Coinbase has said that it will reduce the annual rewards on holding USDC stablecoins by 88% in a recent email announcement. The firm noted that the Annual Percentage Yield (APY) will be adjusted to 0.15% from the current 1.25% as of today, June 3, 2020. The notice sent out by Coinbase said,

We periodically assess the rewards rate for USD Coin (USDC) and let you know about any updates. Beginning June 3rd, the rewards rate will change from 1.25% APY to 0.15% APY.

Going by this development, the APY on USDC is pretty close to what traditional banks offer in their annual rates. Big players like Wells Fargo, HSBC, Bank of America and Chase average at 0.01% per annum. While the new USDC APY is still higher, it begs the question of whether absorbing crypto market risk is worth the few extra points in interest.

Notably, Coinbase did not highlight the reasons behind reducing the USDC APY despite holding since the rewards initiative was launched in October 2019. They were, however, keen to note that daily reward earnings prior to June 3 will not be affected by the new APY. In addition, the firm will maintain free cash-to-USDC conversions and make the stablecoin easier to use.

Currently, USDC is the second-largest stablecoin with $730 worth of coins in circulation. The market leader is Tether with $5.7 billion; a significant gap that might become greater with given the lower APY for holding USDC. Interestingly, this US dollar-backed digital asset experienced a slower growth compared to its peers, DAI, and BUSD stablecoins. Since we began the year, USDC's supply has increased by 41% while the other two grew by 160% and 450%, respectively.

Looking at this market, the USDC stablecoin might experience slower growth going forward. This is because one of its competitive advantages will cease to be as lucrative as it was before. On the other hand, DAI, BUSD, and USDT are working to make their stablecoins better options for risk-averse investors eyeing a share in the crypto market.

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