I guess I am too old and set in my ways for things like this. Interest rates like these
seem too good to be true. When it comes to where I keep my money, I'll just stick
to my trust old mattress!
There are three specific risks involving earning interest with stable coins on centralized exchanges:
1. Risk of the company you are depositing your cash in going under. This could be slightly mitigated if you invest in publicly traded companies like Voyager for example. Their financials and balance sheets are public and released quarterly, and their revenue model is available for you to study, so it is not a "ponzi". There are other companies that are not publicly traded but heavily regulated like Gemini because they are located in NY.
2. Risk of the stablecoin itself failing to maintain its 1:1 peg to the dollar. Not all stablecoin is created equal. Some companies have much higher USD reserves than others. For example USDT aka tether is extremely questionable and more than 70% of their stable coins are backed by commercial paper. What is worse, is you won't find any bank or company that actually said they issued commercial paper to them.
USDC is much better, and they have recently increased their cash reserves in anticipating of a crackdown from the SEC and regulations on stablecoins. The best one I believe is PAX, which seems to hold more than 90% of their reserves in cash and US treasury notes.
3. Counter party risk: meaning if we had a wide spread economic stressful event that ended causing lendees defaulting on their loans to the companies that are giving you the interest. So far we had one massive >50% flash crash in the crypto markets in may without any issues. But this is certainly always uncertain.
I would treat this as another risk on investment, but behaves differently than other vehicles. Definitely don't put all your eggs in one basket.
But keeping too much cash is definitely a mistake in this hyperinflationary environment. As always, do your own research.