If you own multiple cryptocurrencies, you’ve probably realised that you can make incredible profits from cryptocurrency trading and long-term investing, but also spend a lot of time tracking your portfolio, chasing opportunities and managing assets.
But what if you want to earn passive income without the hassle of keeping a close eye on the market 24/7? Fortunately, there are dozens of ways to generate income from your cryptocurrencies without any effort.
Let’s take a look at 7 ways to make your cryptocurrencies work for you. Requiring little to no input or even no management, these methods allow you to earn attractive passive income.
1. Automate Your Savings in Cryptocurrency
In the same way that interest is earned by holding traditional currencies in a time deposit account, cryptocurrencies can be deposited on various platforms to earn returns.
These include centralised crypto deposit accounts such as those offered by Nexo, BlockFi and Crypto.com. Funds are often used to provide over-collateralised loans to institutional borrowers. Similarly, many exchanges, including Binance and Huobi, enable users to earn passive income by depositing cryptocurrencies.
These are arguably among the simplest and most effortless ways to generate passive income from your cryptocurrency trading. Because they require little to no knowledge to start earning.
How much can you earn? Depending on the asset you stake and the platform you choose, it is usually possible to earn an annualised return (APY) of 5 to 20 per cent.
What should you look out for? Be wary of platforms that offer suspiciously high returns. These may be fraudulent projects, such as Ponzi schemes.
2. Be a Liquidity Provider
Decentralised exchanges have revolutionised the way investors can access market prices. And they take advantage of opportunities by providing liquidity on various cryptocurrencies without the need for permission.
In particular, a particular type of decentralised exchange (DEX), known as an automated market maker (AMM), has created an entirely new way for cryptocurrency holders to earn a return on their assets by becoming liquidity providers.
These platforms offer decentralised liquidity pools that allow users to trade. By determining the ratios of two or more assets held simultaneously in these pools, the amount of return obtained can be increased
There are currently a large number of AMMs and most leading smart contract platforms have one or more suitable options available. The most popular names at the moment include Uniswap (on Ethereum), PancakeSwap (on BNB Chain), Pangolin (on Avalanche), WagyuSwap (on Velas) and SushiSwap (on multiple chains).
How much can you win? The amount you can earn can vary significantly depending on the pool and platform. In general, the higher your total amount of liquidity. Also the more trading volume is captured in your pool, the more you earn. The amount of income can potentially range from zero to 100 per cent APY.
3. Participate in Yield Farming in Cryptocurrency
If you are a liquidity provider, yield farming services allow you to earn additional returns on your assets.
This model, which is a combination of the words ‘yield’ meaning to provide yield and ‘farming’ meaning farming, makes it possible to generate income. Generally, it is necessary to stake the existing liquidity provider (LP) tokens to a specific farm in order to earn through the reward pool.
When tokens are staked into the pool, a certain portion of the transaction fees paid is received as income on a daily, weekly or monthly basis. For example, if you contribute 1 per cent of the pool, you usually receive 1 per cent of the rewards offered.
Many AMMs, including PancakeSwap, TraderJoe and SushiSwap, have yield farming built in, while protocols such as Venus work separately.
How much can you earn? In the yield farming model, you are usually paid in cryptocurrencies with high price volatility. If the cryptocurrency becomes worthless, the average APY rate can remain relatively low. However, if its value increases, the rates can be similarly high. If you withdraw your income regularly, an APY of around 5 to 20 per cent can be expected.
What should you pay attention to? Many yield farm models offer incredibly high initial returns. However, if the total amount staked (see TVL) gets too high and the value of the reward token decreases, this rate drops rapidly. You should regularly check the pools to ensure that the expected income level is met.
4. Stake Your Cryptocurrency
The Proof of Stake (POS) algorithm has not only ensured the proper functioning of the consensus structure in decentralised systems, but also opened the door for cryptocurrency holders to earn a return by staking.
Staking can vary depending on the cryptocurrency and POS, Nominated Proof of Stake (NPoS), Delegated Proof of Stake (DPoS) or another consensus algorithm. It may require the establishment of a validator node, or it may include a requirement to lock a certain amount of tokens to power the network and transfer cryptocurrencies to the chosen candidate or validator.
In both cases, staking users earn a return on the increase in the amount of locked cryptocurrency units or transaction fees accumulated in the network.
Solana can distribute staking rewards in multiple cryptocurrencies, including Cardano, Avalanche, Terra, Polkadot and, thanks to Beacon Chain, Ethereum. Some of these may require a minimum stake amount and lockup period, which may be a barrier for some users.
5. Join the Association
If you’ve been involved in one of the increasingly popular earn-as-you-play projects, you may have noticed that you need to spend quite a bit of time playing these games and start using your in-game assets or NFTs.
After all, you need to play these games in order to earn from the system. But thanks to the development of the guild system, you no longer have to play the game constantly.
Guilds are structures that allow investors and players to work together for mutual benefit in win-as-you-play protocols. In general, investors provide funds and assets, while players securely utilise these assets to earn a return. Profits are then shared between investors and players as well as intermediaries such as managers. Managers, also called ‘scholars’, prepare educational material and documents for players.
Some of these platforms allow NFT holders who are part of associations to pool their assets. Some projects allow direct peer-to-peer NFT lending between NFT holders and borrowers for an agreed fee.
A wide variety of guilds are currently operating, including Yield Guild Games (YGG), Good Games Guild (GGG), and Merit Circle. These guilds differ in the way they operate and the minimum amount of entry required. However, passive monetisation is generally more efficient than earning directly from playing supported games.
6. Join a Crypto Fund
As you’ve probably realised by now, most passive income models, such as depositing your assets into a liquidity pool, running a validator node, or joining a syndicate, require some initial effort and regular monitoring.
Crypto funds are an exception as they offer truly passive income. In the same way that traditional currencies (fiat) are invested in hedge funds, crypto funds allow you to generate income using your digital assets and often fiat currency.
Examples include relatively simple funds such as single-asset investment products like Grayscale’s Bitcoin trust or Decentraland trust. These allow fiat investors to capitalise on price volatility with a single cryptocurrency.
Other fund options, such as Pantera Capital, include complex investment products such as the Pantera Blockchain Fund, which gives access to a wide range of options in the cryptocurrency markets, including venture capital and liquid tokens.
However, entry to these funds is not easy. The minimum investment amount can be over $100,000 or $1 million, and they may also require financial reputation. Similarly, the fees charged can vary significantly. They can be very reasonable or jaw-dropping.
7. Accumulate Tokens with Yield Feature
Last but not least are dividend-yielding or yield-bearing tokens. As their names suggest, these tokens entitle their holders to a share of the profits generated by the issuer.
Among the most popular dividend-bearing tokens are Kucoin Shares (KCS) and AscendEx (BTMX), both of which pay a portion of their transaction fee revenue to token holders. There is also Nexo (NEXO), which pays a portion of its profits to the token holder as dividends.
Sometimes just holding these tokens can be enough to earn dividends. They are then periodically distributed to each token holder’s wallet in the form of airdrops. In some projects, you may need to register on the platform and complete Know Your Customer (KYC) verification to claim income.
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