Want to put your cryptocurrency to work? Check out these options to start earning.
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It’s often said that the epitome of wealth creation is earning income while you sleep. Unfortunately, with low interest rates in the banking sector, investors these days have to be more proactive to generate high-yield passive returns. Luckily, the cryptocurrency industry has a range of easily accessible solutions.
There are now more products than ever for investors to maximise digital assets. Whether it’s staking, mining, crypto cashback, liquidity pools, CeFi lending or play-to-earn games, there should be an option to suit your crypto portfolio.
As one of the most popular options, there’s no better place to start than staking.
Staking has become one of the most popular ways for investors to make cryptocurrency assets work for them 24/7, 365 days a year. It essentially allows you to generate rewards on assets you already own, in return for “staking” them for a set period of time where they cannot be spent.
Thankfully, in Australia and New Zealand, exchanges like Swyftx now do all the hard work for you. You only have to move your funds into a staking account to earn rewards, literally allowing you to earn while you sleep.
By staking assets in the exchange, Swyftx serves as the the intermediary and passes on rewards directly to you. Rewards are distributed to you on a daily basis, also allowing you to take advantage of the effects of auto compounding.
So, if you are hodling any Proof of Stake (PoS) cryptocurrencies, staking is definitely an option worth looking into.
But what about if you have cryptocurrencies that are part of a proof of work (PoW) blockchain? Well, perhaps mining could be the way to go.
Cryptocurrency mining refers to the process of supporting a PoW blockchain. PoW blockchains, such as Bitcoin, Litecoin or Ethereum, require “miners” to compete to solve a mathematical formula. And before you get worried – the solution to the formula is calculated using sophisticated mining hardware – you won’t need a pen and paper handy.
When a miner finds the solution first they get the opportunity to validate the next set of transactions and add the next block to the blockchain. After the block is added, the miner is rewarded.
Different blockchains require different mining hardware and software – often referred to as a mining rig. Although mining hardware and software may be slightly more complicated to set up, once up and running, a mining rig can passively earn crypto while you’re busy counting sheep.
Earning crypto cashback
Okay, so this one you may not be able to fulfil while sleeping, but it involves just as little effort.
There has been a monumental influx of financial service providers and fintech companies looking to offer investors a range of crypto-related products. One such product, that is commonly offered by crypto banks or exchanges, is a crypto debit card.
Crypto debit cards, backed by either Visa or Mastercard, enable users to spend cryptocurrencies at a range of different merchants worldwide. It has never been easier to convert digital assets into actual spending power – perfect if you’ve got excess digital assets that you would like to realise gains on. And to stand out from the competition, many providers are now offering “crypto cashback” with every purchase.
Often referred to as cryptoback, these rewards can extend up to 8% with certain crypto banks – rewards that can be made payable in either cryptocurrencies, stablecoins and sometimes even fiat currencies.
Play-to-earn games reward users simply for playing. This may involve completing challenges to earn cryptocurrency tokens or earning experience points that can then be redeemed for cryptocurrencies. While you can’t be asleep to play these games (yet!), they certainly offer a fun way to add extra digital assets to your portfolio.
Many games have also incorporated non-fungible token (NFT) technology to allow an element of in-game ownership. NFTs have allowed players to exchange, trade and sell in-game accessories, characters and even digital real estate within a game’s metaverse. Now, these can earn you interest while you sleep.
Just like any other asset, in-game NFTs are valued based on supply and demand. If a game grows in popularity and you own certain characters or digital real estate, those assets could easily grow in value. Some parcels of digital land within games such as Axie Infinity and the Sandbox have already started exchanging for millions of dollars.
So, whether you’re a fan of gameplay or you fancy yourself an NFT investor, play-to-earn gaming is a sector definitely worth checking out.
Depositing into a liquidity pool
Earning passive income from liquidity pools, sometimes called liquidity mining, is a method that has become popular as decentralised exchanges have grown in demand. But before we take a look at liquidity pools, let’s just quickly run through the difference between a centralised and decentralised exchange.
While centralised cryptocurrency exchanges rely on a centralised order book to complete trades, decentralised crypto exchanges rely on liquidity pools. These liquidity pools are user-supplied, meaning anyone can deposit liquidity into the system. For depositing cryptocurrencies into the system, users, commonly known as liquidity providers, can earn a share of all transaction fees.
As liquidity pools need to support a cryptocurrency pairing, such as ETH/USDT, an equal amount of both cryptocurrencies is required. For our example, you would need 50% ETH and 50% USDT before you can deposit. Once deposited, a share of all transaction fees is then distributed daily to liquidity providers.
Earnings are directly correlated to how often a liquidity pool is used for trades. Although this means rates of return are changing all of the time, if you pick a popular liquidity pool, you could be earning high yields while you are tucked up in bed. Go further by learning the process of yield farming and those returns suddenly get a lot bigger.
As lending to a liquidity pool is a relatively new and untested area, some may feel more comfortable loaning cryptocurrency assets to a centralised service – this is where CeFi lending may become an attractive option.
This information should not be interpreted as an endorsement of cryptocurrency or any specific provider,
service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and
involve significant risks – they are highly volatile and sensitive to secondary activity. Performance
is unpredictable and past performance is no guarantee of future performance. Consider your own
circumstances, and obtain your own advice, before relying on this information. You should also verify
the nature of any product or service (including its legal status and relevant regulatory requirements)
and consult the relevant Regulators’ websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
CeFi, or centralised finance, is another term used for financial organisations that are controlled by a centralised entity – the banks, market makers and financial institutions we all grew up with. However, there is also a younger breed of CeFi platforms focused purely on the cryptocurrency sector.
Many of these CeFi crypto platforms operate globally and offer cryptocurrency investors the opportunity to deposit crypto assets into a high annual percentage yield (APY) savings account.
Just like a traditional savings account, digital assets are stored and accrue interest automatically. Just like a traditional bank, those savings are invested and loaned to third parties in return for interest. However, unlike traditional regulated banks, crypto-focused CeFi platforms do not have to keep the total assets under management stored as reserves. This means that they can return yields far higher than traditional banks. Interest payments are often accrued in the cryptocurrency deposited and paid out daily instead of monthly.
Disclosure: The author owns a range of cryptocurrencies at the time of writing