Looking For A Passive Income In Crypto? Try These Ideas
“HOLD” was the rallying cry of first-generation crypto enthusiasts, embodying the simple strategy of buying digital assets and holding onto them for the long term in order to make ridiculous profits. It paid off, incredibly well in some cases, giving rise to a number of crypto millionaires who were nobodies when they first started out.
However, with Bitcoin and other major cryptocurrencies now long-since mainstream, their large market caps preclude simple “hodling” as a strategy for striking it rich.
In fact, the days when anyone could become a crypto whale with nothing but patience are probably behind us, but for the smart, careful investor, there are still a few opportunities to generate a return that’s far better than any traditional investment. And no, we’re not talking about risking it all with high-stakes trading.
If you’re looking for a solid crypto investment that has a very decent chance of paying off, check out these four strategies:
Staking To Secure Blockchains
Crypto staking is somewhat similar to putting money in a high-interest savings account. When you stake crypto, what you’re doing is “locking up” your tokens in a smart contract, where it becomes inaccessible for a predetermined amount of time. This is done to support proof-of-stake blockchains and other decentralized applications, and allows you to participate in validating transactions in return for a share of the transaction fees.
In general, when you stake most cryptocurrencies, such as $ETH, $SOL, $AVAX, $TEZ or $XLM (to name just a few), what you’ll get is more crypto deposited into your wallet. It can be pretty profitable, with $SOL advertising an APY of 6.5%, for example. Some more obscure staking tokens also pay other rewards, such as NFTs or governance privileges.
Staking may be likened to putting fiat money into what’s known as a “certificate of deposit”, which is a savings scheme offered by some banks, where you deposit funds into a special account that pays you to lock up that money for an agreed period of time.
It’s perhaps one of the simplest ways to earn a passive income from crypto, as most mobile crypto wallets, such as MetaMask, Exodus, Coinomi and Trust Wallet, support staking on multiple networks. The main thing is the rewards rate, which can vary in real fiat terms based on the value of the underlying token. The major risk with staking is that the smart contract might have a vulnerability that could be exploited by hackers, though such instances are rare.
Lending For Interest On Repayments
An alternative to staking is to lend crypto to those who’d like to borrow it, which can be done through various decentralized applications, such as Aave, Compound, Solend, and many others. In very simple terms, you lend someone your crypto, they pay it back in installments, with interest, making you money in the long term.
One of the differences between crypto lending and fiat is that there are no credit scores in this world. Anyone can lend and anyone can borrow, with the terms of the loan dictated and enforced by automated smart contracts.
Neither does the lender either know, or talk to the borrower. Instead, those who want to lend money deposit their crypto into what’s known as a “lending pool”, along with funds from other lenders. Borrowers can then take out funds from that pool, but in order to do so, they must put up some other digital asset as collateral. This is why credit checks aren’t necessary. Should the borrower fail to repay the loan, their position is liquidated, and the collateral is sold to repay the lenders.
So long as the loan isn’t liquidated and the borrower repays it, the lender will get back what they put into the pool, along with a share of the interest paid on that loan. Once you familiarize yourself with the concept of crypto lending, you can delve into more advanced concepts such as rehypothecation of the assets you loan to earn even more interest, or get into borrowing yourself so as to compound your DeFi earnings elsewhere.
Trading For Rewards
We said we wouldn’t recommend trading, and that’s not what this idea is really, for there is a new breed of "incentivized" crypto exchanges that pay their users to trade, regardless of whether or not they actually make a profit.
A good example of a rewards-driven exchange is XBO.com, which has created a kind of gamified trading experience and loyalty program centered on its native cryptocurrency $XBO, available in presale now.
The way it works is that you buy $XBO tokens, stake them in a wallet, and then you start making trades on the XBO.com platform. Not only does this entitle you to reduced trading fees, but you’ll also get rewards and perks, including more $XBO tokens, progressively lower fees, and access to premium features such as launch pools for newly-listed tokens, meaning you’ll be able to buy new assets at the lowest possible price. So if you’re worried you’ll lose money by trading, you can simply trade extremely cautiously to avoid major losses, while simultaneously raking in the benefits it provides through its loyalty program.
As an added benefit, holding $XBO tokens means you can earn additional APY when staking tokens such as $ETH, $POL, and $SOL.
Providing Liquidity For Rewards
One final foolproof way of earning crypto rewards is to provide liquidity to a decentralized exchange or DEX platform, so it has the capital it needs to facilitate trades for other users.
DEX platforms need liquidity, so that if someone initiates a transaction to buy a large volume of a particular token, such as $ETH, it can fulfill that order immediately, instead of waiting for a matching seller to appear with an equivalent amount of tokens to sell. DEXs do this because they cannot operate traditional order books like CEX platforms do, because they lack the capital holdings. Instead, their users trade amongst themselves.
To provide liquidity, simply go to a suitable DEX platform such as Uniswap, Sushiswap, PancakeSwap, or GMX, deposit funds in your chosen liquidity pool, and you’re good to go. Note that you’ll need to deposit an equal value of two different tokens, because liquidity pools are based on trading pairs (such as $ETH/$BTC or $SOL/$USDT, for example). Once you’ve deposited your funds, you’ll earn a share of the fees from every future trade made against that pool.
Depending on the DEX platform and the liquidity pool, the APY can be anything from 0.05% (for the most popular tokens) to more than 40% (for much riskier tokens).
There’s Money To Be Made
No doubt about it, crypto enthusiasts aren’t lying when they say there’s money to be made with digital assets. Crypto isn’t just about hodling, trading, and chasing whatever token is pumping. It’s a dynamic and evolving financial ecosystem, with lots of opportunities for those wanting passive income.
Just remember, none of these ideas will transform you into a millionaire overnight. These days, it’s not so simple to turn $1,000 into millions. You’ll need to do your research, continuously learn, and take steps to manage risk. With the right mindset and strategy, and a degree of patience, you can still earn significant rewards.
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