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Digital exchange CoinFLEX brings yield to stablecoins

By Mensholong Lepcha

08:13, 10 December 2021

A graphic illustration of digital currency and its relations
Hong Kong-based firm adds a new twist to the stablecoin concept – Photo: Shutterstock

Unlike cryptos such as bitcoin, or ethereum, stablecoins are designed not to change in value. One US dollar of tether should be worth the same amount tomorrow as it was yesterday. 

But Hong Kong-based digital exchange CoinFLEX has devised a stablecoin with a twist. 

Its flexUSD is a crypto-collateralised stablecoin that is fully backed by the second-largest dollar-pegged cryptocurrency, USDC. What differentiates it from the rest is that flexUSD is an “interest-earning” stablecoin.

Redeemable at face value

Mark Lamb, CEO of CoinFLEXCoinFLEX CEO Mark Lamb – Photo: CoinFLEX

“flexUSD is a product that pays interest three times a day. It is $1 redeemable so you can create one or mint one using USDC, which is another stablecoin,” Mark Lamb, chief executive of CoinFLEX told Capital.com in an interview.

In 2020, CoinFLEX launched cryptocurrency’s first centrally traded repo market. Today, flexUSD holders can lend their coins on the repo market and earn yield from it.

Retail investors have never had direct exposure to traditional money markets and their financial instruments like repurchase agreements (repo).

Traditional repo markets

Traditional repo markets generally deal in fixed income securities and typically function by a counterparty selling the asset on an overnight basis and then buying them back (repurchasing) at a slightly higher price the next day. 

Central banks, commercial banks, bond investors and mutual funds are the principal users of the traditional repo markets, which trade highly secure, short-term debt investments in vast volumes, typically running in billions of dollars per transaction.

Lamb, in conversation with crypto research firm The Block, had said CoinFLEX’s repo market “is not a collection of big players” and “anyone can come in and do short-term borrowing or short-term lending”.

Crypto repo adds market liquidity 

CoinFLEX’s repo market, created to support booming cryptocurrency trade with much-needed liquidity, trades over $8bn per day. 

Retail investors can access CoinFLEX’s repo products, such as the flexUSD and automated market making, to lend assets sitting in their accounts and earn yield passively from it.

CoinFLEX says its interest-earning stablecoin has paid over $10m to its holders in interest and has a lifetime average interest rate of 10.3% annual percentage yield.

XRP/USD

0.59 Price
+1.780% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

DOGE/USD

0.13 Price
+0.520% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

SOL/USD

171.26 Price
+0.540% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.2652

ETH/USD

3,510.06 Price
-0.140% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

No guaranteed yield on flexUSD

Lamb, however, tells Capital.com that flexUSD does not always guarantee yield because of the variable interest rates of the repo markets.

According to CoinFLEX’s website, the repo interest rate is representative of the demand and supply in the market to borrow and lend each asset. 

This highlights another area where crypto repo markets differ from low-interest traditional money markets. The high volatility of the cryptocurrency markets can cause repo interest rates to spike as high as 80% annualised, according to Lamb, or as low as zero.

Cold storage

“Both of our products are our beneficiaries of volatility, for sure,” adds Lamb.

When asked about security being a chief concern among crypto retail investors, Lamb says, “We keep 99.9% of our coins and balances in cold storage. So this is extremely important when you’re running a crypto exchange because there are all kinds of risks and hackers.”

Cold storage in crypto terms refers to holding digital assets offline, so in theory, they cannot be accessed by hackers. 

CoinFLEX expects 25 million users

“The easiest way, the best way, most airtight, rock, solid way to deal with these risks is cold storage, keeping everything offline,” adds Lamb.

The company has announced partnerships with crypto wallet providers Bitcoin.com and Copper.co to allow their users access to its repo market products.

“The Bitcoin.com deal is going to be really big for us, you know, that’s 25 million users that are coming onto a platform like ours,” says Lamb.

“When you combine these amazing yield products that create huge futures liquidity with an audience and customer base of 25 million users, I think great things can happen. And we’re really excited about that,” adds Lamb.

Read more: enVoy to close the Read more: enVoy to close the $1.7trn trade finance gap with crypto.7trn trade finance gap with crypto

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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