Crypto crash causes yield rates on savings accounts to plummet

Posted: 17 May 2022 2:14 pm
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The crypto price crash set off shockwaves through the market, with high yield rates on savings accounts tied to cryptocurrencies proving to be the next casualty.

AQRU, a European crypto savings account provider who once promised yield rates of up to 12%, notified customers last week that this would no longer be the case. In an email to all customers, AQRU said: “The crypto market is going through a period of pronounced instability,” which “regrettably means a reduction in the level of yield that we’re currently able to generate for you.”

The provider reduced its USD stablecoin rates from 12% to only 3%, while yields on Bitcoin and Ethereum dropped from 7% to 1%.

And AQRU isn’t alone. Other providers have begun to reduce their yield rates as well. So will this create a domino effect?

Crypto yield rates cut

Now, the industry is beginning to feel the fallout from the current price volatility.

Over the past few years, a new suite of financial products based on cryptocurrencies has emerged — including crypto savings accounts. Until now, earn products have promised yields higher than standard savings interest rates, with some even reaching as high as 18%.

However, yields are market-driven. Now that the market is struggling, crypto savings providers have to respond.

Alongside AQRU, Terra-based DeFi protocol, Anchor, has also proposed a cut to its UST rates from 19.5% to an average of 4%. But UST, a stablecoin that had been tied to $1 USD, has fallen to pennies in value. As Anchor contributor Daniel Hong said, “A depegged UST cannot sustain 18% APY any longer.”

Crypto.com has also significantly reduced its earn yields. While its native token (CRO) rates remained steady, yields on major coins and stablecoins have all been cut. Here’s the breakdown:

CoinTermPrevious rateRevised rate
BTCFlexible1.50%0.50%
1 month3%1.50%
3 months4.50%3%
ETHFlexible3.50%0.50%
1 month4.50%1.50%
3 months5.50%3%
DAIFlexible6.00%1.50%
1 month8.00%3.00%
3 months10.00%6.00%
USDCFlexible6.00%1.50%
1 month8.00%3.00%
3 months10.00%6.00%
USDTFlexible6.00%1.50%
1 month8.00%3.00%
3 months10.00%6.00%

Why is this happening?

The crypto market has had a rough time of late, with prices heading downwards across the board. One of the main causes of this has been the collapse of the Terra network and the depegging of the UST stablecoin.

The rates investors can earn on their crypto assets are driven by market effects. The downturn across the board, specifically in stablecoins, has caused crypto savings providers to reassess their position. As seen from the reduction in promised rates, stablecoins have seen the largest cuts.

Stablecoins previously offered higher rates to compensate people for the risk that the stablecoin would fall off its peg. But last week, when TerraUSD (UST) fell below its $1 peg, the risk became a reality causing many to question stablecoins’ supposed security.

AQRU explained in its message to customers that it had to take steps to reduce its exposure to USDC. The knock-on effect is that the “less exposure to yield-generating assets, and with returns available in DeFi being dramatically reduced across the board, these yields themselves have in turn decreased.”

Looking ahead

Whether or not crypto yield rates will regain the heady heights we’ve previously witnessed is yet to be seen. Some argue that the market is going through a correction, which means that rates could recover in the future.

However, this may take some time. And as the market matures and becomes more established, there may not be the same earning potential available.

Alongside this, central banks in key markets have begun to increase interest rates to tackle inflation. As a result, traditional savings rates are on the rise, which may cause investors who are becoming nervous about crypto’s future to rethink where they want to put their funds.

Interested in cryptocurrency? Learn more about the basics with our beginner’s guide to Bitcoin, dive deeper by learning about Ethereum and see what blockchain can do with our simple guide to DeFi.

Kate Anderson owns cryptocurrencies as of the publishing date.

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