Interest fiercely surpasses banks: Exchanges race to "bankify" to eliminate banking pain points and drive growth

A recent report released by the cryptocurrency exchange Deribit shows that cryptocurrency companies are increasingly adopting various financial services that have long existed in traditional finance, including offering custody interest, lowering transaction fees, and integrating tax services.

• High Cryptocurrency Interest Rates in Stark Contrast to Negative Rates in Banks
• Fee-Free Exchanges Set to Become Future Trend

Interest Rates Outshine Traditional Banks

As traditional bank deposit rates continue to decrease, even reaching negative rates, the high interest rates offered by cryptocurrency lending have become a key factor in retaining existing users and attracting new ones. The sources of high-interest earnings include:

• User deposits
• Internal exchange lending: such as margin trading, market making
• External exchange lending: such as DeFi

Cryptocurrency lending platform Celsius recently began offering up to 8.1% annual interest on Bitcoin deposits for users outside of the U.S. and Japan, with crypto assets stored in their wallet subject to compound interest. Celsius CEO Alex Mashinsky stated:

To enhance user earnings, in addition to paying interest in Bitcoin, we have decided to reward users with our CEL token based on different loyalty program tiers, aiming to attract more users to join the Celsius platform.

Tech news platform TechCrunch and founder of hedge fund Arrington XRP Capital Michael Arrington also mentioned that higher interest rates will continue to drive adoption:

Cryptocurrency lending platforms have enormous potential, with the entire cryptocurrency lending industry estimated at $4.7 billion. They are providing satisfactory rates and low-cost loans. The growth in this area is akin to the early days of PayPal.

Commitment to Lower Fees

Another significant innovation that a few exchanges are undertaking is "feeless trading." On January 28, cryptocurrency exchange Uphold launched zero-commission trading for 30 cryptocurrencies, but only available on their iOS and Android mobile applications.

Uphold CEO JP Thieriot believes that eliminating fees will ensure that millions of retail investors can afford cryptocurrency trading:

For retail investors, cryptocurrency is one of the more expensive asset classes, with fees on some mainstream platforms exceeding two-tenths of a percent. Our goal is to differentiate ourselves from competitors and provide assistance to people around the world. Ultimately, cryptocurrencies may continue to evolve by addressing pain points in banking.

However, without fees, cryptocurrency companies face reduced income. Thieriot believes that this model still holds advantages overall, stating:

While reducing costs, Uphold aims to strike a balance between high trading volumes and lower fees.

General Public Still Reluctant to Embrace Cryptocurrencies

Despite high interest rates, zero-fee trading, and other features aimed at promoting cryptocurrency adoption, the general public remains skeptical. According to a report by IE University titled "Cryptocurrencies and the Future of Money", existing cryptocurrencies are often not viewed as money if they fail to achieve their goals. IE Research Director Mike Seiferling noted:

While innovative cryptocurrencies can generate profits for users in large-scale transactions and become a popular alternative to fiat currencies, our research indicates that cryptocurrencies still have a long way to go to surpass traditional fiat currencies supported by central and commercial banks.

Related Reading

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