Tired of constantly keeping track of your portfolio, capitalizing on opportunities, and managing your positions? Here are seven ways to generate passive income with crypto!
If you’re like many cryptocurrency holders, then you’ve probably found that cryptocurrency trading and investments can be both incredibly profitable, but also extremely time-consuming and oftentimes stressful — due to the constant need to keep track of your portfolio, capitalize on opportunities, and manage your positions.
Here, we take a look at seven ways you can put your cryptocurrencies to work, helping you generate a potentially attractive passive income with little to no input or management required.
1. Automate Your Savings
Much like regular currencies can earn interest while being held in a savings account, cryptocurrencies can also be deposited to various platforms to earn a yield.
Some of these are centralized cryptocurrency savings accounts, like those offered by Nexo, BlockFi, and Crypto.com — these generally use your funds to provide overcollateralized loans to institutional borrowers. Likewise, many exchanges, including both Binance and Huobi allow users to earn a yield on their cryptocurrency deposits.
These are arguably the simplest and most straightforward ways to earn a passive yield on your cryptocurrency deposits since they require little to no in-depth knowledge to get started.
2. Become a Liquidity Provider
These platforms offer decentralized liquidity pools that allow users to trade while simultaneously facilitating efficient price discovery by simply using the weighting of the two or more assets held in a pool to determine each of their values, such that a pool containing 100 ETH and 400,000 USDC would price each ETH at $4,000 and each USDC at 0.00025 ETH.
Liquidity is generally contributed by the community, who always maintain their proportionate share of the pool regardless of how much liquidity is added. This liquidity is then used to serve traders executing swaps using this pool.
But here’s where it gets interesting. When a trader sources liquidity from the pool, they pay a trading fee — usually around 0.2-0.3% of the trade size. This is split between all liquidity providers, including you.
A huge number of AMMs now exist and most major smart contract platforms now have one or more suitable options. Some of the most popular currently include Uniswap (for Ethereum), PancakeSwap (for Binance Smart Chain), Pangolin (for Avalanche), WagyuSwap (for Velas), and SushiSwap (multi-chain).
3. Participate in a Yield Farm
If you’re already providing liquidity, then yield farms provide a way to earn an additional yield on your assets.
As their name suggests, yield farms are platforms that allow you to “farm” for yields in one or more ways. Most commonly, you will need to stake your pre-existing liquidity provider (LP) tokens to a specific farm to earn a fraction of its reward pool.
By staking your tokens to the yield pool, you will receive a proportionate fraction of the rewards it pays out each day (week/month, etc.) such that if you contribute 1% of the pool, you will generally receive 1% of the rewards it offers.
Many AMMs, including PancakeSwap, TraderJoe, and SushiSwap, have built-in yield farms, while some are standalone products — such as Venus.
These yield farms generally allow you to earn your yields in a newly released cryptocurrency or the yield farm’s native utility/governance token, e.g. you can farm CAKE on PancakeSwap or WAG on WagyuSwap. Most of these platforms will display an expected APY based on the current value of the reward token and the size of your stake, but this can fluctuate over time.
4. Stake Your Cryptocurrencies
In either case, stakers earn a yield that is usually derived from the inflation of the staked cryptocurrency and/or the transaction fees generated by the network.
Nonetheless, once staked, the yields generated are generally completely passive — requiring little to no oversight or intervention. Nonetheless, you may want to liquidate your yield regularly to buffer against price volatility or hold your coins long-term if you believe they will appreciate in value.
5. Join a Guild
After all, you actually need to play these games in order to benefit from the earning part of the equation. But thanks to the advent of guilds, this doesn’t necessarily need to be the case.
These are platforms that allow play-to-earn investors and players to work together for their mutual benefit. Generally, investors supply the funds and assets, while players securely leverage these assets to generate a yield. This yield is then split between investors and players, and often between other intermediaries, such as managers — who create documentation and training materials for players (generally known as scholars).
6. Join a Crypto Fund?
As you’ve probably noticed by now, most passive income streams will require some initial labor and periodic maintenance, whether that be depositing your assets to a liquidity pool, operating a validator node, or participating in a guild.
Crypto funds are an exception since they are truly passive. Much like traditional hedge funds can be used to put your fiat capital to work, crypto funds allow you to generate revenue using your digital assets (and oftentimes fiat currency too).
These can be relatively simple funds, like Grayscale’s single-asset investment products — such as its Bitcoin trust or Decentraland trust. These allow fiat investors to gain exposure to the price action of a single cryptocurrency.
Other funds, like Pantera Capital, offer more complex investment products, such as the Pantera Blockchain Fund — which provides exposure to a wide range of crypto markets, including venture equity, liquid tokens, and more.
That said, these funds generally have a few barriers to entry, which can include a large minimum investment amount (e.g. $100,000 to $1M+) and accredited status. Likewise, they can vary considerably in the fees they charge — ranging from very reasonable to almost ludicrous.
7. Hold Yield-bearing Tokens
Last, but by no means least, are dividend-yielding or yield-bearing tokens. As their name suggests, these are tokens that entitle holders to a share of the profits generated by the underlying issuer — similar to the way that stocks often entitle holders to dividends.
A wide variety of dividend-yielding tokens now exist and each operates in a slightly different way. Some of the most popular dividend-yielding tokens include Kucoin Shares (KCS) and AscendEx (BTMX), both of which pay a fraction of their trading fee revenue to token holders, as well as Nexo (NEXO) which entitles the holder to a fraction of its profits.
In some cases, simply holding these tokens is enough to qualify for dividends, which are then distributed periodically to each holder’s wallet as an airdrop. Whereas in other cases, you may need to sign up to the issuing platform and complete KYC verification to claim your yields.
The returns these tokens provide are strongly related to the performance of the underlying platforms, which means your yields can vary over time.