Well, if you want to get involved in the big money-making game of earning interest on your crypto with very little effort, then you’re going to want to know about passive income in DeFi.
Passive income often described as “making money while you sleep,” means you’re creating or buying an asset that you can generate profit with, regardless of whether you’re at your desk or on a beach in the Maldives.
There are many ways to generate passive income. For those who don’t mind a little risk, the potential rewards in DeFi are much higher than in more traditional investments. For example, the APR on a 3-month CD from a US bank is currently around 0.6%. Compare that to the 5% you could earn by staking ETH in Ethereum 2.0, and it’s easy to see why DeFi is so attractive to yield-seekers.
Those who want to understand Why DeFi interest is so high, could read our last post about the sources of yield.
Today we’d like to introduce DeFi can offer some great opportunities to earn passive income.
How to Earn Passive Yield in DeFi
With that said, there are a handful of ways you can generate some passive income from your crypto holdings. Here are a few of the best ways to do it.
Lending (low risk, low maintenance, low yield)
With lending, you’re essentially loaning out your crypto to someone else and earning interest on it. It’s a low-risk way to generate income, as there’s little chance of the value of your crypto going down (unless the market crashes, which is always a possibility).
There are various platforms that allow you to lend your crypto, including MakerDAO, Compound, and dYdX. The reward will depend on the platform you’re using and the asset you’re lending, but it’s generally around 5% APR.
But what if those people default on their debt? The platform will seize collateral from those who go bankrupt or cannot pay back loans and sell it to guarantee your assets. Despite many catastrophic meltdowns in DeFi, the world’s leading lending platforms, Compound, AAVE, MakerDAO have never had an issue for depositors. This strategy requires no maintenance but offers low yields.
You might be wondering why would I want to put my money into something that’s very low yield? Well, it provides safety and security for your assets by essentially taking on risk of defaulting borrowers (you). With them, you can sleep well knowing they’ll protect what’s yours if anything goes wrong — which has never happened yet.
Staking (medium risk, low maintenance, medium-to-high yield)
There are kinds of ways to stake. The first one is “ delegation”. You can delegate your staking power to a validator. The second one is “self-bonding” or “becoming a validator”, in which you put up your own capital to run a node and validate transactions.
The third way — and this is the one that we’re most interested in — is “pool staking”. Pool staking is where you pool your resources with other users to increase your chances of being selected as a validator.
The advantage of pool staking is that it allows you to earn rewards without having to put up your own capital or run a node. It’s a great way to earn passive income, as it’s a relatively low-risk way to do it.
With staking, you’re locking up your crypto in a smart contract and earning interest on it. The yield you earn will depend on the asset you’re staking and the length of time you stake it for, but it’s generally around 5% APR.
Staking is a bit riskier than lending, as there’s a chance the value of your crypto could go down while it’s locked up. However, you can usually unstake your crypto at any time, so it’s not a huge risk.
Trading Fees (reasonably safe, minimal maintenance, highly variable yield)
You can deposit your crypto into a Decentralized Exchange, earning interest on your deposit. Then use that interest to buy more crypto, which you can either hold or trade for a profit.
The advantage of this strategy is that it’s a great way to get into trading without having to put up any capital of your own.
It’s also a relatively low-risk way to earn income, as you’re not exposed to the volatility of the markets. The yield you earn will depend on the platform you’re using and the fees they charge, but it’s generally around 0.1% to 0.2% per trade.
Utilizing this strategy comes with some downsides. You are susceptible to permanent loss if prices change significantly for your funded assets, like Ethereum and USDC. However, the yield on supplying volatile cryptocurrencies also tends to be higher — so it may be worth taking these risks!
Platform Incentives (highest yields, highest risk of blowup)
Some types of strategies that can get you the highest yield, but they also come with the highest risk.
Platform Incentive is when a platform offers you a bonus for holding/trading your crypto on their platform. The bonus is usually in the form of a token, which can be used to trade or stake on the platform.
It’s a great way to earn a high yield on your crypto. The yield will depend on the platform you’re using and the bonus they offer, but it’s generally around 10% APR. For example, if you want the highest possible yield on your USDC, it might be worth pairing them with DAI and depositing both into Uniswap’s pool. But Binance pays an extra BNB for each deposit made here and offers a 15% APR bonus on their BNB token. If that’s what interests you, then maybe Binance would be best instead of another exchange or wallet service.
The downside of this strategy is that it’s a high-risk way to earn income, because of the volatility of the markets and the platform you’re using. There’s also a chance that the platform could shut down or go bankrupt.
Yield Aggregation (no maintenance, relatively low risk, good yield)
A yield aggregator is a set of protocols that pools investors’ funds, and invests them in an array of yield-producing products or services through pre-programmed and automatically executed strategies. You can combine multiple income streams to maximize your yield through the yield aggregator. All it takes is to look for the protocol/chain offering the best returns for the asset of interest and make a deposit there. There are options for different risk profiles.
Some examples of yield aggregators are:
–DePro: A one-stop digital asset management platform that allows users to earn interest on their crypto assets through lending, borrowing, and staking services.
–Set Protocol: They focus on automated portfolio management, and have integrations with MakerDAO, Compound Finance, dYdX, and InstaDapp.
–Harvest Finance: A protocol that allows you to stake your cryptocurrency in a pool and earn a return based on the performance of the pool.
–Yearn.finance: A yield aggregator that focuses on providing the highest yield possible for your deposited crypto by automatically executing trades and strategies.
It’s a great way to earn a high yield on your crypto without having to do any maintenance.
If you’re interested in earning passive income from your crypto, lending, staking, or yield farming are all great ways. But each comes with its own risks and rewards — so it’s important for you to choose which one is right for your situation! DePro provides an easy and simple way to get started in this field:
1. Open an account
Go to DePro, sign up with your email, telegram, or connect your wallet and get verified within minutes.
2. Make a deposit
Add funds by depositing crypto/fiat or buying with your preferred payment method.
3. Create your portfolio
Allocate your coins and watch the rewards roll in.
4. Become a pro trader
We offer a great way to get started in this field and make the most of your crypto assets. What are some other strategies you’ve used to earn passive income from your crypto? Let us know in the comments!