Five Simple Ways To Earn Passive Income With Cryptocurrency
Cryptocurrency is known for its unmitigated potential, lush financial returns and tremendous risks. As of March 2022 there are over 18,000 different cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH) and Solana (SOL), to invest in and potentially profit from.
This article will explore five simple ways to earn passive income with cryptocurrency.
Lending
Similar to traditional bank lending, crypto investors can loan out their coins to borrowers at interest. There are four types of cryptocurrency lending, all of which yield passive income.
Decentralized Lending
Also known as DeFi lending, decentralized lending is conducted directly on the blockchain. DeFi lenders and borrowers engage through an automated smart contract which sets interest rates and manages transactions. DeFi platforms include:
Celsius
Uniswap
Crypto.com
Centralized Lending
Also known as CeFi, this type of lending is constructed using fixed interest rates and “lock-up periods”. These are enforced by a third party platform for the duration of the loan. During the lock-up period a lender cannot sell their principle. Some CeFi platforms are:
Coinbase
Kraken's Aave Lending Platform
Gemini
Margin Lending
Investors can lend out their cryptocurrencies to traders who use the funds to increase their profits. With the margin of return those traders make, they pay back the loan to the investor with interest.
Peer-to-Peer Lending
In P2P (peer-to-peer) lending, both parties have the greatest amount of control over the terms of the loan.
Lenders and borrowers design the interest rate, loan amount, length of term and other details. Most P2P lending platforms do require a lender deposit into the platform’s wallet to initiate the loan.
Staking
Proof-of-Stake (PoS) is a method used to verify transactions via consensus agreement among “validators”. Validators lock in (or, “stake”) their coins to the cryptocurrency’s network. These coins are then used as a comparison to verify new transactions in the form of blocks being added to the blockchain.
When a block is added, the staker receives passive income, in the form of interest. You will have to agree to a set time period of loaning out your crypto, during which you cannot withdraw your principle. Some cryptocurrencies popularly used for staking include:
Cardano (ADA)
Cosmos (ATOM)
Tezos (XTZ)
Interest-Bearing Digital Asset Accounts
Similar to staking, you can deposit some of your crypto into a digital asset account which is then loaned out by that cryptocurrency to borrowers.
Digital asset accounts usually have very high return rates because funds are paid back to a pool of investors. Your investment can yield passive income with regular intervals and you can generally withdraw your principal at any time.
Many investors are turning to cryptocurrency markets where yield rates are desirable, unlike traditional banks. Platforms include:
Become a Liquidity Provider
Liquidity providing is similar to margin lending with the main difference being that you are pooling your funds together with other investors to provide liquidity for other traders.
Some decentralized exchanges use what is called an automated market maker (AMM). This term is brought over from traditional investing where large investors would pool their funds to initiate price discovery on the markets.
This is important because the quicker a market price is discovered (agreed to) by buyers and sellers, the less chance there is for market manipulation.
As a liquidity provider, you would deposit your cryptocurrency into a liquid pool (the AMM). Just as in foreign exchange trading currencies are bought and sold in pairs, your cryptocurrency is added to a trading pair along with other liquidity providers.
For example, you may deposit Bitcoin (BTC) or Litecoin (LTC) into a BTC/LTC pair. The pair is then traded by other investors and the yield is split proportionally between all parties involved.
Popular exchanges that offer AMM liquidity pools include Uniswap (for Ethereum), PancakeSwap (for Binance Smart Chain) and Pangolin (for Avalanche).
Join a Gaming Guild
Cryptocurrencies have reshaped the gaming world in many ways. There are now play-to-earn games and even investment opportunities in gaming.
Joining a gaming guild can generate passive income by depositing your cryptocurrency into a fund that a gamer (or, team of gamers) uses in a play-to-earn scenario.
The pooled assets are governed openly by all contributors and are safely leveraged within the game by the players. The yield is then split between the investors, gamers and any third-party managers. Two popular gaming guilds are Yield Guild Games and Good Games Guild.
The Takeaway
There are many ways to passively earn regular income from cryptocurrency, but these five are the easiest methods to start with. Be aware that there are no certainties and cryptocurrencies are extremely volatile.
As crypto markets mature, however, ways to make passive income with cryptocurrency will mature and other methods of earning passive income will be realized.