Despite numerous high-profile lending organizations collapsing in June and July, savings rates on crypto assets have improved across lending platforms.
Following Terra’s demise, lending companies encountered severe operational difficulties. Many were forced to reduce their interest rates in order to promote more borrowing. However, this trend is beginning to reverse as loan rates become more profitable.
How have interest rates changed?
Rates have risen significantly across key lending platforms. BlockFi, Gemini, and Crypto.com all raised their rates in August, but Ledn maintained their rates throughout the turmoil.
For August, BlockFi raised rates on BTC, UNI, and USDT, as well as stablecoins USDC, GUSD, PAX, and BUSD. The percentage increases ranged from 0.5% to 2%. The rates for uniswap have been raised across the board.
Nexo has improved the yields on bitcoin and chainlink balances while decreasing the balance limitations, allowing clients to access higher rates at lower balance levels. Customers with the gold level, for example, will receive 3.5% on bitcoin balances up to $200,000 and 2% on everything above this.
On July 1, the company also implemented balance limitations for ether, stablecoins, and pax gold, calling it a “sustainable approach for us to maintain our top rates rather than simply lowering our yields entirely.” When The Block contacted the lender, he refused to discuss rates at this time.
Toronto-based As of August 1, Ledn’s rates remained steady, with the interest rate for bitcoin savings accounts standing at 5.25% for balances up to 0.1 BTC and 2% for balances above this. Rates on USDC accounts remained unchanged at 7.5% for all amounts.
Why are interest rates rising?
According to several lenders, lending rates have risen due to changing market factors.
One explanation given by both Ledn and BlockFi is the current lack of liquidity in the lending industry. With Celsius and Voyager declaring bankruptcy and other companies such as Vauld, Babel, Zipmex, and now Hodlnaut experiencing similar challenges, borrowing alternatives are becoming more limited.
Mauricio Di Bartolomeo, co-founder and chief strategy officer of Ledn said that financing demand currently outstrips availability because a large amount of supply has been removed from the market. This has resulted in more sustainable margins and pricing.
Joe Hickey, BlockFi’s global head of trading, agreed, telling The Block that there was a lot more supply in May, which pushed rates lower. Hickey stated, echoing his company’s CEO Zac Prince, “it’s now much more of a lender’s market than a borrower’s market, back then [May] it was more of a borrower’s market.”
Di Bartolomeo of Ledn agrees that the lending market in May was a borrower’s market. During this time, bankers offered borrowing rates far below sustainable levels, implying that lenders were taking an unprecedented risk in making loans. Things are finally settling down.
What effect will The Merger have on lending rates?
Rate rises may be in the horizon as The Merge approaches.
According to Joe Hickey, specific tokens have witnessed an increase in volume and demand. Uniswap, the decentralized money platform, has lately experienced platform trading volumes comparable to Coinbase. BlockFi upped their UNI rates in response to growing volume, and The Merge may prompt similar increases from other lenders.