How to Earn Passive Income in Crypto?
If we list the passive earning methods:
- Lending
- Liquidity Mining
- Staking
- Yield Farming
We can list them as follows. Now let's find out what these mean.
Lending
In the lending model, you lend your cryptocurrency to someone and they operate it for you. Just like our traditional money banks, cryptocurrencies can be deposited into lending accounts for returns. Many crypto exchanges, including Binance, allow users to earn passive income by depositing cryptocurrencies into these accounts. Of course, this is not a very safe method, because you should not forget that when investing in these sites, you are actually lending your money to someone else and these sites, including Binance, are under central management.
Again, it should not be forgotten that the annual interest rates of reliable tokens are at low levels, ranging from 5 to 20 percent. It is necessary to be careful about lending accounts that promise very high returns.
Liquidity Mining
Again, as a simple passive income method, you can become a liquidity provider. Do not be intimidated by this method called liquidity mining. Actually, it's very simple. Once you enter any crypto exchange DEX, check the Liquidity Pool section (LP). These pools, offer decentralized liquidity for certain cryptocurrencies.
The amount of return obtained can be increased by determining the ratios of two or more assets held simultaneously in these pools. Liquidity is usually provided by the community, i.e. by you. After you deposit a certain amount of tokens into this pool, you will receive varying fees from transactions made with the currencies in this pool, depending on the liquidity you provide. So, every time someone trades using these tokens, liquidity providers like you are paid a commission of between 0 and 1 percent. Again, it is a simple passive income method that does not require follow-up.
Staking
Staking (linking your cryptocurrency to a wallet) is a crypto mining alternative that requires few resources and effort. You can think of it like a savings account. Staking generally involves storing cryptocurrencies in a suitable wallet and performing various transactions on the network (e.g. verifying transactions/Proof of Stake or POS transaction) to receive staking rewards. But you do not do these operations. All you have to do is keep your tokens in the specified wallet, all technical requirements are taken care of by the exchange.
As you can see, it is a very effortless method.
It differs from traditional crypto mining as it uses your computer to do this and does not consume electricity. You simply stake, or bind, your money to a wallet. This binding process can sometimes be indefinite, in some cases it keeps your money locked in that wallet for a certain period of time (e.g. 1 month). You will earn money at the interest rates (APR) specified by that pool, corresponding to the amount you deposit. Of course, locked wallets generally promise higher returns, but it is worth noting that you cannot open this wallet and sell your holdings immediately in case the value of the money decreases.
In both cases, staking users can earn income from the increase in the amount of cryptocurrency locked or from transaction fees accumulated in the network. This method, just like a savings account, requires very little follow-up. With this method, it is possible to earn income without any intervention by investing in high-interest but promising projects.
What you should not forget: The token paid to you will also be of the same type (usually).
Yield Farming
Yield Farming is a transaction you can do if you become the liquidity provider we mentioned in the second article. A kind of digital farming. The difference from being a normal liquidity provider is that this time you have the chance to get higher returns from the transactions made with the liquidity tokens you deposit. In other words, instead of just receiving commission fees for transactions made in the pool, you can receive token rewards based on a certain interest with your tokens. This means earning higher passive income with your investments. But again, you should be careful, the Yield Farming model is sometimes opened for unlimited and sometimes for certain periods of time, and since the prices of the tokens in these pools can fluctuate, temporary losses may occur. This is also known as impermanent loss. However, you have an alternative token in your hand in case the value of a token decreases. Thus, if the value of one token you put into the farm decreases, the other token minimizes the loss.
Whichever of these methods you follow, you should know that digital exchanges are more volatile than traditional exchanges and you should always do your own research before making an investment.
