Holding and trading digital assets used to be the only way to earn returns in the crypto space. But with the proliferation of decentralised finance (DeFi) protocols on the Ethereum blockchain and other networks, there are now numerous other ways to earn decent interest on crypto assets.
It is no longer news that 2022 has seen investors getting neck-deep in losses due to the prolonged market downturn. It is also becoming increasingly difficult to hold and trade crypto due to heightened volatility. So, it is important to explore other passive income strategies.
In this article, we are going to explore 3 ways to earn passive income on the Ethereum network, in order to cover market crashes and downturns.
Lending is a popular way for investors and traders to generate passive income from their Ethereum investments.
They can make a profit by lending crypto to borrowers with a high-interest rate. This can be done either through centralised or decentralised lending platforms like Liquity, Alchemix, Cream Finance and some others.
Lenders who deposit funds into a lending smart contract make interest set by an algorithm. Borrowers deposit collateral of a crypto asset into a borrowing smart contract to earn yields or borrow other cryptos. They generally can only borrow assets worth up to 75% of their collateral.
Centralised platforms usually manage all technical details and provide the potential for investors to optimise assets’ yield. They also have higher interest rates than decentralised lending platforms.
On the flip side, decentralised lending platforms allow users to enjoy higher levels of security and transparency. DeFi lending platforms also allow experienced investors to tweak settings to maximise profits. However, they are more complex to use, require a higher level of technical expertise, and interest rates tend to be lower.
Another strategy to make passive income on the Ethereum network is yield farming. In this case, users lend their ether to liquidity pools on decentralised exchanges like Yearn.finance, SushiSwap and UniSwap to earn rewards.
Yield farming platforms enable you the ability to exchange a token for another in a liquidity pool. Note that traders pay a fee known as gas while trading crypto. This fee is then divided among the farmers who have contributed to the liquidity of that pool. The size of the reward depends on how much of the total pool liquidity is provided by the farmer.
Although Yield farming is relatively new and subject to change, it is a great way to generate passive income.
Ethereum staking is another popular way to earn passive income in crypto. Staking is basically the process of locking one’s funds on a Proof-of-Stake (PoS) blockchain like Ethereum to help validate transactions and earn rewards.
When users stake their Ethereum, they are essentially putting their money into the game and helping to secure the network.
In addition to direct staking, users can also use service providers like Stakewise and Lido. They are Decentralised Apps(DApps) that provide Ethereum staking services without having to run a full node, allowing network participants to stake with minimal amounts.
They usually charge a fee on rewards (above 10%) which might cut into one’s profits, but at least they won’t need to invest 32 ETH in advance like in direct staking.
This content is for informational purposes only and should not be construed as investment, tax or legal advice. It is strongly recommended that every recipient seek appropriate independent professional advice before acting on any information contained herein, as Technext provides no endorsement, opinion or advice, including investment, tax or legal, and makes no representation or warranty about the suitability of a product for a particular reader or circumstance.
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