Compound and Coinbase have consecutively launched USDC savings products, which may inject more dollar liquidity into the crypto market

This article is an original piece by Chain Catcher.

On June 29, Compound and Coinbase launched USDC savings products, both offering an annual interest rate of around 4%, attempting to attract more traditional financial market funds into the cryptocurrency market, which has garnered widespread attention.

Traditionally, the interest rates on savings accounts at American banks have been low, with Bank of America's annual percentage yield (APY) for small deposits not exceeding 0.05%. Even banks that offer high-yield savings accounts typically have APYs around 0.60%. As a result, the savings rate among American residents is not high; data from the Bureau of Economic Analysis shows that the recent personal savings rate in the U.S. is 14.9%.

In contrast, the USDC stablecoin savings products launched by Compound and Coinbase offer yields around 4%, significantly higher than the average level of traditional savings accounts, and they do not have a lock-up period, allowing users to deposit or withdraw assets at any time. This is expected to attract a large amount of capital seeking higher stable returns.

Additionally, both savings products save users from the complex mechanisms often faced when using DeFi applications: private key management, converting fiat currency to cryptocurrency, interest rate fluctuations, etc. In this regard, Anthony Sassano, founder of The Daily Gwei, analyzed that "essentially, Compound Treasury will serve as an easy-to-use front end for DeFi."

It is understood that the savings products launched by Compound and Coinbase are in collaboration with USDC issuer Circle. On June 24, Circle announced the launch of a new DeFi API, enabling enterprises to easily and quickly access DeFi protocols.

However, in terms of specific positioning, Compound's Compound Treasury primarily targets commercial clients such as banks and fintech companies, and clients need to fill out an application to use the product; Coinbase's savings product is mainly aimed at retail users on the platform, where eligible users can enjoy a 4% annualized interest rate simply by registering and holding USDC in their accounts.

Regarding the source of returns, the current floating yield rate for USDC deposits in the Compound protocol is 1.07%, which is significantly lower than the 4% annual interest rate of the USDC savings products, leading many users to raise questions on Twitter. According to Compound founder Robert Leshner, a major source of revenue for Compound Treasury comes from the Compound protocol.

Currently, the Compound liquidity mining program is still ongoing, and users can earn governance token COMP rewards by depositing assets. Based on this, the 4% annualized return consists of both USDC deposit earnings and liquidity mining earnings.

The source of returns for Coinbase's savings product comes entirely from loan earnings, as Coinbase lends users' USDC to "verified borrowers." According to Coindesk, the functionality of this savings product is similar to that of crypto lending institutions and other exchanges, which typically offer yields around 8%. However, Coinbase provides a relatively lower yield because it does not lend to "unverified third parties."

Currently, this savings product from Coinbase is open to ordinary users in the U.S. who meet certain conditions, excluding users in Hawaii and New York. Additionally, Coinbase has indicated that the cryptocurrencies borrowed by users are not protected by FDIC or SIPC insurance, but it will provide principal guarantees for users.

Ryan Watkins, founder of crypto research firm MessariCrypto, commented on Twitter: "With the launch of Compound Treasury and a series of initiatives around Circle's DeFi API, this trend is likely to continue, meaning more dollar liquidity will flow into DeFi."