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DeFi beginner guide: Crypto banking

Introducing The World of Crypto Banking

Cryptocurrencies are digital currencies backed by blockchain networks, where transactions are validated by the network of computers. The key difference against fiat lies in the autonomy over your assets; with crypto, a third party financial institute is not required to approve of transactions, therefore granting you full control over your finances.

In recent years, crypto has been widely accepted everywhere. Microsoft, the software giant, is one of the early adopters of Bitcoin and has received payments in crypto since 2014. With the rise of crypto adoption, institutions have emerged to cater to the rising demand for digital currencies management. Enter crypto banking, institutions which provides financial services ranging from withdrawals, savings, lending and borrowings. Crypto banking meant storing assets in crypto with an institution, and it can be with corporations, an crypto exchange, or even a bank which accepts crypto.

The benefits of crypto banking are aplenty – almost instantaneous settlements, high levels of transparency and most importantly improved capital optimisation. Through crypto banking, individuals may expect to earn interest yield by depositing assets with these institutions. In comparison to banking in fiat, crypto banking in general provides greater interest yield than traditional banks. This is because banks are regulated, they are required to maintain reserves to ensure that in an event some loans are written off, customers are still able to withdraw their fiat. With crypto banks, the lender and borrower are connected directly with each other through smart contracts on the blockchain network. This greatly increases efficiency since there are no 3rd party financial institutions involvement required. This results in a reduction of the costs in both debt management and operations, allowing crypto banks to provide higher interests.

Who benefits from Crypto Banking

There are 2 main groups of people who could adopt crypto banking – individuals looking to earn high interest yield by banking with institutions, or individuals looking fight high inflation rates.

1. High Interest Yield

As aforementioned, individuals may deposit crypto with institutions and receive higher interests compared to saving accounts.

What’s the risk: Of course, we should take note that deposits are not guaranteed by any financial watchdog (such as Federal Deposit Insurance Corporation), and all investment decisions come with a risk. A cyberattack or technical error could result in temporary or even permanent halt of financial services.

2. Fighting High Inflation Rates

In inflationary economies such as Venezuela, inflation rates are astronomical. In 2020, the country experienced 2,355% inflation rate, making livelihoods of citizens difficult to get by as prices of goods are always increasing. Enter stablecoins, a crypto asset pegged to the value of fiat money or exchange-traded commodity. Venezuelans people and businesses have since adopted digital tokens transact with stable value, such as DAI and USDC – digital currencies that are pegged to US Dollar.

How to Use Crypto Bank

Most institutions accept stablecoins as collaterals as they are less volatile compared to Bitcoin and altcoins. Most platform allows individuals to lend or stake crypto to earn interest yield on their stablecoins. Here is how you can start lending or staking with a platform:

1. Identify a Crypto Banking Platform

Most platforms accept various kinds of crypto, and it is important to know which cryptocurrency to convert from fiat. The ShuttleOne network provides a high interest yield of 10% by simply depositing crypto onto their platform, making it an attractive way to crypto bank your assets.

2. Exchange Fiat for Crypto through an Exchange

Not all exchanges facilitate trades of the crypto you require. Depending on desired crypto, individuals should trade on exchanges which holds the particular token. For instance, the ShuttleOne network accepts deposits in USDC stablecoin, which is available on the Coinbase exchange. You may store your crypto either on the exchange, or transfer them to a crypto wallet.

3. Lend Or Stake by Transferring Crypto to Platform

The institution would provide an address to transfer crypto into the platform. A best practice would be to copy and paste the address, as it avoids any mistakes during the transaction. The process should be instantaneous, and you would start receiving interests on your deposit.

Conclusion

Crypto banking is revolutionary – not only it creates a new dimension of managing transactions online efficiently, it provides transparency to financial services. Furthermore, crypto banking presents many benefits and solutions to problems of today, for instance allowing individuals to earn higher interests, or even fight inflationary economies. As an individual, we ought to take actions which benefits us the most, be it to beat an inflationary economy, or to leverage on high interest yields.

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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