Stablecoin Lending Arbitrage, Can You Really Earn Passively?

Recently, a popular idea has been circulating in the Web3 community—using a leading lending protocol to collateralize crypto assets at extremely low interest rates to borrow stablecoins USD1, then transferring these stablecoins to a top exchange to participate in high-yield financial products. It sounds straightforward: borrow at 1% interest, earn 20% annualized return, and pocket the difference?

Honestly, the logic checks out. But in practice, there are many pitfalls.

**Understand the Preconditions First**

First, you need collateral assets. Mainstream assets like BTCB, ETH, and BNB are the most popular and widely accepted in lending protocols. Then, you need a Web3 wallet—MetaMask is the top choice—with some BNB stored inside, because each interaction on BNB Smart Chain requires Gas fees. Although small, you should reserve some.

Most importantly, mind your mindset. Don’t be fooled by the term "risk-free arbitrage." It’s not that simple.

**Three Major Risks in Front of You**

The first is liquidation risk. If the value of your collateral drops, the protocol may forcibly liquidate your position. Imagine borrowing stablecoins with ETH, and ETH suddenly crashes 10%. You get liquidated, and that small interest margin can’t cover your losses.

The second is smart contract risk. No matter how secure these lending protocols are, vulnerabilities can exist. If something goes wrong, your funds could be locked up—this is not an exaggeration.

The third is interest rate volatility. Borrowing interest and yield from financial products are not fixed. Today’s 1% borrowing rate could rise to 3% tomorrow. The annualized yield from financial products also fluctuates with market liquidity. When costs rise and returns fall, the arbitrage space shrinks.

**How to Operate? The Core 5 Steps**

Step 1: Enter the lending protocol. Find a reliable link (very important—avoid phishing), connect your wallet, switch to the BNB Smart Chain network. Go to the "Supply" interface, select your collateral, and input the amount. Pay attention to the initial collateral ratio—usually 80% to borrow the full amount, leaving 20% as a safety buffer.

Step 2: Confirm collateralization to receive USD1. The system will prompt you to authorize the contract; confirm the transaction. Once confirmed on-chain, the stablecoins will arrive in your wallet. This process may take a few seconds to minutes, depending on network congestion.

Step 3: Transfer USD1 to the exchange. This step is critical—transfer from your wallet to the exchange address, ensuring the address is correct. One wrong character and your funds are gone. Transfer time depends on network confirmation speed; BSC is usually fast.

Step 4: Purchase financial products. Most yield products are compounded automatically, so you don’t need to manually reinvest daily. Choose the term and yield tier—generally, longer periods offer higher annualized yields, but also lock your liquidity.

Step 5: Regularly check your positions. Although it’s marketed as "risk-free," you should monitor liquidation prices, actual yield receipts, and changes in borrowing interest rates. Setting reminders is recommended.

**Data Benchmarking**

Ideally, keep borrowing interest below 1%, and aim for 15-20% annualized yield from financial products. Your net profit would then be around 14-19%. Of course, this assumes the financial products operate stably, crypto prices don’t crash, and the entire process runs smoothly.

But in reality, a 15% annualized return isn’t particularly high in the crypto market. Compared to some high-risk leverage strategies that can reach 50% or 100%, the risks are also multiplied. The appeal of this arbitrage lies more in its relative "stability"—if everything goes well.

**Final Advice**

Use funds you can afford to lose for testing. Start with small amounts to familiarize yourself with the process. Once you truly understand the risks involved in each step, you can consider increasing your investment. Never believe in any "guaranteed profit" claims—that’s a fundamental rule in the crypto world.