I’m sure there is a catch . How is it possible that one can earn over 9% APY on USDC? There are many platforms offering this. Just on example https://blockfi.com/rates/

This looks too good to be true. With this in mind why doesn’t’ everyone just put their money into USDC and earn a 9%??? I was trying to learn how this works but still dont’ understand. No one on YouTube or google really knows how this works. I deposit $1000 and get $90 as an APY. Where do they get the money from? Also, what is their interest??? Blows my mind


They earn money the same way banks do, that is to say by taking cash deposits (or crypto) and lending to others at higher interest rates. Things to consider are that the rates are adjustable, and that there is significant counterparty risk (which kind of goes against the philosophy of defi in my opinion).

The below is an article I found fairly informative, maybe it will be helpful to you as well.


  • 3
    I would really consider revising your first sentence because most banks are fractional reserves, so banks get to lend your money to several people at the same time and you get the benefit of deposit insurance in most jurisdictions. If this crypto exchange, or whatever it is, is operating as a fractional reserve that should be a huge red flag and if not how is it able to profit while paying almost 10% to borrow your capital? Who would you even sue if you can’t get your money back?
    – quid
    May 24 at 2:03
  • 1
    @quid You don't have to sue anyone. That's the thing - this is done via smart contracts, meaning that it's impossible to act against them. In DeFi-lending, people deposit one kind of crypto currency (for example ETH) as a collateral into the smart contract to receive another type of crypto currency (for example USDC). This makes sense because ETH is an appreciating asset while USDC isn't. If the value of the deposited ETH falls below a certain threshhold of the borrowed money (usually ~70%), the person gets liquidated automatically.
    – DLCom
    Jun 19 at 13:22
  • @DLCom I participated in one of these a few years ago, the business model was it was also an exchange and your funds were used to support margin lending and general liquidity. It is not risk free and it is not like depositing money at a bank, it’s like lending money to a very small very risky business where you don’t get to see the books. I don’t know DeFis business model but if I borrow $100 and use it to buy dinner. It doesn’t matter if the contract enforcing the loan is smart, I ate the $100 and my account has nothing else in it, the next payment isn’t happening.
    – quid
    Jun 19 at 16:02
  • >and my account has nothing else in it, the next payment isn’t happening. See, that's the thing, in DeFi lending, your account DOES indeed have something else in it - the collateral you deposited. You can only borrow money to the extent that is covered by the collateral (or, to be more precise, around 70% of that). If you don't make your payment, your collateral gets liquidated to pay your debts. I'm not saying it's risk free (it obviously isn't), but it's more comparable to a mortgage than an unsecured loan.
    – DLCom
    Jun 21 at 9:45

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