Will BlockFi, Ledn and Nexo rates drop?

Generating a return on crypto is increasingly tricky. The Implosion of the Terra ecosystem – where up to $50 billion was wiped out – le...

Generating a return on crypto is increasingly tricky. The Implosion of the Terra ecosystem – where up to $50 billion was wiped out – led to a drop in decentralized finance (DeFi) protocols offering interest.

At the other end of the table, centralized finance, or CeFi, where all the processes are rooted in a central bodyendured a relatively peaceful bear market, but interest rates tend to fall.

On the first of the month, investors who have an account with a CeFi provider such as Ledn, Celsius, BlockFi or Nexo typically receive emails detailing the interest rate for the following month.

A blow to those seeking passive income, interest paid by CeFi providers has declined since the 2021 bull market. Giving up custody of a crypto asset for a miserly interest payment has emboldened some crypto enthusiasts to take control of their private keys, even drawing comparisons with legacy banks.

In the table below, three of the largest Bitcoin custodians (BTC) and crypto assets declined, considering both the interest rate and the amount of interest paid on each asset.

CeFi interest rates have practically fallen over the past year. Source: Data comes from each individual provider’s site.

Cointelegraph spoke to three of the largest lenders of Bitcoin and other crypto assets to understand whether interest rates from CeFi providers could eventually bottom out at 0.01% interest – like in banks – and why these lenders and interest providers exist.

Interest rates will remain attractive

Representatives from Ledn, Nexo, and BlockFi agreed that while interest in crypto is lower, it is outpacing legacy lending. Mauricio Di Bartolomeo, co-founder of Canadian company Ledn, told Cointelegraph, “We are still five to ten years away from bitcoin rates approaching those of fiat bank accounts.”

“Most traditional bank savings accounts only pay out in basis points (between 0.01% and 0.05%). The interest rates for our Bitcoin savings account product are still 5.25 % APY for the first 0.1 BTC and 2% APY for balances over 0.1 BTC to date.

In a tweet thread, Di Bartolomeo shared that “changing market conditions” have forced lenders to lower rates as the level of difficulty of making a profit on arbitrage opportunities and futures trading has increase.

Jonathan Haspel, Senior Institutional Trading Associate at BlockFi, agreed, stating that “yield from interest-bearing crypto accounts is influenced by a number of factors, including market sentiment, funding rates, supply and price. demand and the optimization of the balance sheet”.

It is true that the sentiment of the crypto market has fallen since the March 2020 crashwhile funding rates, especially for altcoins, have fallen to “worrying levels”. Haspel explained:

“Ultimately, rate compression and volatility are a sign of the maturing of the asset class. Where yield was once rampant and liquidity once scarce, there are more players in the crypto game fueling its competitive funding and widespread access.

Bullish on CeFi: the future remains bright

Zac Prince, CEO of BlockFi, told Cointelegraph that he is still “optimistic about […] customers’ desire to earn long-term crypto interest.

In a similar note of optimism, Nexo co-founder and executive chairman Kosta Kantchev told Cointelegraph, “‘Times are changing,’ but crypto yields are still many times higher than traditional banks. ” At a glance at the price of Bitcoin flatlining around the $30,000 markKanchev said:

“While interest on some assets has become more stable, this reflects the assets themselves. I think people are largely overlooking the sky-high rates on some of the newer assets on the block.

Ultimately, and in agreement with Di Bartolomeo, “regardless of the historical volatility of crypto, the opportunity is still there.” CeFi providers will continue to offer more attractive interest rates than traditional financial institutions.

It is important to note that Nexo uses a different model, which would explain why rates are not technically falling (as shown in the chart above). Users experience higher interest rates if they lock the asset or hold a portion of the Nexo token. Unlike other CeFi lenders, Kantchev explained:

“Rates are not going down. It’s more that the returns on older cryptos on Nexo are guaranteed to be sustainable over the long term, but eyebrow-raising rates are often available either with Nexo tokens through our Loyalty Program or for some of the coins most recent ones where we can generate such an impressive return.”

Growing adoption and innovation, anticipating regulation

This drop in rates should not be of concern: according to Di Bartolomeo, not only are centralized entities “essential to the adoption and evolution of Bitcoin as virgin collateral”, but traditional banks could even consider “s ‘associate’ with CeFi players in the future. He said:

“This means that centralized lenders, like Ledn, will act as a conduit to bring legacy capital to Bitcoin – benefiting both Bitcoiners (by letting them borrow at increasingly better rates) and capital providers (by offering them an excellent risk-adjusted return). ”

Related: Can DeFi and CeFi coexist? Three expert panel takeaways

BlockFi’s Haspel agreed, “CeFi offers a compelling use case supporting the crypto narrative for global monetary access.” Despite the turbulent waters the crypto industry is going through in the spring of 2022, BlockFi is seeing “an increase in global demand for risk-managed crypto products – such as interest accounts – in other emerging digital assets.”

“While credit checks and lack of financial history hamper people seeking to access capital globally, CeFi loans offer a solution. By using confirmed crypto assets on a transparent and immutable ledger, CeFi protocols are able to quickly verify their ownership.

For Kantchev, innovation, customers and new products are right around the corner: “Compliant and durable products of interest that meet regulatory guidelines while paying customers profitably will be one of the next products of this guy.”

“The industry has matured enormously, […] I am therefore convinced that we will continue to find risk-free strategies that generate attractive returns and that we can share them with the community. »

In the case of Nexo, this means diversify its product offering; for BlockFi, it continues to establishments on boardwhile Ledn has diversified into Bitcoin-Backed Mortgages.

Cointelegraph has contacted provider CeFi Celsius for comment, but has not received a response at press time.