Tutorial: how to generate passive income with your cryptos?

Getting rich effortlessly with your cryptos sounds good to you, right? Have passive income… This additional income, which falls on a regular basis, allows you to generate money without compromising your main activity. The term “passive income” refers to earning money without doing anything. However, this is not quite the case, even if it comes close. You still need to research and monitor your sources of passive income! Cryptocurrencies now represent a real class of financial assets. They can allow everyone to generate interest and passive income in a simple and very attractive way for investors. What to surpass the yield of the booklet A. What are the different ways to generate income through cryptocurrencies? Is it risk-free for investors? We will discuss in this article the different ways to generate money passively!

the lendingbecome a creditor to generate passive income

One of the easiest ways to earn interest on cryptocurrencies is similar to the traditional business of retail banking. Indeed, Société Générale or BNP generate income through interest on loans granted to their customers. With your cryptopos, turn into a retail bank!

With decentralized finance (DeFi), players in the crypto ecosystem now have access to funding in the cryptocurrency they desire. Users (businesses or individuals) can now borrow cryptocurrencies from lenders. Conversely, holders of cryptos can lend them. Everything is done through smart contracts issued in the blockchain. The main point is that a lender can earn recurring interest payments by lending some of their cryptos.

It is undeniable that this activity presents certain risks. Indeed, creditors cannot withdraw their cryptocurrencies before the maturity of their loan. If the price of cryptocurrencies crashes, the chances of making a profit from it are reduced. However, if you have lent a crypto that is stable or, even better, rising in price, you can potentially earn significant profits. The interest paid on cryptocurrencies is much higher than that paid by banks (passbook A at 1%). With DeFi lending, users can earn an average annual return of 10-20%, and some methods are even more lucrative. Finally, you have to be vigilant in the selection of the crypto loan platform so that it does not fail you and disappear with your money. Concretely, it must be ensured that the crypto lending platform is not a scam. To do this, I advise against recently launched, not yet established and controlled crypto lending platforms.

Like any other investment, it comes with a lot of risk, so it’s a matter of doing your own research. So do your own research!

the stakinga reward for securing a blockchain

Another easy way to generate passive income from cryptocurrencies is to staking. This method is something unique to the blockchain using the protocol Proof-of-Stake. We can mention blockchains such as Cardano, Solana, Tezos, Alorand and soon Ethereum (by the end of the year).

The cryptocurrencies of these blockchains (respectively compared to the above blockchains ADA, SOL, XTZ, ALGO and soon ETH) allow to delegate as many tokens as the user decides in a “pool of staking “. This pool is used to validate transactions and govern the blockchain in question. Each time the tokens put in staking are randomly selected for use in this process, the user in return earns small rewards in the form of cryptocurrencies. The whole process is random. However, it is possible to increase your chances of having your tokens chosen by simply delegating more tokens to the pool.

The tokens put in staking can be withdrawn at any time. The risks associated with staking are minimal. The risks are obviously the volatility of the price of the cryptocurrency itself or a flaw in the protocol.

Yield Farming, a Defi opportunity

Yield farming is a relatively new concept in the world of cryptocurrencies. It is notably made possible thanks to the Defi. So it is not possible to do yield farming on a centralized exchange like Crypto.com or Coinbase.

Yield farming consists of an investor depositing tokens in a liquidity pool using smart contracts. Each time a token is added to a liquidity pool, it is locked for a period of time. These liquidity pools make it possible to operate a decentralized exchange where the users of the exchange perform swaps in order to exchange the tokens they want. Thus, each time users perform swaps, users who put their tokens in the pool benefit from interest on this amount. These interest rates are usually quite high, making them a great way to earn passive income. However, only certain tokens can be used in liquidity pools. These include BNB, USDT and Cake from the PancakeSwap platform.

Mining, an alternative to receive passive income

Mining is very similar to stacking, presented previously. But it is much older and a bit more complicated. It is possible to generate tokens in blockchains using the system of Proof-of-Work. Mining basically consists of buying a mining installation, consisting of a fairly powerful computer. With its computing power, this computer works to create new “nodes” in the blockchain.

Each time your installation is used to create a new node, you earn a small reward in the form of cryptocurrency. To get the most out of mining, you can donate your computing power to a pool such as Nanopool or Ethemine.

However, with the recent accusations towards blockchains using the Proof-of-Workthreats of mining bans, falling crypto prices and an increased number of miners, some consider it a little too late to start mining…

An interest-bearing account, a simple way to generate passive income

Opening a savings account at a bank is usually one of the main ways to earn interest. Similarly, there are paid accounts in the world of cryptocurrency! There are many exchanges that are centralized (CEX) like Binance, or decentralized (DEX) like Maiar. These are crypto wallets and service providers that allow their users to open an account, purchase specific tokens, and block them in their account.

By blocking tokens, it is possible to earn a return. This return is on average much higher than that of a traditional savings account. On the other hand, it is lower than staking.

The associated risks are characteristic of cryptocurrencies and rather minimal. The risks are that there is a flaw in the exchange or that the price of your cryptocurrencies goes down. It’s a bit like what your money in your checking account risks: a collapse of your bank or a fall in the value of the currency.

However, there are also many stablecoins you can invest in: stablecoins. These stablecoins do not show the same level of volatility. For example, the USDC token or the USDT token are pegged to the US dollar, which means that its value cannot be higher or lower than the dollar. Concretely 1 USDC = 1$! If one blocks USDC or USDT tokens on an interest-bearing account, it is possible to earn interest.

You have no doubt heard of the collapse of the stablecoin Terra USD. This event, although recent, is already sadly historic. Although other articles dwell more on this collapse and analyze it in depth, some quick conclusions can be drawn: stablecoins conventional (USDT or USDC in particular) seem very low risk, because each of their digital coins is backed by real assets; contrary to stablecoins algorithmic (TerraUSD type).

the airdropa raffle ticket in order to hope to touch the jackpot?

There is also a way to earn passive income by not spending any money at all: airdrops. Just like some shops giving free samples to their customers, some new cryptocurrency projects give them for free for the same purpose: to make themselves known and to “retain” investors. This process is called “airdrop”. And, it is becoming more and more popular. Thus, most cryptocurrencies that come from a airdrop are generally worthless. But you never know, it is possible to come across a rare pearl!

We have seen the different ways to generate passive income on the blockchain thanks to your cryptos. Despite the risks that certain features may present, cryptos offer its users better returns than traditional banks. Indeed, the banks are very supervised following the financial crisis they caused. This strong regulation obliges them to have various commitments that reduce their risk of illiquidity and solvency. On the other hand, this considerably reduces their margin. This is the main reason for the low yields offered by banks. Conversely, the crypto industry, which is still poorly regulated, offers an extremely attractive passive income, risk ratio. Are you convinced to empty your booklet A for the lending where the staking ? Anyway, this article is intended as a support for your decision-making, and not as investment advice. It’s up to you to equip yourself with as much information and knowledge as possible to establish your convictions and make your own choices! Do your own research !

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Gregory Morat

Student passionate about entrepreneurship and fascinated by the technologies behind cryptos! Yes, I am convinced that the two are intimately linked: blockchain and NFTs are revolutionizing many sectors and presenting unprecedented opportunities.

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