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The rapidly growing crypto ecosystem allows individuals around the world to earn passive income in digital currencies and tokens. Read on to discover six ways to earn passive crypto income.
Deposit crypto in CeFi Lending Platform
The easiest way to earn passive income with Bitcoin (BTC) and other digital assets is to deposit on a central lending platform.
While most experienced crypto users recommend avoiding depositing crypto with third-party providers, the ease of use of the Centralized Finance (CEFI) lending platform has led to billions of dollars of crypto streaming into CeFi lending. Once the funds are deposited, the users earn interest (usually paid in the deposited assets).
Popular CEFI lenders are BlockFi and Nexo.
Deposit Crypto in a DeFi Credit Log
The more decentralized alternatives to BlockFi and Nexo are autonomous credit protocols such as Compound (COMP) and Aave (AAVE). DeFi lending apps allow crypto holders to deposit money into smart contract lending pools to earn interest.
The main difference between CeFi and DeFi Lending is that the latter gives users complete control over their funds and does not require know-your-customer (KYC) documentation or onboarding processes.
Returns are determined by supply and demand and vary from platform to platform. In addition, some DeFi lending apps are riskier than others. The high yields in DeFi are also associated with higher risk.
Providing Liquidity in Liquidity Pools & Yield Farming
In addition to lending, DeFi markets also allow individuals to earn passive income by depositing crypto into decentralized trading pools called liquidity pools.
As a reward for providing liquidity to an autonomous trading pool, depositors are rewarded with trading fees and LP (Liquidity Provider) tOkens. In order to generate additional income from deposited digital assets, users can then use the LP tOkens in so-called “yield farms”.
Yield farming has become a popular way to generate passive crypto income, but like DeFi lending, it is one of the riskier ventures in the crypto markets.
Popular liquidity pools are Uniswap (UNI), SushiSwap (SUSHI) and PancakeSwap (CAKE).
Staking POS-based cryptoassets
Alternatively, you can hold and wager Proof-of-stake (POS) coins to earn passive income in the form of staking rewards.
PoS-based crypto networks require validators to “lock” a share of the network’s native asset to secure the blockchain. The incentive to contribute to a crypto network in this way is to earn a portion of the block reward in the form of newly minted coins.
The staking process differs from network to network, with some requiring advanced software setups and a continuously running validator node, while others simply require you to keep the assets in the official wallet.
Run a Masternode
If you want to improve your staking game to generate more crypto-passive income, you can run a masternode.
Masternodes, also known as bonded Validator systems, are a special type of node that performs certain functions within a kryptonetwork.
In the Dash Network (DASH), for example, masternodes power the network’s PrivateSend and InstantSend functions and provide governance voting rights to operators. However, in order to run a Dash masternode, operators need to deploy DASH 10,000 (USD 1.6M), making it a capital-intensive matter to get return (in the form of newly minted tokens) on their holdings.
Fortunately, there are masternodes that require a much lower capital investment while offering double-digit returns paid out in the network’s native token.
Run a Lightning Node
If you are a Bitcoiner and prefer to stick with Bitcoin for passive income, you can set up and run a Lightning Network (LN) node.
By supporting the fast-growing Lightning network by operating payment channels, you can earn a few sats every time someone transacts through your channel. While earning on #bitcointwitter may not be something to brag about, running an LN node means you’re contributing to the most powerful open currency network in the world that will potentially bank the unbanked. And on top of that, you can stack sats by making a contribution.
Before you run off and explore every single method in this list, remember that each of them carries a different risk. Do your own research and never invest more than you can lose.