Passive income products are a good way to earn in crypto. The options include yield farming, liquidity farming, and savings products, which are more common in centralized finance platforms. Crypto savings offers a significant annualized yield on your dormant assets. In theory, crypto savings are straightforward: investors commit their assets to a savings product, which is then used to lend to borrowers to provide on-demand capital, while they (investors) earn a share of the interest payments.
Crypto savings products are broadly classified as Fixed or Flexible, each with its own liquidity and commitment terms. This article explains both products and their main differences.
Clapp.Finance : A real example of Fixed and Flexible savings in crypto
Let’s illustrate fixed and flexible savings in crypto with an example. Investment platforms like Clapp.Finance offer both Fixed and flexible savings products with compounding interest.
Putting them side by side, Clapp Finance’s Fixed savings offers up to 8.2% APR, while the Flexible Savings offers 5.2% in comparison. The fixed savings product allows you to select a 1-, 3-, 6-, or 12-month lock-up period during which your assets will be inaccessible to you.
If you wish to earn passive income with your USDC on Clapp, here’s the earning breakdown,
Fixed Savings: If you commit 5,000 USDC to your savings plan and select the 12-month (1-year) lock-up period, you will earn 410 USDC at the end of the savings period. If you allow the savings to run for 10 years, you will earn 5,996 USDC.
Flexible savings: If you save the same amount (5,000 USDC) with the flexible savings plan for 12 months, you will earn 260 USDC, provided you don’t withdraw your capital before the 12 months end. Here, you can withdraw at any time and claim the accrued interest in that period. For instance, if you withdraw after 6 months, you will only earn 128.35 USDC.
Summary of the differences between Fixed and Flexible savings
Here’s a tabulated summary of the main differences between Fixed and Flexible savings
| Feature | Fixed Savings | Flexible Savings |
| Withdrawal | Funds can only be withdrawn at the end of the selected lock-up period | Funds can be withdrawn at any time |
| APR | Usually higher APR | Relatively lower APR |
| Risk | Higher risk due to volatility during the lock-up period | Low risk, funds can be withdrawn at will |
| Best Suited for | Long-term investors | Short-term investors |
How to choose the right savings product for you
Consider the following factors while choosing a crypto savings plan.
1. Yield potentials
The first thing to consider is the yield potential of the asset you wish to commit to a savings program. Review the APR offers for each plan on the plan and consider the income opportunity alongside your investment strategy, platform security, and other personal factors.
2. Volatility of the asset
In general, flexible savings plans are best for volatile assets. With a flexible plan, you can withdraw your assets to take profits if the token pumps or exit your position during unfavorable market conditions. With fixed plans, you cannot unstake until the lock-up period ends.
3. Your investment strategy (long-term or short-term)
Fixed plans are best suited for long term investor. If you plan to hold the asset for a long time, it is more beneficial to choose a fixed savings plan and enjoy higher passive income. However, if you don’t plan to hold the asset for the long term, you may choose a flexible plan and withdraw at any time.
4. Tax implications
Earnings from crypto staking and saving programs are taxable in many countries. Understand reporting requirements, capital gains on withdrawals, and any withholding. Some regions offer lower taxes for staking or holding your assets for the long term before selling or withdrawing. A fixed savings plan may be best suited for investors in such regions.
5. Platform’s reputation
We recommend using selecting a trusted and regulated (for centralized platforms) platform for your crypto savings program. However, where this risk is unavoidable, it is best to choose a flexible savings plan that enables a swift response in case of platform mishaps. Locking up your assets in a fixed savings plan leaves you with no opportunity to salvage your capital in case of unfortunate incidents.
Conclusion
Compared to simply holding your crypto assets in your wallet, committing them to a savings program may positively impact your profitability. Both flexible and fixed savings programs are good passive income opportunities and are designed to serve different investor types. Regardless of which one suits you most, a general factor to consider is the security of your capital. As a rule of thumb, ensure the platform’s yield falls within the normal market range and is sustainable. An unduly high yield may expose you to counterparty risks. If you are using a centralized platform, we recommend using regulated and licensed platforms.
Source: https://coingape.com/press-releases/understanding-the-differences-between-fixed-and-flexible-crypto-savings-options-with-clapp-finance/
