Coinbase, a leading cryptocurrency exchange, has recently increased the interest rate for USD Coin (USDC) holdings on its platform. This development emerges amid a declining supply of USDC and ongoing regulatory scrutiny.
Rising interest rates attract attention
Coinbase users have noticed a significant uptick in the interest rates offered for USDC holdings. The exchange, known for its robust security and user-friendly interface, has raised the Annual Percentage Yield (APY) to an attractive 6% for the first $250,000 in USDC. This increase marks a notable rise from the initial 2% rate, positioning Coinbase as a competitive player in the crypto market.
Tom Dunleavy, Chief Investment Officer and partner at MV Capital, revealed this change through a screenshot of an email from Coinbase. The new rate structure, however, shows variability among users. While some enjoy a high 6% return, others have reported seeing rates as low as 0.58%. Dunleavy posits that these discrepancies could be related to the amount of USDC held in Coinbase accounts. He also contrasted these rates with those available in other staking pools, noting the trade-offs between higher yields and the risks associated with on-chain liquidity pools.
Coinbase’s decision to increase USDC interest rates comes at a time of heightened regulatory scrutiny. The US Securities and Exchange Commission (SEC) has recently filed charges against the exchange for various alleged securities violations. While these charges do not directly address Coinbase’s USDC reward program, they cast a shadow of uncertainty over the compliance status of the exchange’s offerings under federal securities laws.
Decline in USDC supply
The supply of USDC has seen a notable decrease, dipping below 25 billion for the first time since 2021. The past year has witnessed a steep decline in USDC circulation, with the supply dropping by nearly $1 billion in just one month. This downward trend commenced earlier in the year following USDC’s exposure to the US banking crisis. Circle, the issuer of USDC, disclosed holdings in Silicon Valley Bank, leading to a temporary devaluation of USDC. Despite recovering its peg, the market share of USDC continues to decline.