For most people today, savings accounts (mostly offered by financial banks) are the most common way people seek to preserve the value of their cash and make a profit. By simply opening a bank account, investors can start saving to earn a regular fixed interest rate on those savings. While most of these savings accounts are used to provide an inflation hedge, most of them degrade the real value of your savings by offering lower nominal rates than actual inflation.
Depending on your country and the banking options available to you, the odds are that even the most generous savings accounts will only pay between 1%-3% APY (for developed nations). And typically less than 8% for most developing nations, all still lower than their respective inflation rates. The rates are essentially this low due to the structure of banking facilities and profit maximization tactics. The main aim is to make a profit (for the bank’s shareholders), not the savers.
However, the sublime rise of the decentralized finance (DeFi) ecosystem across the past two years has given savers a new light to maintaining value on their cash. DeFi allows anyone around the globe 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 such as Tezos (XTZ), Cosmos (ATOM), and Polkadot (DOT) offer above 6% APY on savings.
Why do most people still prefer the traditional bank savings accounts over the DeFi ecosystem?
The Fixed-rate Problem on DeFi Staking Platforms
One of the biggest problems in the decentralized “saving” system is the volatility in cryptocurrency prices. Despite the high returns, cryptocurrencies are notoriously known for their volatility. Depending on how much time someone stakes their tokens, the general yield offered on the platform could be offset by the volatility risk.
For instance, if the value of the cryptocurrency you are holding (staking) goes down by 10% in a given year. You are in a pool that offers 15% APY; you will make approximately a 5% return on your investment. If the crypto price drops 20%, you’ll lose 10% on your investment.
While volatility is a major problem in enticing the masses to join DeFi staking, it is not the only hindrance to mass adoption, even with the extraordinary returns. DeFi staking also faces the challenge of having flexible rates over a fixed rate. Most staking platforms offer an ever-changing rate on their liquidity pools rather than a fixed rate, as it varies due to trading fees. While it may sometimes work in the investor’s favor, most investors prefer a sure fixed rate on their savings.
Why should investors look for fixed-rate opportunities over an adjustable-rate on their savings in a volatile market?
- Safety: Investors usually prefer fixed interest rate savings due to an assured rate of return. Once you invest your funds in a fixed deposit account, you can be guaranteed to receive the stated rate of return.
- The tax threshold for interest: A fixed deposit savings account provides comfort for small-time investors as tax will not be charged for small returns under a certain threshold.
- Loans against fixed deposit: Fixed deposit rates also provide a dependable instrument to keep if you need a quick loan. It is very easy to take up a loan against your fixed deposits.
To this end, the decentralized finance ecosystem is slowly embracing fixed-rate staking opportunities. Primex is one of the leading DEX platforms offering fixed interest rate opportunities for lenders by backing the 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 liquidity to pools (or buckets) where traders can use it for leveraged trading. Investors on the platform can stake multiple crypto pairs on the liquidity pool to earn an incentive. These liquidity providers are then paid using the trading fees collected on the platform.
In the past, the interest rate was flexible due to the trading fees not being constant and the volatility in the market. To solve the flexible rate problem, Primex DEX introduced fixed staking rates. By locking funds for a specified time, LPs have the opportunity to get a fixed rate on the funds staked. Unlike a fixed-rate banking account, Primex gives the lenders total control over their funds while maintaining utmost privacy on transactions.
Hey! We are excited to announce the Primex Early Users program!
Primex opened doors for early Traders, Liquidity providers, and Keepers to collaborate with the core team and participate in the protocol’s testing and development.https://t.co/k8Jdyy57KB pic.twitter.com/EAEhMiDkVC
— Primex Finance (@primex_official) March 18, 2022
Apart from its fixed-rate staking feature, Primex also offers stakers a wide range of features. One of the most prominent features of the DEX is its leveraged trading platform. Traders do not need collateral to open a leveraged position but rather lock the deposit. Once the deposit is locked, traders can borrow leverage of up to 5X, boosting their overall gains. The protocol does not transfer any funds to external wallets, and, in case of liquidation, the locked assets are transferred to the protocol TVL.
Other features on the platform include its 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, which continuously monitors and evaluates traders via a decentralized network of machine learning-based nodes. The scoring defines traders’ risk levels and available buckets. High-scoring traders can survive high volatility and save their positions even when approaching the liquidation price.
Volatility remains a barrier to entry for new users in the decentralized finance space. Many investors prefer to have a stable rate on their savings rather than fluctuating rates due to tax obligations. The rise of fixed rates on DEXs and staking platforms will set a new path for investors, welcoming risk-averse and traditional investors to the ecosystem.