Coinbase now offers interest to people holding USDC on its exchange

Starting today, Coinbase users will earn interest for every USDC they hold on the Coinbase exchange, the company announced Wednesday.

UPDATE: Oct. 3, 2019, 9:18 p.m. CEST Coinbase got back to me with a clarification that "technically, customers aren't earning interest from their USDC holdings due to the structure of the fund that is being allocated to distribute USCD and how customers need to report their earnings." For this reason, the company calls this program "rewards" instead of interest.

USDC is a special kind of cryptocurrency called a stablecoin, whose value is pegged to the U.S. dollar. USDC are backed by actual dollars and redeemable for USD at a 1:1 ratio.

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Yearly yield or APY for USDC held on Coinbase will be 1.25 percent, which is not a huge number but is comparable with the rate you can get for actual fiat dollars kept at the bank. There are also no limits or fees of any kind imposed on users; the USDC funds accrue in real time and are at the users' disposal at all times, Coinbase says.

This is an attractive proposition for anyone that trades on Coinbase, as it beats moving fiat from a bank to Coinbase and vice versa. It's also great for anyone who's holding crypto at Coinbase as it'll earn them money for no effort, though you should know that keeping your funds on an exchange for longer than necessary can be risky. Finally, you could take advantage of this even if you don't intend to trade with cryptocurrencies at all, as you can purchase USDC directly for fiat on Coinbase.

There are a couple of caveats, though. First, the option is only available to eligible U.S. customers (check out the criteria for becoming eligible here) — and that excludes customers in New York State. Furthermore, Coinbase Rewards, as the program is called, is only available on Coinbase and not Coinbase Pro (which is Coinbase's sister exchange, aimed at professional traders).

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It's a similar offer to one from rival crypto exchange Binance, which offers users higher yield but requires them to lend their coins, which carries a higher amount of risk. In the world of cryptocurrencies, it's possible to get much higher annual yield through lending or similar products on platforms like Nexo or Compound, but again, Coinbase's product does not include lending, making it theoretically safer.