Trading cryptocurrencies indeed carries a high level of risk, but this doesn’t mean crypto traders and investors have no appetite for WMPs that offer stable returns. On the contrary, these products are in high demand according to PAData observations, and the recent launch of Binance Lending has put crypto wealth management products (WMPs) back into the spotlight.
What kinds of crypto WMPs have been launched by exchanges? How about their expected returns and sources of returns?
Currently, WMPs offered by exchanges are mostly crypto savings products, according to PAData’s findings based on its analysis of five exchanges. The annualized returns of these WMPs vary significantly from one exchange to another, and WMPs with interest income from the margin trading business as their sources of returns have below-average annualized returns. It is also found that many exchanges choose to surrender their own profits and offer high interest rates in order to gain more market share.
BitMax, BKEX, Gate.io, OKEx and Binance have all launched their own crypto savings products that allow crypto holders to earn interest by depositing their digital money. BitMax’s BitTreasure, BKEX’s Regular Deposit, Gate.io’s HODL & Earn and Binance’s Lending are term deposit products, while BKEX’s Demand Deposit and OKEx’s OK PiggyBank are demand deposit products. Term deposit products are often offered with a time limit or in limited quantities. Binance Lending, for example, has stated the minimum and maximum amount of deposits allowed as well as the offering period. Demand deposit products might also have deposit caps——e.g., each user can only deposit a maximum of 2 BTCs to OK PiggyBank. If WMPs in the same cryptocurrency launched at different times, or with different interest rates are counted separately as different products, then BKEX has launched the most WMPs with 37 term deposit products and 11 demand deposit products, followed by BitMax with 33 BitTreasure products. Binance has launched 17 products in less than two weeks since Binance Lending went live, showing rapid growth.
With a close look into their respective product descriptions, it is found that the WMPs of leading exchanges, OKEx and Binance, rely on the exchanges’ interest income from the margin trading business for their returns, while the WMPs offered by Gate.io have the platform’s profits as their source of returns. Sources of returns for the WMPs of BitMax and BKEX are not disclosed on their websites.
In general, interest-bearing WMPs launched by exchanges are mostly in major cryptocurrencies like BTC, and sources of returns determine to some extent the scope of cryptocurrencies supported and the level of expected annualized interest rates.
If the returns of WMPs come from the exchanges’ interest income from the margin trading business, the WMPs will only support cryptocurrencies available for margin trading. As such, OK PiggyBank and Binance Lending mostly support major cryptocurrencies, including USDT, BTC, ETH,TRX and QTUM.
If the returns of WMPs come from the platforms’ profits or other sources, then a relatively broader range of cryptocurrencies could be supported. For instance, on top of BTC and ETH, Gate.io’s HODL & Earn also supports less-liquid cryptocurrencies like KGC, DILI, and ARPA.
A number of factors could affect the annualized interest rates of these WMPs. WMPs with different sources of returns often have very different annualized interest rates. Among term deposit products, Gate.io’s HODL & Earn, which has profits of the platform as the source of returns for WMPs, offers expected annualized returns of above 15%, and a 90-day KGC term deposit product’s expected annualized return even hits 32%. In contrast, Binance Lending, which has interest income from the margin trading business as the source of returns for WMPs, offers lower annualized returns of 6-15%.
Aside from sources of returns, tenor and market performance could also affect annualized returns. Term deposit products generally have higher annualized returns than demand deposit products. As of Sept 9, 2019, four exchanges have launched a total of 94 term deposit products, with an average tenor of 60 days and an average expected annualized return of 32.25%. The high average expected annualized return is largely driven by products offered by BitMax and BKEX., and the expected annualized returns of Binance and Gate.io’s products are lower than average. In addition, tenor is not positively correlated to expected annualized returns. In other words, longer tenor doesn’t necessarily mean higher annualized returns. That could be a function of secondary market performance at different times.
Two exchanges that offer demand deposit products have launched a total of 24 demand deposit products as of Sept 9, 2019. On average, BKEX’s products offer an expected annualized return of 11.58%, but OKEx’s products just offer 1.87%. Such a huge difference is not only seen in the overall annualized return, but also in eye-to-eye comparison of the same-cryptocurrency products. For example, BKEX’s ETH demand deposit product has an annualized return of 14.28%, while OKEx’s similar product just offers 2.90%. That difference could be a result of their different sources of returns.
In addition to crypto lending products, Gate.io offers automatic investment plans (AIPs) as well, and any user can act as the fund manager. As observed by PAData, all 11 AIPs mostly support major cryptocurrencies like BTC and they have an average return of -0.06% during a 30-day backtest.
Another thing worthy of attention about crypto WMPs of exchanges is, BKEX and Gate.io, has pioneered in bundling their own platform tokens with WMPs, which provides a new way for platform tokens to increase value. Subscribers of BKEX’s term deposit products receive 90% of annualized returns as interest and the remaining 10% as bonus for BKF holders, according to BKEX’s payout announcements. In the case of Gate.io, subscribers must hold a certain number of GTs before they are allowed to purchase WMPs from Gate.io.
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