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My liquid (stocks, crypto, cash) net worth is $350K and Illiquid (startup stock) is around $1M.

I'm 29, have no debt and live in a tax-free country, and have no taxes on income or cap gains. I make about $78K/year and have about $42K in annual expenses.

I'm thinking of buying an apartment in cash for about $200K as I don't qualify for a mortgage (complicated reasons).

If I do that I'll save about $4,800/year for not having to pay rent. But I find putting the same amount in USDC and getting a 10% APY will get me $20K in annual yield.

So financially USDC looks like a better option. It's also fairly liquid, doesn't tie up a big chunk of my cash compared to Real Estate, and gives me a nice passive income for no effort.

But I also understand that buying a place or my own will give me a sense of security.

I have a very stable job and my goal is to have my passive income cover as much of my expenses.

Any thoughts on what's the best route?

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    There's no free lunch. The USDC borrowers aren't paying 10% interest just because they are generous, they're paying 10% because the market thinks the risk is so high that 9% isn't adequate compensation for it. Mar 20 at 2:54
  • The house is an inflation hedge against the cost-of-living. It would be disappointing not to finance it but it's still an effective hedge at low risk. As for the crypto, is that an un-hedged position because hedged-income in major markets is not really very difficult to devise.
    – S Spring
    Mar 20 at 17:06
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    "I don't qualify for a mortgage" because all your income and assets are unreported, I assume. Good luck with that. Mar 21 at 19:43
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    10% is not your stablecoin's yield; that wouldn't be very stable. 10% is the yield from the risky investments your stablecoins are being used to finance, and reflects a decently sized chance you'll lose some or all of that investment.
    – ceejayoz
    Mar 22 at 12:46

3 Answers 3

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USDC is - like any crypto investment - based on the fact that crypto is a thing. You might not believe so, but that could end any day, and five years from now crypto might be a funny story from history. Note that this would not only lose your income, but also your complete invested capital.
Think about why not all the money in the markets move into this - because not everybody believes this is a secure gain with no risk for the capital.

In the end it depends on your personal belief in that – are you willing to risk your complete capital on your conviction? If so, yes go ahead, it’s the better solution.

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What is the point of a stablecoin?

What is the point of a thing that's not a dollar that's worth a dollar? Apart from getting money to a crypto exchange, there is literally no practical legal purpose to a stablecoin. There is no yield, there is no inflation hedge, the whole point is you can trade it back for a dollar, never more than that. But I already have a dollar, so I can just keep my dollar and end up with the same thing.

However, if I'm in charge of a stablecoin, what is the point of a stablecoin? I get to earn the yield on all of the collateral. People come to me to trade me $1 for 1 USDC Token and I charge them a fee for my service, which I keep. You take your USDC Token to trade it somewhere for DOGE, or an NFT, or whatever. While you do that, I buy US Treasuries with the collateral and I keep the income. Right now, there is about $50B in USDC; if they can manage a paltry 0.05% yield that's $25,000,000 per year of income, plus fees collected to convert your dollars in to tokens and back again.

Stablecoin Backing

Stablecoins are really basically the world's worst money market funds. Just, unlike Money Market funds, you can take your units (tokens) and trade them on an exchange like they're dollars. The "transparency" sheets available from USDC are just audit letters indicating the auditors checked the bank statements and agree that totals add up. They don't do further due diligence to verify funds and don't publish even a high level overview of the collateral investments. Compare this to the "transparency" of the basic Schwab Money Market fund, SWVXX which publishes detailed holdings monthly.

So, while you may not think it, there's a chance the value of a USDC falls below $1, banks holding CDs may fail, treasuries fluctuate in value, etc. Because it's not just money in a mattress or safe, it's actually treasuries which do fluctuate in price. And, unlike a regular money market fund, you don't share in the yield. The safety of your collateral from various claims is also unclear, you don't get SIPC coverage, etc.

Stablecoin Yield Fund

Now you get to the USDC Circle Yield program. Circle Yield sales pitch on the home page is:

Allocate into a crypto-based investment that is fully secured by bitcoin collateral and earn higher yield compared to traditional bank rates and many fixed income markets.

Now, we're not talking about whether or not USDC is stable, you're actually investing in a lending program. There's no published prospectus; it seems there is a $100,000 minimum investment and if you read the footnotes this is only available to "accredited investors." This is probably why the information available is so anemic.

I'm assuming you are referring to this program and not some other crypto lending scheme that's out there.

It seems the Circle Yield Fund invests in some amount of crypto related institutional financing, though it's not clear what that means. If you want access to institutional banking activity you can invest in bank preferred stock, or an ETF of bank/financial institution preferreds; which is not a recommendation. This fund might present a great risk-reward opportunity but you definitely cannot come to that conclusion without looking at the prospectus.

Thoughts

Maybe you idealistically want to support crypto markets, that's fine. But make no mistake, you're investing in the Circle Yield Fund which has essentially nothing to do with USDC. In fact, I wouldn't be surprised if you could make your $100,000 minimum investment with a regular old bank wire of old-fashioned boring fiat USD.

I think a lot of people assume that things occurring in crypto markets are new ideas, but a lot of the time they're not.

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  • "It seems the Circle Yield Fund invests in some amount of crypto related institutional financing, though it's not clear what that means." Bear in mind that if investors like the OP can get 10% yields, then the "institutions" borrowing from the fund are paying at least that much in interest. And if the institution is in a position where no-one is prepared to lend to them at 9% interest, I would call that a high risk investment. Mar 22 at 14:46
  • Here’s the thing, you don’t know. You haven’t seen the prospectus you don’t know what they’re doing. I know regular bank preferred ETFs are priced to yield 5-6%, Schwab’s own preferred stock issues are priced to about the same depending on the issue, the 12 month yield on the circle yield fund is 5.5% so it’s not an unreasonable return in that context. It might be a good risk-reward opportunity but you have no way of determining that from the website. You don’t know, I don’t know, OP doesn’t know. But it certainly has nothing to do with USDC, which is the assumption in the question.
    – quid
    Mar 22 at 16:58
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The 10% interest on USDC is not guaranteed and carries significant risk. Also, some places only offer the higher rate on the first $x-thousands and a lower rate for deposits past that.

If you buy a place to live you hope to not just save versus renting but also that the asset will appreciate over time, so factor in both before comparing to another investment type.

Depending on your asset mix owning real estate could be a good way to diversify.

At the end of the day, it's just a matter of what you want to achieve and what level of risk you are comfortable with. Personally, owning physical property appeals to me so I like having a fairly substantial portion of my wealth in physical assets.

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  • USDC is probably the least riskiest crypto asset. Yes, the yield is not guaranteed but it will probably drop to 7-8% which is still better than the savings on real estate. Where I live the real estate hasn't appreciated much in the last 10 years. Also, the cap rate is only 6-7% so not that exciting from rental income perspective. I agree that having a hard asset is great. But I just don't like the idea of having that much of my net worth becoming illiquid.
    – James L.
    Mar 19 at 15:44
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    @JamesL. USDC may be fairly low risk, but holding USDC doesn't earn you interest, the risk comes from the activity that generates the interest, in most cases that means lending out your USDC to others. It's good that you're considering growth potential in your local real estate market, some markets are better for renting than buying. Being unable to buy real estate with leverage is an important factor as well, if liquidity is more important to you and you can't get a mortgage, then it sounds like you've decided to continue renting for now, nothing wrong with that.
    – Hart CO
    Mar 19 at 18:28

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