CeFi vs Traditional | "50 Times Higher than Traditional Savings Interest Rates!" Coinbase Introduces USDC with 4% Yield, Compound Responds

Coinbase announced the launch of a USD Coin (USDC) yield product, which reportedly offers a 4% annualized return. Coincidentally, the DeFi protocol Compound also introduced a savings product with a 4% yield yesterday. The founder of Compound compared the two products.

CeFi vs Traditional: Coinbase Introduces Financial Products

After announcing its stock market listing, Coinbase has made many breakthroughs in its product planning. For example, departing from its cautious listing policy in the past, CEO Brian Armstrong announced the goal of listing all compliant cryptocurrencies. The increased speed of listing coins and the addition of DOGE coin show its intention to increase trading volume.

This time, Coinbase has launched a USDC product with a 4% annual interest rate, promoting it as "50 times higher than traditional savings account rates." It is claimed that the average annualized interest rate for traditional savings in the United States is 0.07%. Coinbase states that by lending USDC to them, users can enjoy high-interest, low-risk services. Currently, this service is only available to users in the United States. Coinbase reportedly plans to introduce more ways to earn interest in the future.

Although Coinbase emphasizes that this is not a USD savings account when compared to traditional accounts, it is not a bank.

DeFi vs CeFi: Compound vs Coinbase

Compound also launched a 4% USDC financial product a day earlier, but founder Leshner pointed out several differences:

1. Compound's financial product is valued entirely in US dollars, and customers transfer funds in and out using bank accounts. Coinbase earns the cryptocurrency USDC.
2. Compound's financial product has a single source of interest rates, which is the Compound protocol itself. Coinbase, on the other hand, has not disclosed the source of interest rates and only guarantees them with verified borrowers.
3. Compound targets corporate clients and has a direct relationship with them, whereas Coinbase targets retail customers.
4. In terms of interest rates, Compound's annual interest rate is 4% APR, with a stable rate, resulting in an actual interest rate APY of 4.08%; Coinbase's annual interest rate is 4% APR, and the actual interest rate APY may be 3.92% because its rates may fluctuate.

Although Leshner seems to emphasize the convenience, transparency, and interest rate guarantees of Compound compared to Coinbase, he still believes that Coinbase's product launch represents a significant advancement in the industry.

While similar products have been running on many well-known cryptocurrency exchanges and asset management platforms for a while, the launch by a regulated U.S. fiat exchange like Coinbase carries a different significance.