In a year that has seen Decentralized Finance dominate headlines and shake-up the cryptocurrency ecosystem, this offering from an exchange that has over 5 million users in 40 different countries offers a novel way for Bitcoin users to earn interest on their holdings.
Luno has grown steadily since its launch in 2013 and has its headquarters in London supported by regional hubs in Singapore and South Africa. The company grabbed headlines in September 2020 after it was acquired by the Digital Currency Group (DCG).
DCG invested in Luno’s seed capital raising round in 2013 and finally acquired a full stake in Luno after buying out the remainder of shares held by prominent South African principal investors Naspers and Rand Merchant Investments.
Bitcoin’s version of DeFi?
In its most basic form, this new offering from Luno could be seen as a form of DeFi as customers are earning interest, or ‘yield farming’ in DeFi terms, for the Bitcoin that is deposited into these new savings wallets.
Customers will earn up to 4% interest per annum on their Bitcoin balance in the savings account. The company touts no fixed terms or administration fees and the Bitcoin in the savings wallet can be moved into a users’ normal Bitcoin wallet at any time.
Interest earned on the Bitcoin stored in the savings wallet will be paid out of the first of every month. Users can also choose to leave their interest earnings in their saving swallet which will benefit from compound interest and exponential growth.
As an example, saving 1 BTC at the maximum interest rate of 4% per annum would generate 0.04 BTC every year. This equates to $40 at the current Bitcoin/US Dollar rate.
South African investors looking for investment alternatives
Luno’s base in Cape Town has led to the exchange being one of the major platforms used in South Africa. Having conducted global research that found that around 54% of survey participants were not earning any interest on fiat cash savings.
A further 40% of people that took part in the survey indicated that they ‘lacked confidence’ in their local national currency. 95% of South African Luno users told the company that they would use a savings wallet that accumulated interest on their Bitcoin balance.
The exchange also indicated that a large number of South Africans hold cryptocurrency in the long term.
“Less than 5% of Luno’s South African customers plan to sell their Bitcoin in the next six months, in fact most plan to buy more, so the savings wallet means they can earn interest by simply doing what they were planning to with their Bitcoin,” said Luno Africa GM Marius Reitz.
“More than 55% of South African customers indicated that they do not have investments other than crypto. It’s important to diversify investments given how new the Bitcoin industry is. Those who hold Bitcoin will no doubt find the interest earning potential attractive,” he added.