Crypto markets are famously volatile, meaning that they have the potential for very high returns, but of course, with the risk that circumstances will swing in the other direction. If you really believe in a crypto project, then you might want to ignore the ups and downs and just hold on to your investment for the long-term, having predicted that the macro level of movement will be upwards. This requires you to choose the right project, but had you taken that approach with Bitcoin or Ethereum, you’d have made significant–possibly huge–gains.
Arguably the best kind of income is passive income, meaning that once you’ve got everything set up, you no longer have to do anything, or you have to do very little, in order to make a profit. This requires planning and you may have to make occasional tweaks to your formula, but in general it pays and can provide you with added financial security. There are multiple ways to make a passive income from crypto, so let’s look at a few.
Yield Farming and Staking
There is much discussion of the merits of yield farming vs staking, but let’s take these two approaches together, as they have a lot in common. Both require you to let your crypto be used by other parties in return for a reward.
With yield farming, you’re providing liquidity to a DeFi platform. This is higher risk and higher return, and requires you to do more research before jumping in. It’s also less passive, since yield farmers tend to move between DeFi projects looking for the best returns.
With staking, you’re allowing your crypto to be used in a blockchain’s Proof of Stake protocol. Your crypto becomes part of the blockchain network, and you receive rewards. This is less risky but has lower returns. It’s more passive though, as once it’s set up you don’t need to do anything else, and additionally, you’re supporting the blockchain. We have studied a list of the best coins to stake that give the most competitive rates.
If your priority is the passive aspect and you want lower risks, then staking would be your best option. However, yield farming is certainly appealing for those willing to tolerate more risk in return for higher rewards, with a little more active monitoring of their investment.
The DeFi movement has enabled crypto holders to lend out their assets on a peer-to-peer basis and generate significant returns. There are DeFi platforms where you can set your terms and be matched up with borrowers. However, this does require you to deposit your funds in the platform’s custody, so some trust is required and a degree of risk is taken on.
There are also people who want to trade with borrowed assets, and you can provide the liquidity for them to do so. In this case, you’d be going through a crypto exchange that supports such systems. Different platforms allow this to be done with different assets, and while returns can be high, demand and rates depend on the state of the markets. For example, during a crypto bull run, you’ll see very good returns if you lend out a stablecoin such as USDT.
In terms of how much you have to do, you’ll need to research where you can get the best returns and which platforms are safest, but once your terms are set you can relax.
Interest Bearing Accounts
When you hold crypto in your own custody, you’re hoping for returns based on the value of the crypto itself increasing over time. In terms of security, holding your own crypto in cold storage (that is, in an offline hardware wallet) is a very safe option. And for some people, bitcoin holders in particular, that approach has worked out very lucratively over the last decade.
However, just as you can earn interest on regular fiat currencies through keeping them in a bank account, you can now do the same with crypto, as there are services that allow you to keep your crypto assets with them, in return for a fixed interest return. If you’re not planning on actively trading and jumping between currencies as they rise and fall, then this makes sense for you, as your idle assets will be earning interest regardless of fluctuations in price.
New crypto projects sometimes utilize airdrops. This is when a coin or token, usually the new native token of the ecosystem, is dropped for free into users’ wallets. Airdrops make sense from a business perspective, as they incentivize use of the new platform and bring people on board. You can keep up-to-date and involved with possible airdrops by monitoring new projects, making use of their services, and ensuring that you’re linked to their platforms.
Airdrops are common around DeFi and, increasingly, around blockchain gaming, which is itself tied in with the ever-expanding world of NFTs. And they can certainly be lucrative, as tokens that are dropped may increase significantly in value over time.
As always with crypto investment, make sure to carefully research any projects you put your assets into, and make a thorough assessment of the risks and returns before committing any funds.