How to Stake Stablecoins: A Full Guide + Benefits & Risks

Stablecoins are a unique type of cryptocurrency that bridges traditional (TradFi) and decentralized (DeFi) finance. They bring all the strength and balance of the established system to combine it with the potential and utility of the crypto space. That’s why many enthusiasts wonder how to stake stablecoins and earn passive income on their holdings.

But is it even possible to stake stablecoins, and how does that work? What platforms would you use, and is it a lucrative endeavor, or are there better uses for your tokens?

In this article, we’ll explore all the intricacies of stablecoin staking, what you can do about it, how profitable it gets, whether there are any fees involved, and more. Let’s dive right in!

Can You Stake Stablecoins?

You can stake stablecoins, like many other cryptocurrencies, to earn passive income with your assets. However, the underlying mechanisms behind stablecoin staking are different from traditional staking present in the proof-of-stake (PoS) blockchains.

The PoS process of staking refers to users locking up the network’s native cryptocurrency as a guarantee they’ll facilitate its operations without manipulation. However, most stablecoins are issued as tokens on preexisting blockchains, so they earn yield through the mechanisms of borrowing, lending, facilitating trading, and more.

One of the main reasons crypto enthusiasts want to learn how to stake stablecoins is their stability. Other digital currencies are highly volatile, and staking them for prolonged periods runs the risk of the assets dropping in price, rendering rewards useless.

On the other hand, stablecoins are designed to maintain a peg to another asset, most commonly the fiat US dollar.

How to Stake Stablecoins

There are two main ways to stake stablecoins:

1. On a centralized exchange (CEX)
2. On a decentralized exchange (DEX)

CEX staking is straightforward, convenient, and best tailored toward entry-level crypto investors. Here is how you can start staking with a centralized exchange of your choice:

1. Create an account with a centralized exchange. Most platforms require an email address or a phone number.
2. Complete KYC verification. Know Your Customer processes are mandatory with most CEXs, as they help prevent malicious and criminal activities. For this, you’ll need a government-issued ID, such as a passport or driver’s license.
3. Buy stablecoins with fiat. One of the most significant upsides to CEXs is that they allow users to purchase many cryptocurrencies, including stablecoins, directly with payment cards, wire transfers, or third-party payment services.
4. Find the exchange’s staking feature. Many centralized exchanges have sections on their websites and apps called “Earn” or “Stake,” where you can find required activities.
5. Select how many tokens you want to stake and start earning rewards.

The downside of CEX staking is that you don’t have control over your private keys. The assets are managed by the exchange until you withdraw them to a private crypto wallet.

If you want to stake stablecoins while maintaining full control over them, you should go with DEX staking. Here are the steps:

1. Set up a crypto wallet. A notable hot wallet option is MetaMask, while cold wallets include Ledger and Trezor.
2. Fund your wallet. You can purchase crypto over the counter, receive a transfer from someone else, send assets from a centralized exchange, etc.
3. Connect your wallet to a DEX. Exchanges can integrate with different wallets, so it’s important to find a compatible combination.
4. Find the staking pool with the features that suit you best.
5. Submit your funds to the pool and start staking.

7 Best Staking Platforms

The best staking platform will vary between users and depend on their needs and preferences. Let’s examine some of the biggest and most notable centralized and decentralized platforms for staking stablecoins.

Decentralized Staking Platforms

Decentralized staking platforms require some technical know-how to be used to their full extent, but they allow you to maintain control over your stablecoins. Here are some of the best places you can use:

1. Uniswap. Uniswap is one of the biggest and most popular decentralized exchanges. It uses the automated market maker (AMM) algorithm instead of a traditional order book to enable trading. Staking on Uniswap involves submitting pairs of cryptocurrencies that traders use and earning a portion of the fees they pay. That means users have to submit both currencies to earn yield. Pairs that feature stablecoins usually offer 1–3% APY.
2. PancakeSwap. PancakeSwap is another AMM-governed DEX built on the Binance Smart Chain. Stablecoin staking is similar to that of Uniswap. You can select pairs that you want to add before submitting your funds to pools for around 1–3% APY.
3. Curve. Curve is a stablecoin-oriented DEX built on Ethereum. It features hundreds of different pools where users can submit various stablecoins, with the most prominent being DAI, USDC, and USDT. Stablecoin staking rates vary, with APYs going from below 1% to over 10% between pools.
4. Yearn Finance. Yearn is a DeFi yield protocol designed to automate investing and perpetually move assets from one place to another to maximize APY. As usual, stablecoins offer lower but more secure returns than volatile cryptocurrencies. They range from 0.01–2% APY in bear markets to 1–10% APY in bull markets.

Centralized Staking Platforms

Centralized staking platforms offer a clear plug-and-play model for earning yield with your stablecoins. They act as one-stop shops for everything from buying crypto to storing and staking it. Here are some of the best CEXs for staking stablecoins:

1. Binance. Binance is the biggest CEX in the world based on trading volume and is one of the most feature-packed crypto platforms. It also possesses a number of features that you can use to earn yield by staking your stablecoins. There is a simple earn feature, liquid swap, DeFi staking, dual investment options, and more.
2. Coinbase. Coinbase is another notable centralized exchange that supports a myriad of cryptocurrencies and offers many other features in addition to trading. When it comes to stablecoin staking, Coinbase supports DAI and USDC, but the APYs of about 0.15% are among the lowest in the industry.
3. Crypto.com. Crypto.com’s Crypto Earn feature offers lucrative earnings on stablecoin staking. Depending on how much CRO users have locked up, they can expect to earn up to 6.5% APY when staking Tether and DAI. That makes Crypto.com one of the best places to stake USDT while offering up to 5.25% on USDC and up to 3% APY on USDP.

4 Best Stablecoins to Stake

Selecting which stablecoins to stake is just as important as choosing a platform. Here are some of the best stablecoins to stake:

1. Tether USDT. USDT is the biggest stablecoin by market capitalization and one of the most common cryptocurrencies used in trading pairs. Its popularity and prominence on many centralized and decentralized exchanges make it a solid choice for staking. The downside is that there’s some uncertainty regarding the reserves backing the token.
2. USDC. USDC is another US dollar-pegged cryptocurrency issued by a centralized entity. The Circle Consortium maintains the peg and has the tokens backed by a mix of cash and bonds. It’s smaller than USDT by market cap but more transparent with its reserves. Some of the best places to stake USDC include Binance, Curve, Yearn, and more.
3. DAI. DAI is the most popular decentralized stablecoin based on Ethereum. It’s also the biggest decentralized stablecoin by market cap. Its issuance is governed by a decentralized autonomous organization called MakerDAO. The collateral for this token is secured by smart contracts that also maintain its peg to the US dollar.
4. Pax Dollar. USDP is an ERC-20 stablecoin created by the Paxos company. The stablecoin is collateralized by fiat, which is held in the US bank accounts owned by Paxos. While USDP is smaller in market cap than USDT and USDC, it is heavily regulated and used in many legal transfers and operations.

Staking Fees

Taking staking fees into account is vital before submitting your stablecoins to earn yield. Since APYs tend to be modest, any losses due to fees might take a while to earn back through staking. Here are some of the most common fees you might encounter:

• Buying fees. Whenever you purchase crypto with fiat, you’ll encounter fees. They can go to centralized exchanges, credit card providers, third-party companies, etc.
• Transaction fees. Every transaction on the blockchain requires time and effort to process. This means you’ll have to pay a fee to compensate network participants that made it possible.
• Staking fees. Some pools and platforms take a small portion of your staking rewards as a fee for providing you with a service. This fee can be flat, a percentage of your earnings, or both.
• Withdrawal fees. Unstaking stablecoins can also incur fees. This is particularly notable with fixed staking systems, where pulling out your assets before the lock-up period is either impossible or requires payment.

Should You Stake Stablecoins?

Whether you should stake stablecoins depends on many different factors. The process comes with many benefits, but it also poses certain risks that users need to be aware of before making a decision.

Benefits of Staking Stablecoins

Let’s start with the key benefits of staking stablecoins:

• Passive income. Once you learn how to stake stablecoins, it becomes a set-and-forget method of earning money. You simply leave your assets in a staking pool, and they steadily grow over time.
• Predictable returns. Unlike most other cryptocurrencies, stablecoins are designed to resist volatility. That means that any gains earned staking them are also predictable and aren’t at risk of drastically losing value in short periods of time.
• Income diversification. You can set aside a portion of your portfolio for stablecoin staking while using the rest in other ways. That helps diversify your assets, protecting you from a single point of failure.

Risks of Staking Stablecoins

Here are some of the most prominent risks users face when staking stablecoins:

• De-pegging. While stablecoins are designed to resist price fluctuations, they can lose their peg. In these cases, stablecoins can experience significant crashes that can lead to massive liquidations and even bigger problems in the entire ecosystem.
• Smart contract vulnerabilities. The platforms that facilitate stablecoin staking use smart contracts for these processes. Smart contracts are self-executing pieces of code that automate and secure many DeFi operations. Still, like any code, they can be prone to hacks and exploits.
• Platform risks. Similarly to smart contracts, entire decentralized platforms can be hacked and have their assets stolen. In cases of centralized exchanges, the owners can simply steal the funds and run away, as was the case with Thodex.

Key Takeaways

By learning how to stake stablecoins, you’ll be able to use another potentially lucrative method of earning passive income. It’s a great way to diversify your portfolio and slowly grow your stablecoin holdings while being relatively safe.

Still, no method of earning in the crypto space is bulletproof. That’s why you should learn as much as you can about all the different platforms and stablecoins before opting for this method of yield farming.

At the end of the day, many crypto enthusiasts have some amount of this cryptocurrency in their wallet, so why not put it to work and earn more while waiting for the next bull run?

How to Stake Stablecoins FAQ

• What is the best site to stake stablecoins?

  The best site to stake stablecoins for beginners is generally a centralized exchange (CEX). Notable examples include Binance, Coinbase, and Crypto.com. If you want more control over your assets, you should stake stablecoins on a decentralized exchange (DEX). DEX staking is complex to set up, but it gives you flexibility.

• How do you get yield on stablecoins?

  You can get yield on stablecoins by submitting your holdings for staking on platforms that facilitate trading and lending. That way, you’ll earn a percentage APY yield from all the fees that other platform participants pay for using your stablecoins.

• Is it legal to stake stablecoins?

  Staking stablecoins is generally considered a legal practice, and you should be able to do it regardless of your jurisdiction. However, keep in mind that any rewards earned can be subjected to taxation, so it’s important to do your own research and ensure you’re not committing tax fraud.