I have four methods of earning passive income with cryptocurrency. I’m going to go over the pros and cons of each of the four methods, how much you can expect to earn using them, and then how easy or difficult they are to pull off. Some of the methods use DeFi. Some of the methods use CeFi. You can choose which method best suits you.
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LPing
The first method, though, is providing liquidity. This is on DeFi, so you’re going to have to go and use some decentralized applications like lending protocols or DEXs. In fact, this is fairly simple once. You can earn around two to nine percent by doing this. Now this does change per application and per blockchain as well. It’s not just a simple case of setting it and forgetting it. Unfortunately, yield farmers do have to kind of look at all the rates that are going on and change their assets around according to which platform is paying out. There are many different liquidity incentive programs that you’re going to have to search out. 2% to 9% is something you can get.
So what happens is that, people swap tokens on the decks, so people may swap Binance coin for BUSD, and you can see that down there, essentially when you trade you pay a trading fee. Every decentralized exchange and centralized exchange will charge trading fees on a DEX because you can provide your liquidity and your tokens and you will get those trading fees, which is the passive income that you can earn now. It’s not as easy as just putting it up there and earning the yield. It depends on what tokens that you’re using, whether they’re risk assets or whether they’re stable coins, but you can very easily go on a platform and it tells you the reward you’re going to get for adding liquidity. So, for example, if you provide BNB coin and USD as liquidity, you can earn around 7.5%, so this is a really good yield:
Now you’re going to have to ask yourself a question: do you want to provide these assets or do you even want to invest in BMB? If you’re invested in BNB, you might want to provide it as liquidity to get 7.5%. Now you can see other asset pairs earning a lot more and a lot less. Something called impermanent loss, tt has to do with the volatility of the assets and the risk that they change in price from when you put them in to when you take them out.
As you can see, you can earn anywhere from two percent to much more than that. This is a good yield if you’re a long-term investor and you want exposure to these assets. There are very popular apps, but there are others.
You can see some of the pools here. So curve finance focuses on asset pairs that are very similar to each other, and so it minimizes the bad thing, which is called impermanent loss. We don’t want impermanent loss, so curve pairs really try to minimize this. You can see right now you can essentially get two different versions of bitcoin on here, paying you around 2.5%, which is a decent yield for DeFi. Or you can choose a stable coin pair which is paying around 3% right now. Actually you get more than that by getting the incentive tokens, which I’ll show you right here. So what a lot of people do is they farm the incentive tokens from the DEXs and put them back into the token pair that they’re adding on to the indexes.
There are others. I’m not kind of saying it is good or bad. It’s a multi-chain yield optimizer. It looks at all the different DEXs, all the token pairs, and all the incentive tokens that are paid out and decides what it will do. For example, if you put stable coins into a pair, it will take the yield from that and it will also farm all of the incentive tokens that you get from the DEX. It will take the incentive tokens and sell them back into the pair that you’re using to increase the amount of the pair that you have. You get yield on more and then more incentive tokens. It just recursively farms, essentially recursively farms and optimizes the yield for you. The recursive yield farming they’re doing actually pays you around a 6.6% yield, so a lot of people use these recursive yield farms to essentially yield farm.
The incentive token put it back into the strategy, so 6% on a stable coin pair is very good. If you have other types of risk assets that you want to farm, you can see them here, and it will show you exactly what the best yield is for them. Stable coin pairs are much less risky than pairs that have risk assets in them. So a lot of people use them because a lot of the pairs are similar in nature.
So when providing liquidity on DEXs, it’s really up to the token pair that you use, but you can earn anywhere from 2-9% or even way more. I would use it for stable coins only, so I would put stables in there and you can earn, let’s say, 5-6% on stable coins. Risk assets are very different.
Staking and LSDs
The next way we can earn passive income on our cryptocurrencies is by staking them. Obviously, this doesn’t relate to stable coins, because stable coins aren’t staking cryptocurrencies, so you can’t go into the safety of stable coins and stake them. You have to use them as liquidity, like we saw in the first section. However, if you have a proof of state crypto staking, it will obviously give you a higher yield right here. Staking through the bear market obviously means you’re getting more tokens. You’re compounding your tokens at lower prices, which is obviously preferable if you think the future looks bright for that crypto. There are many ways to stake each cryptocurrency. I’m going to go through the percentages that you can get for those.
So something the platform is a staking provider. It’s decentralized, so you can very easily link up your wallet right here. Obviously, it’s up to you which cryptos that you want to hold and think have a future. In general, depending on the blockchain and the crypto asset, you can make around five to 25% or even more with some strategies. There are ways to increase the rewards that you get, and right here is just an example of that:
So right now, Matic is actually offering some kind of bonus for something called staked Matic. This is very complex in how it works, but essentially, you can now buy a Matic token that gives you staking rewards. You don’t have to lock it up on the blockchain, but essentially, because this is new, you’re getting a lot of rewards for staking on different platforms. So for right now, if you stay Matic in the short term, you can get up to 92% APY or 147% APY if you put it into a liquidity pool with USDC. I personally would go for this one because there’s no impermanent loss, so you’re getting a nice bonus right here and this is essentially yield farming.
Exactly how you farm, staking cryptos is essentially taking the normal version of the crypto and the staking version of it and then putting them into a liquidity pool on a DEX like we saw in the first example. This works by essentially getting staking yields plus fees that people pay to swap those coins, but there’s no permanent loss because they are essentially very similar assets. They have a very similar price. I would always use caution with the new platforms and go to platforms that I know have been around for a while and are trusted, but you can certainly earn a lot by essentially yield farming, which is what’s called staking derivatives. It is complex, but 5-25% is doable with staking cryptos.
Lending apps
So, those methods seem really complex if you’re a newbie, but you can get some good yields. The easiest way, though, for beginners, is just to use lending apps. I use these and have used them in the past, so I use them now. They offer really good yields, around two to ten percent, depending on the crypto. They also have swap features in the app. They give free withdrawals for your crypto as well. Obviously, they’re centralized. Some people don’t mind this; some people do mind this. You can obviously make your own decisions. It depends on how many of the UH platform tokens that you have. They give really good rates. They’re very simple. They have swapped features in the app. You know, it’s a centralized exchange that gives you, you know, all of the features that you would want from, you know, an exchange and a kind of passive income app.
If you live in the United States, a lot of these apps aren’t available because you have to be a professional investor in order to actually invest in them, but you know, other countries may have access. They give you bonuses. They give you good rates for beginners. These are really what a lot of people choose, but you know, you can see if their rates are competitive as opposed to what you can get in DeFi.
Arbitrage
The next method to try and build out the market is what’s called spot futures arbitrage. This is something that professionals do. Retail investors can’t do this. It’s too complex. But there are some trading bots that actually do this. So you can earn around 7-12% depending on market conditions.
Under the surface, essentially, what they do is go long in the spot market and short in the futures market. Essentially what you can see here is that for Bitcoin and Ethereum, it tries to print a yield out of the market, so you don’t actually have any exposure to those assets. What you’re trying to do is just get them to get the arbitrage out of the market. You actually have a neutral exposure to the market itself, so you’re not going to make or lose money from Bitcoin on Etherium going up or down, but what you’re trying to do is print a yield.
So what you can see here is that you can earn around 9% for BTC and ten and a half percent for ethereum. So the yield can change and it does change depending on market conditions, so there are some things to keep in mind with using it. The annual yield if you hold for a long enough time is around 10%. You can actually invest in us. That’s a ten percent yield on what you invest. You have a neutral exposure to the market like I said, so you’re not making or losing money on ethereum going up or down in price, but over a year’s time you may earn around 10% on your money. This yield may change depending on what people are doing in the futures market, and so it’s a little bit complex, but you can see that they’ve shown you right here that it’s around a 10.5% yield. You can also go to bitcoin here, which is paying around a 9% yield, so you’re not making or losing money on price movements, but you’re just printing a yield through the arbitrage that this pot this bot does. It’s complex.
Recap
To summarize, stable coins have a yield of around 5% to 7%. If you just want to provide liquidity on DEXs, the second way is that you can just stake your crypto very easily. You can expect to earn around 7% for it. Or if you want to do that strategy of using liquid staking derivatives and essentially providing liquidity on DEXs, you can up that to, let’s say, 20%. Without a doubt, lending apps are by far the easiest right now, with a 7-10% success rate. Just put your crypt on those platforms.
This is actually quite simple because you just use a bot and you can get 10%. Depending on the complexity of what you want to do and the yields that you want to get, these are roughly the yields that you should be getting across DeFi and CeFi.
[This article is a transcription of a video made by MoneyZG]
Original video: https://youtu.be/jxI8WBsC9qk ]
