Coinbase raises USDC interest rate to 5%

Coinbase, the leading cryptocurrency exchange, has announced an increase in the interest rate for deposits of USDC (USD Coin) to 5%. This marks a significant jump from the 4% rate introduced earlier this year and a substantial 150% increase from the 2% reward rate in place as of June 9.

The decision to raise the reward rate for USDC deposits came after a recent SEC filing clarified that stablecoins, including USDC, are not considered unregistered securities offerings. This clarification paved the way for Coinbase to offer rewards for holding stablecoins without violating existing regulations. It is important to note that the SEC still regards staking rewards for cryptocurrencies as unregistered securities offerings.

This move by Coinbase comes in the wake of its regulatory challenges. The SEC had previously blocked Coinbase’s Lend program over concerns about the regulatory framework. However, the current USDC reward program differs from the contentious Lend initiative, as Coinbase directly funds the rewards without lending users USDC.

Coinbase’s decision to aggressively increase the interest rate for USDC deposits reflects its commitment to driving greater adoption of stablecoins. Despite being a prominent player in the cryptocurrency space, Coinbase’s market share has lagged behind that of its competitor, Tether (USDT), over the past year.

According to Circle CEO Jeremy Allaire, U.S. regulatory crackdowns have contributed to USDC’s market capitalization decline. In addition, USDC faced challenges earlier this year when $3.3 billion of its reserves became temporarily inaccessible at Silicon Valley Bank during a banking crisis in the United States. This incident caused the stablecoin to briefly detach from its dollar peg, further impacting its market share.

As a result of these challenges, USDC’s market share dropped to a two-year low of 21.91% by the end of July, down from its previous high of 33.27%. In contrast, USDT’s market share increased from 49.48% to 68.87% during the same period.

While USDC has struggled to regain the market share it lost to USDT, there have been recent signs of momentum. Coinbase’s increased interest rate for USDC deposits may attract more users to hold the stablecoin, thus boosting its market share.

Coinbase’s move to offer a higher interest rate for USDC deposits demonstrates its commitment to staying competitive and driving adoption in the stablecoin market. As the cryptocurrency industry evolves, exchanges like Coinbase will likely employ various strategies to differentiate themselves and attract users to their platforms.