🚀 The Ultimate Crypto Savings Guide

How to ditch your bank's savings account for a crypto savings to get the best yield (over 10% interest!)

May 15th, 2021 | Sign up

Good Morning and Happy Saturday. Our last Saturday Edition was a big success, so we’re back with another chunky offering for you, and good news—we’re making it a staple.

From now on, Saturday’s edition will be a crypto guide (like this one) or deep dive into a project or concept to help our readers confidently jump into the world of decentralized finance!

What we’ll be going over today ✏️

  1. How to buy the stable coin Dai

  2. Sending Dai to an Ethereum wallet

  3. Depositing Dai into decentralized lending and borrowing platform Aave to get a sweet annual percentage yield (APY) on our savings

Don’t worry if none of that makes sense right now. This isn’t a difficult process, just different than you may be used to.

Why Would I Even Want a Crypto Savings Account? 📲

Traditional bank savings accounts don’t offer you much in return for holding all your money. The national average interest rate for savings accounts is only 0.07% as of March 31, 2021, according to Bankrate. While many online banks offer rates better than the national average (a “high yield” would be considered 1.5%), this is still much lower that the double-digit yields possible with a crypto savings account. And your funds are just as safe!

How is this possible? Traditional banks don’t just hang on to your money. They turn your deposits into profits by loaning them out to other customers and charging interest, in many cases up to 25%! Then they give you a tiny fraction of that, and pay the rest out to themselves to keep the lights on and pay for the CEO’s yacht. For example, savings accounts with Ally have one of the best interest rates in the nation, and they still only offer 0.5% annually:

If we do the math, with $10,000 in your savings that’s only a yearly return of $50 dollars. Compare this to a $1,000 (10%) return over one year and the choice becomes obvious.

Crypto savings accounts by design can offer you much more of that interest rate because there is no huge bank with lights to keep on or millions of employees to pay—just lenders and borrowers connecting to each other through the magic of smart contracts. Depositing stablecoins into a decentralized finance platform like Aave can net you an interest range of 9-13% annually. An interest rate of 10% is greater than the national average by over 140x!

P.S. This post is not sponsored by Aave or anyone else, we chose Aave for this guide because it is the leading and most reputable non-custodial liquidity protocol in the Decentralized Finance (DeFi) world. (If you only understood some of those words, don’t worry, it’s just DeFi talk for ‘no one but you controls your money, and you can withdraw it easily’)

What is Dai?

Dai is a decentralized, unbiased, and collateralized cryptocurrency pegged to the U.S. dollar. If that’s a mouthful, just know that 1 DAI is equal to $1 (See stable coins). The difference between Dai and other stable coins like USD Coin (USDC) and Tether (USDT) is that USDC/USDT are issued by private companies that guarantee their coins stay pegged to the dollar by holding an equal amount of regular US dollars in reserves. Instead, Dai’s peg is securely maintained by Maker Protocol, which is governed by a decentralized autonomous organization called Makerdao (you remember what a DAO is right?). Every Dai in circulation is directly backed by excess collateral, meaning that the value of the collateral is higher than the value of the Dai debt (Dai itself works as a lending protocol, with people locking up Ether in exchange for Dai and collecting interest, albeit at a much lower rate than we’ll go over today). All Dai transactions are publicly viewable on the Ethereum blockchain. You can read more details in the Makerdao whitepaper.

Are there risks—and what’s the catch?

There are always risks when interacting with DeFi platforms. Because the technology is still new and most projects aren’t in their final stages yet, it can be more risky than the more tried-and-true federally-backed traditional banking system. No financial investment is without risk, including your traditional savings account. However, Aave and other leading DeFi platforms have contracted third parties to perform a Smart Contract Audit which is an intensive methodical examination and analysis of a smart contract’s code.

Certik, an auditing firm gave Aave an 87/100 security score on its website. Even with audits, nothing is guaranteed—do not deposit funds into DeFi platforms that you cannot afford to lose.

If you’re considering moving your life savings over to a crypto account it would be smart to invest in a cold wallet such as the ledger nano for an extra layer of security, though it is not a requirement.

Getting Set Up 🤌

There are a couple of steps to take before we are ready to get started growing our savings account or emergency fund with Aave. Keep in mind that you will also need to hold some Ether in your Ethereum wallet to pay for the Ethereum network fees, commonly referred to as “gas fees”

Step 1. Setting up an Ethereum Wallet

On mobile you can download Rainbow Wallet, Metamask, or Trust Wallet to get ready to receive your Dai. On your PC or Mac you can download the MetaMask browser extension. If you choose Rainbow wallet you can skip Steps 2 and 3 entirely and just purchase Dai directly from your wallet, but you are limited to buying $500 a week at this time.

Step 2. Buying Dai

Deposit your USD savings amount into the crypto exchange of your choice. This will require that you open an account. Coinbase, Gemini, and Blockfolio are a couple of popular options to purchase Dai. Once the cash has landed into your exchange, use it to purchase Dai for USD. Once you hold Dai in your crypto exchange, you’re ready for the next step.

Step 3. Sending Dai from crypto exchange to Ethereum Wallet

Once you hold Dai in your exchange, the next step is to send the Dai tokens to the Ethereum wallet we just set up.

First, go to your new Ethereum wallet and copy your public address, this will start with “0x” and is OK to share with people. If you are using Rainbow Wallet it will look like this:

Click copy address and head back to your exchange.

Once you’re back at your exchange, click on your Dai balance and find a “withdraw” button. Then paste your Ethereum wallet address into the text field. Once you send and confirm the transaction with your exchange, the Dai will be on its way to your wallet!

Depositing Dai into Aave 👻

Now that we’ve sent Dai to our Ethereum wallet, we are ready to connect to Aave’s platform, after clicking on “enter app” you will be taken to this page. (the URL should be app.aave.com/markets, it’s always a good idea to double-check that the URL is correct)

  • The top right “connect” button is where we go to connect our Ethereum wallet

  • The “Deposit APY” column shows you the various annual percentage yields on different stable coins and cryptocurrencies. At the time of writing, Dai has the second-best annual percentage yield on Aave, at 12.52%. (keep in mind the APY is variable, meaning you won’t get 12.52% all of the time, the APY for Dai has historically ranged from 9-13%)

Step 1. Connect your wallet to Aave

Once we enter the Aave app, the first thing we want to do is connect our wallet. Click on that “connect” button on the top right of the screen. You will then be able to pick the wallet platform you are using to connect your wallet to Aave.

  • If you’re using MetaMask on a laptop or PC, click browser wallet and sign in to MetaMask.

  • If you’re using Rainbow Wallet, Trust Wallet, or MetaMask on mobile, click the “Wallet Connect” button and you will be taken to your wallet app to confirm that you want to connect to Aave.

You’ll know your wallet is connected when you see “Ethereum Mainnet” and the beginning and end of your public address where the "connect” button previously was.

Step 2. Depositing Dai

Congrats! You’ve made it to the final step and are almost ready to sit back and watch your cash savings grow.

The last step is to approve and deposit our Dai into Aave, don’t worry it’s easy. All you need to do is click deposit, choose the amount of Dai you want to deposit and confirm the transaction in your wallet.

After you click the deposit and select how many Dai your would like to deposit into Aave, you will be prompted from your Ethereum wallet to confirm the transaction. This is where those gas fees mentioned earlier are paid so make sure you have some Ethereum in your wallet as well. After you’ve confirmed the transaction in your wallet, just wait a couple minutes for the transaction to be confirmed on the blockchain and Voilà! You now have a crypto savings account earning over 100 times the national average of traditional savings accounts!

P.S. If you have experience swapping on the Ethereum network, you already know the gas fees can get quite expensive. Gas fees for depositing your Dai into Aave are much cheaper than swapping. If you run into higher fees, just try again later. Fees will drop as the network becomes less busy.

What now? 🤷‍♀️

Sit back, relax, and watch your savings grow. If you have other cryptocurrencies in your wallet and want to track how your portfolio is doing, some resources that we use and love are Zapper.fi and Zerion.

(No links in this article are sponsor or affiliate links. All the resources linked we personally use or have used and recommend. If you’d like to sponsor an article and you think you’re a good fit for Zoomer Money, DM us on Twitter)


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