Today’s rapidly evolving cryptocurrency marketplaces provide a variety of yield-generating opportunities for investors seeking investment returns in addition to capital appreciation. Continue reading to learn five strategies for earning a return on your cryptocurrency investments.
Staking coins is often one of the first possibilities for crypto investors looking to earn income on their digital assets. Staking is a term used in the cryptocurrency markets to describe the process of encrypting your coins in order to support a proof-of-stake (PoS) blockchain network and gain rewards in the form of newly minted tokens. Sunny King invented the PoS consensus process in 2012 as an alternative to the proof-of-work (PoW) concept in order to overcome the latter’s environmental sustainability and scalability concerns. Cryptocurrency holders can stake a fixed amount of funds on the blockchain to validate transactions using the PoS idea. Typically, there is a minimum number of coins that you can stake. Additionally, cryptocurrency investors can validate block transactions depending on their coin holdings. The more coins an investor has, the greater the returns. Algorand (ALGO), Cosmos (ATOM), Tezos (XTZ), and Tron (TRON) are all popular staking coins, while Ethereum (ETH) is also migrating to the PoS algorithm and already supports staking on its Beacon Chain. APYs (annual percentage yields) for staking often range between 3% and 10%, depending on the asset. Along with staking coins on proof-of-stake (PoS)-based crypto networks, crypto holders can earn interest on their holdings by staking tokens on decentralized finance (DeFi) platforms. For example, you can bet CAKE tokens on the decentralized exchange PancakeSwap, which is powered by the Binance Smart Chain, and earn 50% + APY (at the time of writing).
Prior to the advent of DeFi, virtually all cryptocurrency platforms worked under the centralized finance (CeFi) model. Because of this, just a single entity was in charge of the platform’s operation. Aside from trading platforms for cryptoassets, crypto lending marketplaces have arisen, allowing crypto holders to lend their digital assets while earning interest on their investments. CeFi lending programs allow you to generate cryptocurrency yield when borrowers pay interest on the digital assets you are lending to them, which you can then invest in other projects. The platform you are using takes care of all of the payments and links borrowers and lenders, leaving you with only the interest payments you are receiving to worry about. BlockFi, Nexo, and Ledn are examples of leading CeFi lending systems, and annual percentage yields (APY) can range from a few percent to double-digit percentages. The major disadvantage of centralized lending apps, on the other hand, is that you must place your faith in a third-party with your coins, and you may also be required to go through a KYC (know-your-customer) procedure.
Decentralized alternative lending to CeFi lending is referred to as DeFi lending. During the previous two years, the DeFi market has witnessed explosive expansion, and it is now a multi-billion-dollar crypto sub-sector in its own right. Decentralized lending pools, such as Compound (COMP) and Aave (AAVE), allow cryptocurrency holders to earn income by lending their cryptocurrency to others (AAVE). Smart contracts are used on lending dapps (decentralized applications) to connect lenders and borrowers without the need for credit checks, and collateral is provided to mitigate default risk on these platforms. The interest rate for DeFi lending might vary significantly based on the platform and the lending asset. For example, on popular DeFi lending services, you can currently earn between 0.5 percent and 7 percent on stablecoins backed by the US dollar, according to CoinDesk. The most significant disadvantage of DeFi lending is that DeFi protocols have a history of being compromised by hackers, resulting in the loss of cash. For investors wishing to earn a yield in the DeFi lending markets, sticking with the most established DeFi lenders is definitely the best course of action to take.
Another popular method of generating cryptocurrency yield is through yield farming. Despite the fact that all cryptocurrency yield generating strategies are risky, yield farming is likely the most risky of the bunch. It does, however, have the highest annual percentage yields. It is also known as liquidity mining or yield farming. It is a concept in which cryptocurrency holders can stake some or all of their digital assets in a lending or DeFi trading pool, thereby providing liquidity. In exchange, they receive liquidity pool tokens, which can then be staked in a yield farm to earn additional yield on top of the liquidity pool fees. Sovryn, SushiSwap, PancakeSwap, and Yearn are among the most popular yield farms, with annual percentage yields reaching triple digits.
You may not be aware of this, but staking non-fungible tokens can also result in a return on your investment (NFTs). Since the beginning of the year, the NFT sector has undergone a significant expansion, therefore it shouldn’t come as a surprise that developers have come up with innovative ways for NFTs to give yield to holders. Despite the fact that non-fungible token staking (also known as NFT farming) is a relatively new idea, there are currently a handful of decentralized applications (dapps) that allow you to stake your non-fungible tokens in exchange for staking incentives in the form of protocol tokens. With the primary distinction being that yield farming needs one to deposit digital assets into a liquidity pool in exchange for token payouts, but NFT staking does not. Staking NFTs is similar to yield farming, with the major difference being that the latter requires one to employ NFTs. While collecting a dividend on your cryptocurrency has the potential to be rewarding, it is also potentially hazardous. When it comes to investing, only invest what you can afford to lose and conduct your own study about the assets and platforms you intend to employ in your pursuit for yields.