The high returns and frequent interest payments on Circle’s trading accounts may be designed to compete with DeFi
The latest features of the Circle Business Account, initially launched as an attractive alternative to traditional fiat trading accounts for internet based businesses, seem to point to a different type of competitor – the decentralised finance ecosystem (DeFi).
Circle, the Goldman Sachs-backed payments company and issuer of the stablecoin USDC, announced its Circle Business Account service on 10 March 2020. The accounts offered a suite of services designed to help businesses leverage the use of USDC, including several APIs that could connect to traditional payment lanes, accept dollar-denominated payments such as USDC, a USDC wallet service and access multiple e-commerce markets.
However, given the returns that stablecoins such as USDC can generate on DeFi protocols, account holders would have been encouraged to move their stablecoin funds elsewhere. According to DeFirate, loan protocols such as Aave and Fulcrum currently yield 3.4% and 11.6% over USDC, respectively.
But on 5 November 2020, Circle announced new high yield accounts that could encourage account holders to keep their funds parked at CeFi. At a Tuit on Thursday, Circle announced a waiting list for new interest bearing trading accounts. According to their website, terms and rates will vary between open term accounts from 8.5% APY, to 12 month accounts of 10.75% APY.
In addition, returns will accrue daily and be paid weekly, rather than monthly or even annually as is often the case with traditional trading accounts. This will bring the accounts closer to the line of many DeFi loan protocols, which offer real-time interest. The end result is a product that seems to combine the attractive returns and interest delivery of DeFi with the branded guarantees of centralised finance.
Circle’s offering is just the latest in a wider trend of the CeFi and DeFi approach. In August, OKEx and Bitrue announced lending platforms that would combine the features of DeFi and CeFi.
In a recent opinion piece for Cointelegraph, Elitium CEO Raoul Milhado said that CeFi adopting the features of DeFi (and vice versa) would ultimately be to the advantage of the end user:
„Centralised and decentralised applications can be combined to create new types of economies and to encourage more people to use DeFi […] By combining DeFi and CeFi we can make the transition from a centralised world to a decentralised world easier and ultimately win the age-old battle between DeFi and CeFi“.