The concept is to invest your crypto assets in platforms that offer interest for keeping them in their system, similar to a traditional savings account. Through products such as staking, Farming or crypto savings accounts, you can earn passive returns while your digital assets increase in value over time.
How do crypto savings accounts work?
Cryptocurrency savings accounts operate under a scheme similar to that of a traditional bank savings account, but adapted to the crypto ecosystem, that is: generate benefits for users who deposit their cryptocurrencies on these platforms. These benefits are materialized in the form of interest, rewards or returns, which are paid periodically to the user.
The appeal of crypto savings accounts is that interest rates are much higher than you would expect from a traditional savings account, since it is possible to generate interest from 7%-15% in stable currencies (USDC, USDT, and others) and up to returns of more than 100% on more volatile assets. Although, as we shall see later, higher rewards entail greater risks.
But how do these platforms manage to generate these returns? Due to the characteristics of blockchain technology and the constant innovations in this sector, there are currently several mechanisms or protocols that allow generating these attractive returns.
Among the most common mechanisms are:
- Loans.
- Staking.
- Aggregators.
- Liquidity pools.
Let's take a brief look at each of them.
Loans
It's one of the most basic mechanisms for generating passive income in the crypto ecosystem. It is based on principles similar to bank loans traditional, but with two key differences:
- Cryptocurrencies are used as collateral rather than conventional assets.
- The entire process is executed using smart contracts without centralized intermediaries.
This mechanism works as follows: liquidity-providing users deposit their crypto assets on specialized platforms (for example: Aave, Fluid or Binance). The platform pools the deposited funds and lends them to other users. In return, depositors receive interest expressed in APY (Annual Percentage Yield), an indicator that includes the composite effect.
The interesting thing about many of these platforms is that they offer dual functionality. That is, you can generate returns as a lender and immediately obtain credit as a borrower by paying an APR (Annual Percentage Rate) rate.
Staking
It's a Consensus protocol used by blockchains based on Proof-of-Stake (PoS), such as Ethereum (ETH), Polygon (MATIC), or Solana (SOL) to ensure the operation and security of your network. The process consists of users depositing and locking their cryptocurrencies on specific platforms, receiving daily rewards in the form of new tokens in exchange.
However, traditional staking usually has two limitations:
- Technical requirements: Configuring and maintaining a validator node can be complex for non-specialized users.
- Immobilization of funds: Tokens are temporarily locked, preventing them from being used on other platforms or investments.
But to overcome these drawbacks, there are services such as Lido that allow users to delegate their cryptocurrencies. Thanks to this, the need for advanced technical knowledge is eliminated and delegated tokens can be used on other platforms to generate additional income (loans, farming, among others) through wrapped versions of the token.
Aggregators
According to the OKX Academy, is a strategy aimed at maximizing profits, since combine multiple protocols of simultaneous performance. Unlike staking or lending, which requires interacting with several platforms to “cultivate” the best APY at the given moment.
The basic mechanism of an aggregator operates in two stages:
- Initial deposit: Users provide liquidity by depositing their crypto on platforms such as Yearn or Superform. And in return, they receive tokens that represent their participation in the strategy.
- Automated optimization: Subsequently, the deposited tokens do not remain inert, since the platform uses advanced algorithms to analyze where funds should be invested and profits reinvested to capitalize compound interest.
Liquidity pools
They are the Base of decentralized exchanges such as Uniswap or PancakeSwap. These allow users to deposit cryptocurrency to create liquidity, which enables other users to exchange their tokens.
As a reward, liquidity-providing users receive LP tokens, which entitle them to a portion of the commissions generated by each transaction.
Unlike aggregators, liquidity pools don't implement complex automated strategies. However, its effective use requires understanding concepts such as impermanent loss and carefully selecting the pairs of tokens in which the liquidity is provided.
Why consider crypto savings accounts?
Compared to more traditional methods such as savings or investment, cryptocurrency savings accounts offer unique benefits such as:
- Attractive interest rates: Cryptocurrency savings accounts offer APYs that range from a modest percentage to double-digit numbers. Obviously, these rates depend on the platform used and the cryptocurrencies being deposited (for example, USDT, BTC or SOL).
- Ease of opening: Open a cryptocurrency savings account is often easier than opening a traditional bank account. This makes it an ideal option for unbanked individuals due to a variety of reasons, such as lack of identification or remote location.
- 24/7 Operations: The cryptocurrency market operates every day and doesn't close on holidays, which means you can access your funds and manage your account at any time, without the time restrictions that traditional banks have.
- Protection against inflation: This is especially relevant in Latin America where many countries face high rates of devaluation of their local currencies. In this context, saving in cryptocurrencies, such as stablecoins linked to stable currencies such as the dollar, allows you to protect your savings from inflation and, at the same time, earn interest.
Recommendations for saving in cryptocurrency
If you're considering starting to save in cryptocurrency, here are some useful recommendations:
- Compare the platformss: Not all crypto savings platforms are the same. Research the different options thoroughly, comparing APY rates, available cryptocurrencies and liquidity expressed in TVL (Total Locked Value). Check the platform's reputation, its security, and the opinions of other users.
- Evaluate the platform's conditions and transparency: It is important to pay attention to aspects such as service fees, withdrawal policies and if they have had incidents such as hacks or security flaws, and what has been their reaction to these events.
- Understand the mechanisms: Make sure you understand how platforms generate returns (for example, lending, staking, or other methods). Analyze if these strategies align with your goals and how comfortable you are with their risks.
- Implement the concept of zero trust: Assume that no platform is safe until you confirm its authenticity. Use security tools, such as Scam Sniffer, especially if you participate in DeFi platforms. Learn about the latest scam tactics and never reveal your private keys.
- Start with small quantities: Especially if you're a newbie to cryptocurrency savings. Never put your funds into crypto savings strategies that you don't understand and distrust projects that promise excessively high APYs, as they tend to be unsustainable in the long term.
What risks are there when saving in cryptocurrency and howor minimize them?
As we have noted before, although cryptocurrency savings accounts have great potential, so do they carry certain risks. Here are the most relevant ones and how you can minimize them:
- Market volatility risk: This is the most obvious risk. The cryptocurrency market is characterized by periods of high volatility, meaning that an abrupt drop in the value of your deposited tokens could completely eliminate all accumulated profits. To reduce this risk, you can choose to use stablecoins such as USDC or USDT, whose value is pegged to the dollar. However, you should keep in mind that, although they offer stability, their returns (APY) are usually lower than those of other cryptocurrencies.
- Regulatory risks: The regulatory framework for cryptocurrencies is not yet fully defined in many countries. This uncertainty could complicate your strategies of savings in cryptocurrency, either because of the legality of common practices (such as generating interest through staking or lending), ambiguities in paying taxes, or even the possibility of sudden restrictions on certain platforms. To reduce this risk, stay informed about regulations and use platforms with legal clarity.
- Platform risk: By using centralized platforms such as Binance or Bybit, you're entrusting the custody of your cryptos to a third party. If the platform is hacked, bankrupt, or subject to regulatory action, you could lose your funds. To reduce this risk, look for platforms with robust security measures, a high reputation, and good technical support. Also consider diversifying your funds across different platforms.
- Smart contract risk: On decentralized platforms (DeFi), fund management is done using smart contracts. If these contracts contain code errors or vulnerabilities, they could be exploited by hackers, which could result in a possible loss of your funds. To reduce this risk, use DeFi platforms that are audited and have an active community (Reddit, Discord, etc.), since a strong user base usually means that the projects have been tested in real situations.
- Liquidity risk: In times of uncertainty, users tend to withdraw their deposited tokens from these platforms in a panic to avoid volatility. This is critical, since although most platforms allow you to withdraw tokens whenever you want, others may impose lockout periods or other withdrawal conditions. To reduce this risk, review the platform's withdrawal policies and liquidity.
How does cryptocurrency savings work in El Dorado?
Cryptocurrency savings accounts provide unique opportunities for their users, but how can you start taking advantage of them right now? The answer is simple: with our program”El Dorado Wins“, you will be able to generate an annual return of 3.8% on your USDT balances.
Participate in El Dorado Gana has great advantages, and the best thing is that the procedure is extremely simple. Just follow the steps below:
- Open your account in El Dorado.
- Enter the 'El Dorado Wins' section.
- Activate your digital safe and deposit your USDT.
This way you can easily start receiving passive income that will be deposited in your account. For more information on how to activate your savings account, we invite you to consult our step-by-step guide.
Now, you might be wondering: Why should I choose El Dorado Gana? First of all, we have a solid reputation. Since 2020, we have provided our digital wallet and P2P exchange service in many Latin American countries.
We are backed by Bitgo, a pioneer in crypto custody, to protect your funds. And this is just the beginning: El Dorado Gana will continue to incorporate new mechanisms to generate passive income.
Right now, we've set out to generate returns through Mountain Protocol's USDM stablecoin. The USDM is a 'rebasing' token, which means that it has the capacity to periodically increase the amount of tokens deposited based on predefined economic goals.
Mountain Protocol (USDM) is a stablecoin backed by U.S. dollars, which generates daily rewards through interest paid on U.S. Treasury bonds. UU. This entire process is fully audited by security experts such as Open Zeppelin, Chainalysis and Fireblocks.
So we invite you to stay tuned for our upcoming announcements and to follow us on social media to be informed when we implement new secure methods that will protect and increase the value of your money every day.
