So, you’ve discovered Stay Liquid and you’re impressed. It offers high interest rates, allows withdrawals at any time, and accepts deposits in your native currency. It sounds great, doesn’t it? However, like with any financial tool, you’re curious to know how it generates revenue. In this article, we’ll address the key questions you might have about Stay Liquid.

Introduction to Stay Liquid

How do traditional financial institutions profit? Let’s use a savings account in a bank as an example. You deposit your money, the bank lends it to others who repay with interest. The bank uses some of this interest to cover its expenses, and you receive the rest. Simple, right?

But Stay Liquid is a blockchain-powered savings account so it has to work differently. But before we’ll go into details, it’s important to understand what a blockchain is. If you’re new to blockchain or need a refresher, I recommend starting with this brief article.

So, what exactly is Stay Liquid, and how does it operate?

Stay Liquid is a platform that allows you to provide your funds to a decentralized exchange for profit. Here, you earn interest from the fees that other users pay when they use your money in their exchange transactions.

While I’m pretty sure this definition sounds a bit complicated and still doesn’t answer all of your questions, it’s a good starting point. As for the rest – don’t worry, we’ll go over the details soon. What you should understand at this point is that your interest comes from other people using your money – just like in any classical savings account. However, unlike any traditional bank, your funds never leave the platform.

To deepen your understanding of how Stay Liquid works, we’ll first need to understand how decentralized exchanges work. If you’re already familiar with that, feel free to skip directly to the Putting it all together section.

How decentralized exchanges operate?

What is a decentralized exchange (a.k.a. DEX)? It’s a platform that allows anyone to exchange one cryptocurrency for another. So, how is it different from a traditional exchange? At a high level, exchanges are created and operated by organizations, while a decentralized exchange is simply a program that operates on a blockchain (a.k.a. decentralized ledger) – hence the name, decentralized exchange.

receivedEUR = sentUSD * exchangeRate * (1 - exchangeFee)

To ensure we’re knowledgeable about decentralized exchanges, let’s see how they work with a simple example.

Imagine Alice wants to exchange US dollars for Euros. To do this, she visits a decentralized exchange. Another person, Bob, wants to earn passive income by providing his funds to the decentralized exchange.

Let’s see how their interaction unfolds.

1. Imagine that 1 USD = 0.8 EUR. Alice wants to exchange $100 to Euros, the exchange fee is 1%, and the decentralized exchange’s balance is initially 0.
2. First, Bob deposits his funds, $500 and €500, into the decentralized exchange. The dollar value is $500 + 500 / 0.8 = $1,125. So now, this DEX has $500 + €500 worth of total assets from Bob.
3. Next, Alice sends $100 and instantly receives Euros in return. The amount she receives is €79.2 = $100 * 0.8 * (1 – 0.01) – see the formula: $$ receivedEUR = sentUSD * exchangeRate * (1 – exchangeFee) $$
4. The total balance of the exchange has now changed. It now has $500 + $100 and €500 – €79.2, which equals $600 and €420.8. This converts to $1,126 when using the exchange rate of 0.8. Remember Bob’s initial balance? It was $1,125. So, after this exchange with Alice, he made a profit of $1. Good for Bob. Alice has also achieved her primary goal of making an exchange transaction, so she’s happy as well.
5. Bob can now withdraw his money, including the profit. In fact, he can do this anytime he wants.

Putting it All Together

Let’s revisit what Stay Liquid does. I’m sure it’s not as complicated now.

Stay Liquid is a platform that allows you to provide your funds to a decentralized exchange for profit. Here, you earn interest from the fees that other users pay when they use your money in their exchange transactions.

To explore further, let’s examine the step-by-step process of opening your first savings account with Stay Liquid:

1. When you log in to the website for the first time, a “smart” wallet is automatically created and linked to your email. This wallet, accessible only by you, is where you will deposit your initial funds. For more information, refer to the security section.
2. Once your funds are transferred to Stay Liquid, they are converted into a digital dollar and moved to your “smart” wallet. This wallet acts as a temporary account during the deposit process. To start earning interest, you must open a savings account.
3. After clicking the “Open a savings account” button, your funds are divided into two parts, each converted into a different type of digital dollar. However, they always maintain a 1-to-1 ratio with the US dollar.
   1. If you’re wondering why we don’t deposit the funds as one type of digital dollar, it’s due to exchange mechanics. Simply put, someone might want to swap Dollars for Euros or vice versa, so we need to ensure you can earn from both types of transactions.
4. Finally, your funds are transferred to a secure, decentralized exchange where your digital dollars will accumulate exchange fees over time. Remember how decentralized exchanges operate?

Final Thoughts in Your Head

Now that you understand how it all works, you may still have a few questions. Let’s review the most common ones.

Why is the interest so high?

Consider the bank example. When someone uses your funds for a currency exchange operation, say from US dollars to Euros, the bank collects a small fee. However, it’s not your money – it’s the bank’s. The bank uses most of these fees to cover its expenses like rent, salaries, and so on, leaving only a tiny portion for you.

Stay Liquid presents a different scenario. When a user of a decentralized exchange pays a fee for an exchange operation, all of these fees contribute to the interest in your savings account. That’s why the interest you earn on your account is significantly higher than what traditional banks can offer.

Relationship with Crypto Prices

You may wonder, “If a popular cryptocurrency like Bitcoin or Ethereum drops 50% in one day, will I lose something? It appears now I have some exposure to cryptocurrency.”

Rest assured, you are never exposed to any cryptocurrency apart from a digital US dollar. This digital US dollar always maintains a 1-to-1 ratio with the physical US dollar. Unless the US dollar plummets, you’re safe. The values of other cryptocurrencies do not affect you.

Conclusion

You now understand how Stay Liquid works, where your interest originates, why it significantly exceeds what banks can offer, and how you’re shielded from crypto price fluctuations. If you have further questions, I strongly recommend visiting our FAQ section. If you still need assistance, feel free to Contact Us.

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