifically to cover such hacks. Protocols will inevitably improve, but in the meantime, don’t be surprised to read “use at your own risk” on most DeFi websites and applications.