Obtaining passive income is one of the goals of many long-term crypto investors. Currently, there are many feasible ways to do it with significant profitability, but without the frenzy around complex strategies and crazy returns of the Yield Farming era.
Hence, it’s possible to use strategies involving staking and lending cryptocurrencies to generate solid gains, especially if you know how to do it the right way. In this article, you will discover five ways to generate passive income with crypto other than buying options on Bitlevex, playing around with Binance Futures, and the like.
PoW vs PoS – Different Mechanisms, Different Possibilities
Before putting your crypto funds in the market, it’s crucial to understand the essentials about the two main validation mechanisms existing today, which are PoW (Proof-of-Work) and PoS (Proof-of-Stake).
The world’s most valuable digital asset – Bitcoin – is part of a blockchain network that is based upon a PoW mechanism. In this type of validation system, the security of a blockchain network is done through cryptocurrency mining.
This way, people use computing power to solve complex mathematical problems in the network to process transactions and record them to the blockchain to receive coins/tokens in exchange.
However, mining cryptocurrency (especially Bitcoin) is not considered a sustainable practice, as it demands a lot of computing power, investment in hardware, and electricity.
On the other hand, in a blockchain secured by PoS, participants use their coins/tokens to validate the transactions. Hence, an individual ensures his right to put a new block to the network based on the number of tokens staked.
Explaining Staking – A Brief Overview
Blockchain network participants who engage in staking for network validation are “shareholders” of a given protocol.
This way, they can pick their digital assets and stake them in a certain network to participate in the process, securing the integrity of the system while receiving the right to be rewarded for their contribution.
In short, the advantage of staking is that long-term focused holders generate new tokens and earn significant returns through their holdings with more assets.
Explaining Crypto Lending/Borrowing
Another way of earning passive income with crypto is lending your funds to a platform to receive interest. While staking is more like an incentivized mechanism, lending, and borrowing cryptocurrencies work similarly to the lending mechanisms existing in the traditional economy.
Like traditional loans, crypto lending platforms are based on the same assumption: those who have money lend it to those who don’t, and borrowers reward creditors with interest.
However, while large banks manage to quantify individuals’ credit risk, this is not possible in the crypto universe, populated by pseudonyms interacting with each other.
Hence, to ensure users can lend and borrow their crypto funds within a minimally controlled environment, DeFi protocols like AAVE and Compound require people to put in more money than they are borrowing, as collateral or margin.
Earn Passive Income with Crypto – 5 Ways to Do It Right
Staking Crypto on Binance
Binance is one of the world’s largest crypto exchanges, boasting a colossal volume of transactions on the daily basis. Nowadays, you can stake several options of cryptocurrency using Binance’s unique staking mechanism.
For example, you can stake BNB to receive an estimated 9.34% APY, or stake BUSD to receive an estimated 2.89% APY.
Staking Crypto on Coinbase
Another excellent way to engage in staking is using Coinbase. The famous exchange offers the opportunity for users to earn yield automatically by staking several options of tokens, including Algorand, Tezos, Cosmos, DAI, ETH, and USDC. For example, you can stake ETH to receive an estimated 5% APY.
Staking-as-a-Service Platforms
If you want to stake your crypto using a platform dedicated exclusively to staking, you can rely on a staking-as-a-service platform. However, it’s worth noting that this type of platform takes a small percentage of the users’ rewards to cover fees.
An example is Stake Capital, in which you can stake on several protocols, such as Loom Network, Kava, Cosmos, Aion, and Livekeeper.
Lending Crypto on Compound
The compound is one of the industry-leading Defi platforms in the crypto industry, boasting over $10B worth of crypto assets in Total Value Locked (TVL). Currently, the top 3 most interest-bearing lending market options are USDC (28.11%), ETH (26.83%), and DAI (24.57%).
Lending Crypto on AAVE
Considered one of the best platforms for lenders and liquidity providers, AAVE is an open-sourced Defi solution for earning interest on deposits and borrowing assets. Today, the total liquidity available in the platform exceeds $23B worth of crypto assets, with a wide array of options to lend and borrow with high-percentage APYs.
Conclusion
While HODLing your cryptocurrencies may be an excellent strategy in the long term, it’s crucial nothing that just holding digital assets within a wallet won’t give you a penny.
This way, the best approach is to choose one of the many ways to generate passive income with your crypto and enjoy significant yields.
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