Is there more to cryptocurrency than just mining and holding? Yes, absolutely! You can earn a massive passive income on your Bitcoin and Ethereum with Decentralized Finance (DeFi). Does that interest you?
In this article, we discuss how you can earn passive income on your cryptocurrency with DeFi.
DeFi is an abbreviation that stands for Decentralized Finance. It refers to financial software or applications built on theEthereum blockchaingeared towards eliminating intermediaries in financial transactions. Ethereum’s platform is preferred over Bitcoin for decentralized apps because its design allows for creating and executing smart contracts.
To understand DeFi better, let’s look at how traditional finance has been evolving. Before the introduction of currency, people were engaged in batter trade for both goods and services. In most cases, there were no intermediaries involved in the exchanges. The decisions of transactions were made solely by the parties involved. The introduction of currencies transferred the mandate of managing it to a central authority like governments and banks. People were no longer able to control their finances.
By transferring all the power to manage finances to these institutions, you are left with nothing to say about how corporations manage investments or how governments manage the economy. Now DeFi is aimed at taking back the power from these intermediaries and giving it to the investors.
DeFi is creating a new digital banking ecosystem that requires no middlemen and intermediaries. Anyone can access it because it’s transparent, uses an open code, and all transaction activities are recorded and stored publicly in the blockchain. Investors can save, lend, borrow, exchange assets, or implement investment strategies.
DeFi is currently the preferred choice for most crypto investors because of these reasons.
DeFi flourishes in mutual trust while preserving the privacy of the parties involved in the transactions. There is no requirement to know both the borrower’s and the lender’s identities, yet the transactions are not anonymous. Transactions are public and information is stored on the blockchain.
High-street financial institutions like the Interbank Information Network are getting involved in DeFi and seeking opportunities to participate. Also, the largest crypto investment fund, Grayscale, is taking DeFi seriously.
The effect of Covid-19 on the economy. DeFi potentially gives higher interest returns compared to other financial institutions.
The fear of being left out. Many people are pumping their money into DeFi tokens to avoid missing out on potential growth. Some of these decisions people make are irrational, but it’s a step towards a decentralized and liberalized financial system.
Earn a Huge Passive Income from Your Crypto
There are many ways to earn passive income on your Bitcoin and Ethereum, even in these times when the economy is derailing. The most common way to make using DeFi is through lending and borrowing funds. You can also use decentralized apps to harness DeFi products and protocols to earn high profits. This process is called Yield Farming.
Instead of just investing your cryptocurrency, you can let a company borrow your funds at a high-interest rate and earn massive returns. Unlike traditional banks offering a demoralizing 0.1% as interest on savings, you can scoop a whopping 8.6% as interest elsewhere. Is that even possible? Yes, it is. And, you don’t even need to have a lot of savings to make reasonable returns.
One platform where you can lend at such high-interest returns is through BlockFi.
BlockFi is a lending platform that provides high interest on your cryptocurrency savings. Suppose you have Bitcoin or Ethereum, or any other cryptocurrency. In that case, you can enter BlockFi, open an interest account, and begin to earn interests as high as 8.6% on your crypto savings.
BlockFi will loan out your idle cryptocurrencies in your savings and then give you a percentage of the earned interest. You earn by not doing anything at all. Isn’t that refreshing? BlockFi keeps cryptocurrency deposits secure, as they are held by Gemini Trust Company and regulated by New York Department of Financial Services. You can access BlockFi from anywhere in the world, except for the watch listed countries. You can also withdraw your earning any time of the month, but you get only one withdrawal per month.
The borrowers in this case include:
Traders and investors who borrow cryptocurrency to close gaps created between exchanges.
Over-the-counter (OTC) market makers borrow to keep inventory on hand to meet any demands that may arise due to market volatility.
Other businesses that require providing clients with liquidity borrow so that they can have an inventory of cryptocurrency.
Celsius Network works similarly and allows you to borrow and lend your cryptocurrencies. With their native token (CEL), you can send and receive payments, receive interest, pay interest on loans, and take to earn interests.
In Celsius Network, you earn interests according to your loyalty level. Unlike in BlockFi, where what you have doesn’t determine your eligibility for earnings, Celsius Network rewards interests depending on how much your portfolio is in CEL tokens.
The loyalty levels and their interests are as follows:
Bronze – you earn 0% bonus interest and 0%loan interest discount.
Silver – you earn a 10% bonus interest and a 10% loan interest discount.
Gold – you earn a 20% bonus interest and a 10% loan interest discount.
Platinum – you earn 35% bonus interest and 30% loan interest discount.
Loaning Out Your Cryptocurrencies
This is the easiest way to earn using your cryptocurrencies. You can loan out your idle cryptocurrencies and make interest from them. Here’s how to do it.
Choose which coin you want to lend—for example, Bitcoin or Ethereum.
Pick a smart contract.
Enter the amount you’d want to lend out.
Your cryptocurrency is deployed to the smart contract, and you start earning interest. You can track your interest growth from your Wallet app.
CoinLoan does more than lending as you can also borrow through the platform. It allows peer-to-peer lending backed with crypto assets. If you want to loan out, you’ll need first to deposit fiat funds or stable coins. The borrower will deposit crypto assets to secure the loan. A smart contract is initiated, and the borrower receives the funds. After paying back, the lender gets the money back together with interest earned.
CoinLoan is reliable, safe, easy to use, and all its payments are guaranteed. It would be a great place to start if you are interested in earning interest in your cryptocurrency.
Staking your cryptocurrency involves active participation in validating transactions on a proof-of-stake (PoS) blockchain. If you have the required minimum balance of the specific cryptocurrency, you can validate transactions and earn staking rewards.
Here’s how it works.
When your cryptocurrency amount hits the minimum balance, it is deposited into the blockchain network as a stake. Depending on your stake size, you stand a chance of being chosen to forge the next block. If the block is successfully created, the validator receives a reward.
How are the rewards calculated?
It’s not the same for all blockchain networks. Some are calculated on a block by block basis. Others are calculated by determining fixed percentages, and others consider many other factors. Some of the factors considered include:
The amount of cryptocurrency the validator is staking.
The inflation rate on the cryptocurrencies.
How long has the validator been actively staking?
Total coins staked in the network.
In Coinbase, you can delegate the staking power to hold a minimum balance of a stake-able cryptocurrency once you are eligible. Coinbase will stake for you and take a commission on the rewards received. With Coinbase, you are sure of secure staking, and you’ll retain full ownership of the Crypto.
To be eligible to stake with Coinbase, your identity must be verified and have the required minimum balance for the cryptocurrency. The eligible cryptocurrency must be held on Coinbase.com. As the lender, your transaction is secure, and payments are guaranteed.
Another crypto exchange that you can use effectively for staking cryptocurrency is Binance. It has a feature called Binance Staking, which is specially designed for staking. The interface is user-friendly and allows you to deposit tokens and do crypto staking.
To start staking on Binance, you’ll need to create an account first. Then, deposit your tokens to begin staking. If you don’t have coins yet, you can buy them. There are many cryptocurrencies available for staking on Binance; you just need to choose as many as you want and begin staking. The only thing you’re required to do is hold your proof-of-stake coins on Binance, and the rest, including all technical requirements, will be taken care of by the platform. All the staking rewards are shared out at the beginning of each month.
The cryptocurrency market is broad and developing by the day. New opportunities like DeFi present themselves, and it’s up to you to take advantage of these opportunities.
You can use BlockFi to lend out your idle cryptocurrencies and earn high interest from it, or you can use Celsius Network and tap into their loyalty levels to earn interests as high as 35%.
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