# Why can’t I get a 1% loan to earn 8.88% yield?

This is a question that comes up on everyone’s mind at some point in their Celsius crypto journey. Can’t I take out a loan with very low interest rates (APR) to earn reward yield that gives you higher rates (APY)?

It sounds like a great idea. Take out a loan at 1% APR in order to earn interest with the stablecoin proceeds earning 8.88% APY. **However, if it’s too good to be true, it likely is… and it’s all in the details.**

Let’s break it down using an example of **2,000 USDC** (equivalent to $2,000 USD) over a 1 year time period. This also assumes that the reward rate remains at 8.88% APY through the year.

Option | USDC Balance | Loan Proceeds | Reward Interest | Loan Interest | TOTAL BALANCE (USDC) |
---|---|---|---|---|---|

1 | 2,000 | 185 | 0 | 2,185 | |

2A | 0 | 500 | 46 | -5 | 2,041 |

2B | 500 | 500 | 93 | -34.75 | 2,058 |

2C | 1,000 | 500 | 139 | -44.75 | 2,094 |

As you can see in the above example, a Celsius user is **better off keeping their original 2,000 USDC as USDC earning in-kind interest** (versus taking out any loan to earn interest).

The main reason why taking out stablecoin loans against your stablecoins assets doesn’t work is because **collateral used for the loans DO NOT earn reward interest**. And with Loan-to-Value between 25% to 50%, you are essentially locking up between 2 to 4x the USDC (and not earning interest on that).

Of course, there are several great arguments about variables that may affect the returns. These include:

- taking a loan and having the loan proceeds earn in-CEL
- taking a loan and using the proceeds to purchase high interest-earning assets like SNX or MATIC
- increase in stablecoin reward rates over time

However, we won’t go through those details in this write-up as these strategies are more complex.

Please see the calculations below for more details:

##### Option 1: Keep the 2,000 USDC earning in-kind at 8.88% APY

This is the simplest way to HODL and forget about it until 10 years down the road. If you have 2,000 USDC, your in-kind Celsius rewards will be approximately **185 USDC **at the end of 1 year.

##### Option 2A: Take out a 500 USDC loan at 1% APR and 25% LTV

The Loan-to-Value (LTV) is 25% for all 1% APR loans. **Therefore, you will need to put up 4x the collateral**. This means that a 500 USDC loan will require 2,000 USDC as collateral, leaving you with 0 USDC in your Celsius wallet. **Collateral used for loans DO NOT earn reward interest!**

**The 500 USDC proceeds can now earn 8.88% APY**, giving you approximately 46 USDC at the end of 1 year. In addition, the total interest payable for the loan through 1 year is 5 USDC. **The net amount is 41 USDC only**. Not so good compared to Option 1.

##### Option 2B: Take out a 500 USDC loan at 6.95% APR and 33% LTV

The Loan-to-Value (LTV) is 33% for all 6.95% APR loans. **Therefore, you need to put up 3x the collateral**. This means that a 500 USDC loan requires ~1,500 USDC as collateral, leaving you with 500 USDC in your Celsius wallet plus the 500 USDC loan proceeds.

**Therefore, you now have 1,000 USDC earning 8.88% APY**. This gives you approximately 93 USDC at the end of 1 year. The total interest payable for the loan through 1 year is 34.75 USDC, leaving you with a **net amount of 58.25 USDC only**. Again, not as good as Option 1.

##### Option 2C: Take out a 500 USDC loan at 8.95% APR and 50% LTV

The Loan-to-Value (LTV) is 50% for all 8.95% APR loans. **Therefore, you need to put up 2x the collateral**. This means that a 500 USDC loan requires ~1,000 USDC as collateral, leaving you with 1,000 USDC in your Celsius wallet plus the 500 USDC loan proceeds.

**Therefore, you now have 1,500 USDC earning 8.88% APY**. This gives you approximately 139 USDC at the end of 1 year. The total interest payable for the loan through 1 year is 44.75 USDC, leaving you with a **net amount of 94.25 USDC only**. Again, not as good as Option 1.