In the previous article, I talked about crypto staking and got a lot of feedback on "Earning passive income with DeFi staking" as much as I'd love to explain it to all the amazing folks who reached out to me. I made a detailed article explaining how to earn passive income with DeFi staking.
First, what is Crypto staking? I said, Crypto staking generally refers to “putting your money in something and expecting to get more money.” For legal reasons, these are sometimes not called interest accounts, savings accounts, or investment funds, though on a functional level they resemble such products.
Some cryptocurrencies pay out ongoing income similar to earning interest. It can be a great way to put otherwise passive capital to work. Keep in mind, though, that because of the volatile price of most cryptocurrencies, the returns may not make up for the initial investment.
If you’re like many cryptocurrency holders, then you’ve probably found that cryptocurrency trading and investments can be both incredibly profitable, but also extremely time-consuming and often stressful — because of the constant need to keep track of your portfolio, capitalize on opportunities, and manage your positions.
But what if you’d just like to earn passive income without all the typical headaches that comes with staying on top of the market 24/7? Fortunately, there are now dozens of ways to do just that, by leveraging your cryptocurrencies to generate returns in the background, freeing up your time for more important matters.
Here, we look at four amazing ways you can put your cryptocurrencies to work, helping you generate a potentially attractive passive income with little to no input or management required. Let's get into it!
1. Stake Your Cryptocurrencies
Proof-of-Stake (POS) not only introduced a more efficient way to maintain consensus in a decentralized system, but also brings with it a new way for coin holders to earn a yield — through staking.
Depending on the cryptocurrency and whether it uses simple POS, Nominated-Proof-of-Stake (NPoS), Delegated Proof-of-Stake (DPoS), or some other variant, staking could require setting up a validator node and locking up a fixed minimum number of coins to participate in securing or powering the network or delegating your coins to a selected nominator or validator.
In either case, stakers earn a yield that is usually derived from the inflation of the staked cryptocurrency and/or the transaction fees generated by the network.
A huge number of cryptocurrencies now offer staking rewards, including the likes of Ethereum (via the Beacon Chain), Binance Smart Chain, Tezos, Polygon, Solana, Cardano, Avalanche, Terra, and Polkadot. Some of these enforce a fixed minimum stake and a lock-up period, which can pose as barriers to some users.
Once staked, the yields generated are completely passive — requiring little to no oversight or intervention. You may want to liquidate your yield regularly to buffer against price volatility or hold your coins long term if you believe they will appreciate in value.
How much can you earn? The yield you will get usually depends on a few things, including the proportion of the supply that is staked and any commissions you might lose (for DPoS and NPoS). In general, you can expect around 5-15% APY.
What to watch out for? Staking yields are paid out in the same coin that you stake, e.g. staked DOT yields more DOT. BUSD yields more BUSD. If the value of the coin you stake falls, you could end up net negative in fiat terms if the staking rewards do not cover the losses.
2. Take part in a Yield Farm (My Favorite)
If you’re already providing liquidity, then yield farms provide a way to earn an additional yield on your assets.
As their name suggests, yield farms are platforms that allow you to “farm” for yields in one or more ways. Most commonly, you will need to stake your pre-existing liquidity provider (LP) tokens to a specific farm to earn a fraction of its reward pool.
By staking your tokens to the yield pool, you will receive a proportionate fraction of the rewards it pays out each day (week/month, etc.) such that if you contribute 1% of the pool, you will generally receive 1% of the rewards it offers.
Many AMMs, including PancakeSwap, TraderJoe, and SushiSwap, have built-in yield farms, while some are standalone products — such as Venus.
These yield farms generally allow you to earn your yields in a newly released cryptocurrency or the yield farm’s native utility/governance token, e.g. you can farm CAKE on PancakeSwap or Autofarm . Most of these platforms will display an expected APY based on the current value of the reward token and the size of your stake, but this can fluctuate over time.
3. Interest: Create value with your cryptocurrency
Much like you can earn interest by holding your money in a savings account for the bank to lend out, you can earn interest by holding your money in crypto savings account for people to borrow.
This is one of the easiest and most straightforward ways of earning a passive income from your cryptocurrency, and it’s also the safest in some ways. But it also comes with risks that other types of lending don’t.
Read the full guide to cryptocurrency lending and make sure you understand how it works, and the risks involved before you commit your funds to a lending platform.
4. Join a Guild
If you’ve jumped on the recent hype surrounding play-to-earn games, then you may have found that playing these games and making use of your in-game assets and NFTs can be a time-consuming process.
After all, you actually need to play these games in order to benefit from the earning part of the equation. But thanks to guilds, this doesn’t necessarily need to be the case.
These are platforms that allow play-to-earn investors and players to work together for their mutual benefit. Investors supply the funds and assets, while players securely leverage these assets to generate a yield. It then split this yield between investors and players, and often between other intermediaries, such as managers — who create documentation and training materials for players (known as scholars).
Some of these platforms allow NFT holders to pool their assets together as part of the guild, whereas others allow direct peer-to-peer NFT lending between NFT holders and borrowers in return for an agreed fee.
A wide variety of guilds are now operating, including Yield Guild Games (YGG), Good Games Guild (GGG), and Merit Circle. Each of these differs in the way they work and the amount of manual input required, but often makes earning a yield far more efficient than manually playing supported games.
How much can you earn? The amount you can earn varies based on your guild, the specific play-to-earn games it supports, and the skills of the players. However, you can expect to earn around 20-40% of what you could earn playing the game yourself — albeit without actually doing so.
What to watch out for? Not all blockchain gaming guilds are created equal. Be sure to do your due diligence before handing over your funds or assets to any guild.
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Conclusion: The risks and downsides of passive income cryptocurrencies
It’s possible to make money from staking, taking advantage of airdrops and more, but there are also risks.
One of the major risks is the chance of buying a low-quality cryptocurrency because it pays dividends, not because it’s a high-quality project that pays dividends.
Staking income and similar benefits are typically paid in the same cryptocurrency, so if its price drops to zero, the passive income won’t be worth anything.
There are some other risks associated with trying to earn passive income, including:
- Risks of user error. Sometimes the steps for setting up staking wallets or using a cryptocurrency dividend function are complicated. Doing them wrong may cause a loss of funds.
- Lockup periods. There may be lockup periods for staking tokens. Sometimes, you might not withdraw your funds and sell them off even if markets are plummeting.
- Risks associated with staking wallets. Sometimes you’ll have to keep your funds in an online “hot” wallet to stake them, which is riskier than keeping funds in cold storage.
- Increased exposure to scams. If you’re trying to play a hard fork or set up for an airdrop, you need to be especially aware of scams, because these occasions will often bring them out of the woodwork. There are also risks associated with fake staking wallets, on top of all the usual hazards of cryptocurrency.
If you want to earn passive income with cryptocurrency, it’s as important as ever to proceed carefully and make sure you do thorough research.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
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