Binance, among the largest crypto exchanges in 2022 was issued a summons by the Central Bank of Uruguay. The summons was issued as the central bank sees crypto savings products that are issued by Binance can only be issued by banks or companies that are listed in Uruguay’s stock market.
Binance are not authorized by the regulator to issue crypto savings product. The central bank requested Binance to stop marketing investment products as savings products and stated the following:
‘The call to the general public for the application of their savings can only be done through financial intermediation institutions authorized to collect deposits in the market or as an issuer registered in the stock market registry.’
Binance issued a swift reply to the central bank and has began discussing the matter with the regulator according to recent reports:
‘Binance reinforces that it is leading the way globally in the development of the crypto and blockchain ecosystem, working collaboratively with regulators, legislators, governments, and law enforcement authorities to ensure the most secure environment.’
At the time of this writing there are no cryptocurrency regulations in Uruguay.
High Interest in Crypto Savings
When Bitcoin was trading around $2,000 several years ago, invesors purchased the cryptocurrency as a long term investment. The elderly bought Bitcoin as an inheritence for their children and grand children.
The majority of investors that entered the crypto markets following BTC rally explored different methods for long-term investments. According to recent studies, Africa have the largest cryptocurrency market.
in South Africa crypto is viewed as an alternative investment. In Nigeria however, cryptocurrencies are used for savings. Due to NGN weakness against the US Dollar (currently trading around 415 NGN for 1 USD), Nigerians find stablecoins and crpytocurrencies such as Bitcoin and Ethereum more attractive.
Fidelity were the first to introduce 401(k) retirement plans in Bitcoin (expected to begin this fall). MicroStrategy was the first company to apply for the 401(k) crypto plans. Approximately 23,000 companies are using Fidelity’s retirement plans, the company has more than $10 trillion in assets under administration (AUA).
Any participants in the crypto retriment plan will only be allowed to use 20% of the funds for cryptocurrencies. At the time of this writing only Bitcoin will be offered in the 401(k) plans.
Other companies such as Swan Bitcoin and Bitcoin IRA are also introducing crpyto retirement plans due to the high interst Fidelity has received for its Bitcoin plans.
Lending Cryptocurrencies Returns
Lending cryptocurrencies is another method used for long-term investments. Celsius was the top centralized crypto lending companies before its collapse.
In crypto lending, investors deposit their cryptocurrencies in a lending platform in exchange for interest. Borrowers will often require to deposit in order to obtain a loan (collaterlized) although some platforms do offer uncollaterilized loans (KYC is required).
The interest lenders earn varies from platform to platform. Rather than choosing centralized platform, decentralized lending protocols such as Aave are favorited by investors that do not wish to hold their cryptocurrencies in a centralized envrinment.
For NFT holders, there are platforms that allow NFTs to be used as a collateral for a loan such as NFTfi. On their official twitter account, NFTfi says it surpassed 15,000 loans that were made on the platform. Individuals can be lenders as well, the platform is not solely for borrowers.
Like any investments, lending cryptocurrencies or NFTs have great risks. Security breaches have taken place in the past due to bugs in the smart contract’s code despite security audits.
The loan-to-value (LTV) ratio must be sufficient and in an event of a sudden price drop the protocol may struggle selling the borrower’s collateral at a face pace, which will result in a loss for both lenders and borrowers.
Staking cryptocurrencies is another yield bearing method for investors. Staking is joining the validating process of transactions on a blockchain that uses PoS. Rather than mining, the staked (locked) cryptocurrencies are used to maintain the mainnet in exchange for staking rewards.
For Ethereum 2.0, 32 ETH are required for validating the network. Investors that do not have 32 etheres can join a pool for less and enjoy staking rewards. Centralized exchanges such as Binance and Kraken offer ETH pools. eToro is also offering staking in Ethereum 2.0.
Lido is among the most popular staking platforms. According to Genesis, the numebr of staked ethers on Lido has been rising.
Lido is currently offering 3.9% APR on staked ETH. A higher APR is offered for Kusama (20%) and Polkadot (16.5%). Polygon investors may earn 8.7% APR by staking their cryptocurrencies on Lido.
However, it is worth noting that ethereum 2.0 staked on Lido (stETH) cannot be exchanged back to ETH until the merge takes place. The incident where stETH de-pegged from ETH (the ratio is 1:1 but extreme conditions took place in June) has triggered a chain-reaction that lead to the collapse of Celsius (Celsius used stETH on aave to collateral and borrow Ethereum).
Staking is not limited to Ethereum or the top mainnets. The majority of companies offer staking options for their tokens’ holders. Stablecoins may also be staked for rewards.
As soon as there is a global consensus on crypto regulations, traditional institutions may consider offering crypto plans. The UK is among the countries that is making an effort towards regualting cryptocurrencies at a faster pace.
The progress is held back until a new Prime Minister is chosen at the beginning of September 2022. Plans may be composed of different sectors within the blockchain such as health, gaming, defi, tourism, green energy, security, metaverse etc.
The reason why the focus is primarily on Bitcoin is due to its liquidity, popularity and the fact it is decentralized (as opposed to Ethereum).
This article was written by Matti Williamson at www.financemagnates.com.