In today's low-yielding world, when I hear about a deposit paying a very high annual interest rate of above 10%, I will be on my guard. Valid questions that spring to mind are;
- Is this a scam?
- If not, is it worth the risk?
I have been earning a 12% annual interest with my USD stablecoins in a crypto account called Hodlnaut. If I think it is a scam or highly unsafe, I will not be putting any money inside no matter how high the interest. I'm sure you would do the same with your own money.
This is not a sponsored article where the writer is paid by the sponsoring company to say nice things about a product regardless of whether the product is good or not. I am an actual customer and a satisfied one so far.
I did some investigation to convince myself this company is not a scam.
Hodlnaut is a Singaporean company that offers a deposit account to earn interest on crypto assets.
Hodlnaut is also currently undergoing license application under the Payment Services Act 2019 (by the MAS).
The founders of Hodlnaut are Zhu JunTao and Simon Lee. They are not anonymous which reduces the scam risk. You can find several search hits when you google about them. The Hodlnaut team are on the company's website with their faces displayed. People with a public presence are unlikely to be involved in scams because of the consequences.
I went to Hodlnaut's telegram group to ask them questions about their size and growth rate. The reply was quick. Today, Hodlnaut's asset under management (AUM) stands at over SGD500m with more than 10,000 active users. They are growing 10%-20% month on month and started out with less than 500 users in 2019.
Hodlnaut has partnered with Nexus Mutual, an insurance provider in the crypto industry, to provide insurance cover for Hodlnaut deposit in the event that Hodlnaut gets hacked or withdrawals are halted for more than 90 days. The insurance provider, with better resources to conduct risk assessment than the typical retail investor, would have done its own risk assessment of Hodlnaut before agreeing to the partnership. If Hodlnaut is a scam, no insurance provider would agree to insure the deposit accounts.
I am confident Hodlnaut is not a scam. The next question would be the safety of capital. When I told my wife about this high deposit interest option, her immediate question is "Safe or not"? That is not the right question. At a 12% annual interest rate in today's near-zero interest rate world, how can it be safe? If the goal is safety, then deposit in near-zero interest-rate bank accounts protected by our AAA-rated Singapore government. The right question is "is it worth the risk for 12% rate?"
For crypto companies, hacking risk is always a concern. There are reassuring news releases on this front about Hodlnaut partnering with a prominent security company to deliver a secure infrastructure to store its digital assets. To be honest, I do not have in-depth cyber-security knowledge to assess this sort of risk.
As for the financial risk of going under and taking down our deposits, Hodlnaut is not a publicly listed company and their balance sheet is not available for public view. There is not enough information to do a comprehensive financial risk assessment. However, Hodlnaut has been deemed by an insurance provider (Nexus Mutual) to be low risk enough to offer insurance on the deposits. I believe Nexus Mutual will be provided with enough data by Hodlnaut to perform due diligence.
No matter how you look at it, a 12% interest rate is a high rate for interest accounts. (12% is actually not really considered high for people familiar with the crypto world) Therefore, treat it as high risk and size your deposits accordingly. In other words, only put money in that you can afford to lose 100% and NEVER treat this account like a regular bank deposit because it is not a regulated bank account. My opinion is that it is worth taking the risk if the amount of money being risked is small enough, yet not so small until the gain is not meaningful. That is a number you have to decide for yourself, as everyone's financial situation is different.
I deposited USDC stablecoins into my Hodlnaut account. The reason I chose USDC is that it is pegged to USD and I do not want my deposit account to be exposed to crypto market volatility.
Although you can withdraw anytime, please note the withdrawal fees. One free withdrawal is allowed per month and subsequent withdrawals for USDC is 10 USDC (equivalent to USD10).
If you're interested in the interest rates for other cryptocurrencies, information can be found here.
A good way to get to know Hodlnaut's product better before signing up is to try their demo account first. You can try it here.
A common question among Hodlnaut users is how to deposit USDC and other crypto assets cost-effectively into Hodlnaut. This is because moving cryptocurrencies around typically cost USD20 today due to the congested Ethereum blockchain today.
I have discovered a free-of-charge way to deposit USDC into Hodlnaut today. It may not remain free forever.
- Sign up for FTX Blockfolio account if you do not have one at the moment. Get your KYC (know your customer) status approved.
I do not have time to do a review of FTX Blockfolio in this article. You can read online review of Blockfolio here.
I do have an FTX Blockfolio account myself. What I like about it is the 8% interest rate on the first USD10,000 and 5% interest rate on any amount above USD10,000. Another feature to like is free withdrawals which differentiate it from competitors.
(Disclosure: the sign-up link contains my referral code.)
- Use DBS Remit to transfer USD from a DBS multi-currency bank account into FTX Blockfolio account. This is free of charge and is one of the main features I love about my DBS bank account.
A cost-effective way to convert SGD into USD is through brokers like Interactive Brokers or MooMoo which provides competitive exchange rates. Interactive Brokers offers the best exchange rate that I know of.
- Once you have USD in the Blockfolio account, withdraw USDC from Blockfolio into Hodlnaut account. Blockfolio withdrawals are currently free-of-charge. It is the only crypto account I know that offers free withdrawals with no monthly limit. I do not think it will stay free forever because of the high cost of subsidising this free service. So, please do not abuse this free service.
If you have finally decided to sign up for a Hodlnaut account, please do it here.
The link contains my referral link. Using my referral code, you will earn USD20 equivalent making a deposit equivalent of US$1,000 or more in a single transaction on any supported Hodlnaut assets.