Top 5 Best Passive Income Opportunities in Crypto

Discover how your money can work for you in crypto

Do you want more stability in your finances? If the answer is yes, you should think about generating some passive income. It can help you solve your financial woes and save you from living paycheck to paycheck. Even if you’re already well off and only looking for an additional stream of income not defined by time and effort, this is a neat option. 

One of the best ways to earn money with little to no effort is in the crypto space, where there are a lot of simple methods you can use to generate passive earnings.

With DeFi, you can deposit your assets onto a platform or protocol that will pay you an APY (annual percentage yield) for it. DeFi has had a rocky year struggling with the bear market, surviving the Terra debacle and the Tornado Cash OFAC sanction.

However, recently there have been some positive signs of recovery, even when still far below the all-time high of $253.91 billion on December 2, 2021.

In DappRadar´s Blockchain Industry July report, we highlighted how despite the total number of unique active wallets (UAWs) being low, the total value locked (TVL) improved by 22 % from June.

Here are five of the best opportunities for crypto-based passive income:

Liquidity providing

The widespread adoption of Automated Market Markers (AMMs) has made decentralized exchanges very popular. With that, liquidity providing (or liquidity mining, as it’s also known) is one of the most popular ways to earn passive income. 

DeFi protocols rely on generating liquidity pools composed of pairs of tokens equal in value. As such, they allow all users to become liquidity providers.

As a reward for locking up your digital assets in a smart contract to provide liquidity, you’ll receive liquidity provider tokens (LP). These tokens represent your share in the total liquidity pool. Based on your share in the pool, the exchange also determines what percentage of the swap fees you’ll receive.

Yield farming 

Yield farming is very similar to liquidity providing. The only difference is that the latter applies only to DeFi protocols used for trading and not for lending or borrowing. 

The best way to explain yield farming is by comparing it to traditional finance. In traditional banks, the bank uses the funds you deposited to credit other people, and you receive a fixed portion of the gained interest. 

Yield farming is similar because you store your crypto assets in a liquidity pool. The users of the same protocol can then borrow these tokens and use them for margin trading.

The rewards for yield farmers are calculated as Annual Percentage Yield (APY) – the actual rate of return earned on an investment, factoring in the effect of compounding interest which is calculated periodically.

Crypto token staking

Staking is only possible on networks that operate on a Proof-of-Stake (PoS) consensus method to validate transactions.

If you have tokens that support staking, you can earn passive income by staking them in a staking pool. Your tokens are then put to work and used to ensure that all transactions are valid and secure.

Naturally, you’ll get rewarded for your efforts. Staking allows you to earn between 5% and 20% annually, depending on how many tokens you stake. Currently, the most popular blockchains that allow staking are Solana, Cardano, and Polkadot.

Income from NFT staking

Selling NFTs can often be a challenge because their value is mostly subjective, so the option of NFT staking is a good way to earn money from your NFTs without finding a buyer.

How does income staking work?

You can lock up your NFT through a platform or the founding project to earn staking rewards. These rewards depend on the NFT itself or the staking platform, but usually, they are awarded weekly or daily and come in the form of the platform’s native token.

Lending/Borrowing

Lending and borrowing crypto is straightforward: you lend your crypto to borrowers to receive interest. The amount you receive depends on the interest rate, the value of the crypto, and the duration of the loan.

There are different lending strategies available:

• Peer-to-peer lending enables individuals to directly obtain loans from other individuals through a P2P lending platform, effectively cutting out the standard financial institution from the process. You can set the amount you want to lend, as well as the interest.
• Decentralized lending happens through the blockchain with no intermediaries and interest rates are automated by smart contracts.
• Centralized lending is done by centralized platforms that have fixed interest rates and lock-up periods.
• Margin lending refers to lending assets to traders that use your assets to expand their market position.

Let your income work for you

Earning money while you sleep is something that sounds too good to be true – but it is very much possible.

When you consider the fact that it’s quite easy to achieve gains in the world of DeFi, there is no reason not to dabble in some of these methods. They aren’t that complex and basically boil down to depositing stablecoins and waiting to receiving your interest.

However, keep in mind that these investments do come with risks due to the volatility of crypto assets. Still, that shouldn’t detract from the fact that earning passive income with crypto is easy and can significantly improve your financial situation.