Many of us associate cryptocurrencies with complicated and risky money-making schemes. Trading, for example, requires extensive market knowledge, financial and technical analysis methods, and prior experience with crypto assets.
In fact, cryptocurrencies can consistently generate passive income. Just like a bank deposit or government bonds. Most importantly, an investor doesn’t need to dive deep into the specifics of the crypto market. The most important thing is to find a strategy that appeals to you and a trustworthy platform on which to invest.
Interest On Your Crypto
So, how can you make your money work for you?
- HODL. The method involves buying cryptocurrency at a lower price and then selling it at a higher price. A significant increase in the exchange rate, as well as significant investments, are required for the profit to be tangible. Many Bitcoin investors became wealthy by purchasing multiple coins at the start of development and selling them when the price of one coin reached thousands of dollars.
- Mining. A method of generating new coins as a reward for adding new blocks of transactions to the blockchain. To make blocks, you must perform complex calculations that can only be handled by powerful machinery.
- Masternodes. This is a blockchain network node that is in charge of processing transactions or performing any special tasks. The masternode’s owner receives passive income for the operations performed. However, in order to launch a masternode at home, you’ll need to make significant financial investments, as well as provide a dedicated IP address and meet other requirements.
- Staking. In this case, the user purchases a certain amount of cryptocurrency and keeps it in his account, receiving additional funds on a regular basis as a percentage of the available funds. Staking is a component of the Proof-of-Stake mechanism that many cryptocurrencies use.
- Lending. The method is as old as the world itself: you put your savings into circulation, exchange, or directly to other users, and then return them with interest.
DeFi Crypto Investment
DeFi are blockchain-based projects that are based on financial instruments. Their goal is to replace what is in the banking system now and become a worthy alternative that is chosen by millions due to its wide application possibilities. There are projects, for example, that assist people in earning passive income from the cryptocurrencies they have in their wallet.
DeFi Token Farming
Yield farming is widely practiced in DeFi. This is an investment strategy where users (liquidity providers) temporarily provide liquidity to the DeFi protocol in exchange for its tokens.
Yield farming is so named because it’s a highly profitable, albeit risky, investment strategy. You can achieve returns in the tens of thousands of percent with careful portfolio management and a little luck.
Why do DeFi protocols need liquidity at all? DeFi banks — for issuing loans. Decentralized exchanges (DEX) — for exchanging one cryptocurrency for another. Furthermore, all DeFi are interested in easily exchanging their own token for other cryptocurrencies, particularly the most popular ones. This requires the token to be listed on a centralized exchange. It’s long, expensive, and large exchanges have high requirements. Another option is to create liquidity pools on decentralized exchanges (permission isn’t required) and attract liquidity to them, with the reward of issuing their own governance tokens.
DeFi Lending Platforms
DeFi lenders are services that provide secured loans without the use of intermediaries. Instead of banks and brokers, DeFi lending makes use of smart contracts, which are automated and self-executing algorithms that specify all the transaction’s terms, such as amounts, terms, and interest rates.
How it works? A lender who has free crypto money places their funds on a DeFi lending platform.
Funds are locked up with a fixed annual percentage yield (APY) issued to the lender for each day the platform uses these funds.
Borrowers who need extra money for their operations come to the DeFi lending platform and apply for a loan. They specify the required loan amount and term (the latter is optional, but some platforms reduce the amount of collateral for long-term loans).
The platform calculates the collateral required to support the loan.
The borrower provides collateral and receives a loan. They may also need to add funds if the price of collateral falls sharply.
As soon as the borrower no longer needs the loan, he repays the full amount and the calculated interest for the term of the loan. The deposit is returned after 100% loan repayment.