Can high interest rates and zero fees really attract more people to cryptocurrencies?

This article comes fromCointelegraph, Originally by Rachel Wolfson

Odaily Translator |

Odaily Translator |

The report notes that crypto companies, including exchanges, are expected to offer users interest-bearing accounts, tax services, and more cost-effective ways to trade. In fact, these service functions in traditional financial institutions are likely to become standard functions of cryptocurrency exchanges within the next two years.

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Crypto Adoption is Going Well

In fact, the community has noticed that many crypto companies are starting to adopt the functions provided by traditional financial institutions. The only difference is that crypto companies are making these features more attractive to customers in ways that traditional banks can’t try, or won’t.

For example, the encrypted lending platform Celsius offers users outside the US and Japan an annual interest rate of up to 8.1% on Bitcoin deposits, which is clearly an attractive customer loyalty program. By contrast, while most traditional banks also have savings accounts and loyalty programs that allow investors to earn interest, it's almost impossible for them to charge rates as high as Celsius.

According to Alex Mashinsky, CEO of Celsius, with the rise of encrypted lending platforms, it is difficult to obtain higher returns purely relying on the rise in cryptocurrency prices, so he tried to increase interest rates by paying higher interest rates with Celsius’s CEL tokens. Investor returns. Alex Mashinsky explained:

“To increase yield, we wanted to do something other than paying fees in Bitcoin, so we decided to pay in CEL tokens. We also have other loyalty programs with different levels to show how much interest users will earn. Basically, we pay customers more to get them to join Celsius."

Like traditional banks, some crypto companies and projects also offer compound interest on cryptocurrency deposits, such as Nexo and DeFiprime.

Encrypted lending start-up BlockFi also recently announced that users can earn compound interest when trading mortgage-based loans. Taking Coinbase's stablecoin USDC as an example, BlockFi initially provided an asset annual return rate of up to 8.6%, while Litecoin's asset annual rate of return is as high as 8.6%. The yield can also reach 3.78%.

Michael Arrington is the founder of venture capital media giant TechCrunch and hedge fund Arrington XRP Capital. He pointed out that higher interest yields have stimulated more and more people to try cryptocurrencies, which in turn has promoted the popularization and application of cryptocurrencies. Michael Arrington explained:

“I know some users who are new to cryptocurrencies are starting to buy stablecoins to get higher interest rates than they would normally save.”

Arrington XRP Capital believes that cryptocurrency loan companies have great potential, as the entire cryptocurrency loan industry has reached a market size of $4.7 billion. Michael Arrington continued:

"Arrington XRP Capital is closely watching the rapid growth of the crypto industry, especially those crypto companies offering compelling interest rates and low-cost loan services using stablecoins. We see the growth trajectory of some companies in this space and those who succeed The early stages of fintech companies, like PayPal, are very similar.”

Although crypto lending platforms offer users much higher interest rates than traditional banks offer, they typically only offer mortgage-backed loans, unlike traditional banks that have a variety of different types of loan products. According to Credit Karma, the largest financial backflow platform in the United States, mortgage-backed loans usually have higher risks because the repayment cycle is shorter. If the borrower fails to repay the loan as agreed, the collateral may be lost.

“Using blockchain payment rails instead of the traditional banking system can help crypto companies grow at the speed and scale of Uber. For traditional financial institutions, this is almost impossible because every financial company operates Markets all need local partners to build relationships, and crypto companies are fundamentally game-changing.”

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Crypto Firms Want to Eliminate 'Fees'

Another major innovation that crypto companies are working on is the desire to eliminate exchange fees, after all many users in the community have complained that exchange fees are too high today. However, traditional banks also often offer users discounted fees. A checking account at a major U.S. bank costs $9.60 per month, according to a recent MyBankTracker study.

Perhaps in order to compete with traditional financial institutions, on January 28, 2020, the digital currency platform Uphold announced the implementation of zero commission discounts on transactions of 30 cryptocurrencies, but only on iOS and Android mobile applications. According to JP Thieriot, CEO of Uphold, the removal of fees will ensure that millions of retail investors can more easily trade cryptocurrencies, which in turn will attract more investors. JP Thieriot added:

"For now, cryptocurrencies are still one of the more expensive asset classes for retail investors, and on some mainstream platforms, they are even charged at 200 basis points. Our goal is to compete with zero commission measures." Stand out from competitors, create something useful for people around the world, and help them in everyday situations. Ultimately, we will develop into an Internet of money that can do many things that traditional banks cannot do well.”

According to the latest report from Bloomberg, when zero-fee transactions enter the field of cryptocurrencies, the influence is almost equivalent to that of traditional exchange-traded funds and online stock transactions, which will accelerate the increase in the influence of cryptocurrencies. Lex Sokolin, global co-head of fintech at blockchain development firm ConsenSys, told Bloomberg:

“Free transactions have almost become a must-have feature of fintech products, with many companies starting to experiment, such as Robinhood, SoFi, and even JP Morgan. Therefore, it is no surprise that zero commission strategies are implemented in the competition for users. "

"In moving to zero-commission services, Uphold hopes to make a trade-off between higher trading volumes and shrinking profits. The good news is that compared to traditional banks and brokerage firms, the cost structure of crypto companies is relatively small, and native crypto It will allow financial companies to gain better structural advantages.”

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Crypto companies want to push more people to use digital currencies, but will taking advantage of high interest rates and zero fees really help?

Despite the aggressive push by crypto companies for high interest rates and zero-fee transactions, among many other features that drive user adoption, skepticism about cryptocurrencies remains high.

Recently, the Center for Change Management (CGC) at IE University released a report titled "Cryptocurrencies and the Future of Money," which specifically mentions that the existing cryptocurrencies in the market have not lived up to their forerunners. The goal envisioned by the authors, because it has not yet been considered as a currency.

In response, Mike Seiferling, director of research at the Center for Change Management at IE University, explained:

“Despite innovations that have enabled digital currencies to serve as an alternative to traditional currencies and have benefited users in many transactions, according to our research, cryptocurrencies have not achieved their intended goals and still face significant challenges. There is still a long way to go to surpass traditional currencies backed by central banks and commercial banks.”