For most people today, savings accounts (mostly offered by financial banks) are the most common way to preserve the value of their cash and make a profit. By simply opening a bank account, investors can start saving to receive a regular fixed rate of interest on those savings. While most of these savings accounts are used to provide inflation protection, most of them diminish the real value of your savings by offering nominal interest rates lower than actual inflation.
Depending on your country and the banking options available to you, chances are even the most generous savings accounts will only pay out between 1%-3% APY (for developed nations). And typically less than 8% for most developing countries, all still lower than their respective inflation rates. Rates are so low largely because of the structure of banking facilities and profit maximization tactics. The main goal is to make a profit (for the bank’s shareholders), not the savers.
However, the lofty rise of the decentralized finance (DeFi) ecosystem over the past two years has shed new light on the value of their money for savers. DeFi allows everyone around the world to earn higher interest rates and gives them more control over their own money. The decentralized staking protocols offer more generous returns than the traditional savings market, some as high as 20% APY. Platforms like Tezos (XTZ), Cosmos (ATOM), and Polkadot (DOT) offer savings of over 6% APY.
Why do most people still prefer traditional bank savings accounts over the DeFi ecosystem?
The fixed rate problem on DeFi staking platforms
One of the biggest problems in the decentralized “Spar” system is the volatility of cryptocurrency prices. Despite the high returns, cryptocurrencies are notoriously known for their volatility. Depending on how long someone invests their tokens, the overall rate of return offered on the platform could be offset by the risk of volatility.
For example, if the value of the cryptocurrency you hold (staking) decreases by 10% in a given year. You are in a pool that offers 15% APY; You get about 5% return on your investment. If the crypto price falls by 20%, you will lose 10% of your investment.
While volatility is a major concern to entice the masses to join DeFi staking, it is not the only impediment to mass adoption, even with the exceptional returns. DeFi staking also faces the challenge of having flexible interest rates versus a fixed rate. Most staking platforms offer an ever-changing rate for their liquidity pools rather than a fixed rate as it varies due to trading fees. While it can sometimes work in the investor’s favor, most investors prefer a safe fixed rate on their savings.
In a volatile market, why should investors look to fixed income options for their savings instead of floating rates?
- Security: Investors generally prefer fixed-interest savings due to a secure return. As soon as you invest your money in a fixed-term deposit account, you are guaranteed to receive the specified return.
- The tax exemption limit for interest: A fixed-term deposit account offers convenience for small investors, since small income below a certain limit is not taxed.
- Fixed deposit loans: Fixed interest rates are also a reliable tool if you need a quick loan. It is very easy to take out a loan against your fixed deposit.
To that end, the decentralized finance ecosystem is slowly embracing fixed income opportunities. Primex is one of the leading DEX platforms that offers lenders fixed income opportunities by backing interest rates with trading fees and platform profits.
Understanding fixed rates on Primex DEX
Primex is a liquidity protocol for DEX-agnostic cross-margin trading with scoring mechanisms. On the platform, lenders provide pools (or buckets) of liquidity where traders can use them for leveraged trading. Investors on the platform can bet multiple crypto pairs on the liquidity pool for incentivization. These liquidity providers are then paid with the trading fees collected on the platform.
In the past, the interest rate was flexible due to the non-constant trading fees and the volatility of the market. To solve the problem of flexible interest rates, Primex DEX introduced fixed stake rates. By locking funds for a set amount of time, LPs have the opportunity to receive a fixed rate on the funds wagered. Unlike a fixed rate bank account, Primex gives lenders complete control over their funds while maintaining the utmost privacy in transactions.
Hey! We’re excited to announce the Primex Early Users program!
Primex opened doors for early traders, liquidity providers and custodians to collaborate with the core team and participate in the testing and development of the protocol. https://t.co/k8Jdyy57KB pic.twitter.com/EAEhMiDkVC
— Primex Finance (@primex_official) March 18, 2022
Aside from the fixed rate staking feature, Primex also offers players a wide range of features. One of the most outstanding features of the DEX is its leveraged trading platform. Traders do not require collateral to open a leveraged position, instead locking the deposit. Once the deposit is locked, traders can borrow up to 5X leverage, boosting their overall profits. The protocol does not transfer funds to external wallets, and in the event of liquidation, the blocked assets are transferred to the TVL protocol.
Other features of the platform include cross-chain DEX, a risk management model for assets, trading pairs and traders, and yield farming opportunities. Finally, Primex also includes an AI-based trader scoring protocol that continually monitors and scores traders via a decentralized network of machine learning-based nodes. Scoring defines traders’ risk levels and available buckets. High-scoring traders can weather high volatility and save their positions even as they approach the liquidation price.
last words
Volatility remains a barrier to entry for new users into decentralized finance. Many investors prefer to have a stable interest rate on their savings rather than fluctuating interest rates due to tax obligations. The rise of fixed interest rates on DEXs and staking platforms will create a new path for investors, welcoming risk-averse and traditional investors to the ecosystem.
https://platform.twitter.com/widgets.js
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.