Ways to generate sustainable passive income using Crypto
- 1 — Staking native blockchain coins!
- 2 — Yield farming with USD stable coins!
- 3 — Providing liquidity!
- 4 — Staking DAO/Dapp/Reward tokens!
The world is changing day by day and life is becoming more difficult than ever, when prices are getting more and more expensive, requiring people to have more sources of income. However, with limited time and energy, creating a new source of income is not an easy task.
Billionaire Warren Buffet once said: “If you don’t find a way to make money while you sleep, you will work until you die.” It means that passive income is the key to financial freedom.
In this article, BHO Network will cover some of the most popular methods of generating passive income with cryptocurrency.
1 — Staking native blockchain coins!
Risk level: Low — 3 to 20%.
Many chains and tokens have their own way of validating transactions. Most proof-of-stake chains use validators that “mine” new blocks, and delegators that put their coins and thus trust in these validators to mine the right transactions. These often have the least risk involved, and therefore also offer the lowest possible yields.
As you can see blockchains like Polkadot and Elrond offer double digits staking yields, but all the mentioned options are worth exploring. Do keep in mind that some chains (like DOT) experience inflation, lowering the actual yields. Chains like Ethereum will actually experience negative inflation close to -1 to -2%! meaning that the actual yields will actually be higher than mentioned. But, as always, do your own research on all of the options!
2 — Yield farming with USD stable coins!
Risk level: Low — 1 to 20%.
Many DeFi protocols, CEX and DEX’s offer nice yield generating options for your stablecoins by lending them out to other investors or by using your funds to provide flashloan.
The returns of these methods often vary according to the volume or intended use of your funds. If you are rewarded with platform native tokens instead of stablecoins, the return will also vary according to the value of those tokens. This investment method is the least risky of the mentioned options as there is almost no risk of price fluctuations of stablecoins. However, if you are a DeFi user, you need to be aware of Smart Contract risks.
Some of the projects and protocols that provide Yield Farming capabilities investors may consider include: Curve Finance, Aave, Uniswap, and Pancake Swap.
3 — Providing liquidity!
Risk level: Low/Medium/High — 5 to 500%.
The world of DeFi and decentralized exchanges would not exist without liquidity pools and Liquidity Providers (LPs). Liquidity providers provide their assets on both sides of the pool eq. 50% in USDT and 50% in ETH. When traders come and trade in that pool, you will get a portion of the generated fees. These liquidity pools generate higher yields but are also exposed to more risk, eg. Impermanent Loss (IL). When the prices of the assets start to rise or fall it might (not) have been smarter to hold the asset instead of providing liquidity.
As you can see the yields are a lot higher when providing liquidity, but so is the risk! Do proper research before investing in these pools as rewards and losses are a lot higher. When providing liquidity you should consider the following risk levels:
- Low Risk and Low Returns: are liquidity pools that require only 1 asset or stablecoins such as bridges or USD pools. Low-risk and low-return liquidity pools are usually liquidity pools with only a single crypto asset such as ETH or USDT, such as blockchain bridges or USD pools.
- Medium Risk and Medium Returns: are the liquidity pools that are bound to a stablecoin on one side, and assets on the other side, like USDT-FTM.
- High Risk and High Returns: are the pools that require 2 assets on both sides of the pool, like MATIC-ETH.
4 — Staking DAO/Dapp/Reward tokens!
Risk level: Medium/High — 35 to 500%.
The riskiest, and therefore also the most rewarding strategy would be to invest and stake native tokens coming from DApps. Most DeFi applications have their own native token that can be used to vote, get a portion of (trading)rewards or improve the yield of their offered products/services.
These rewards are often the highest but are usually paired with either increased inflation, smart-contract risk or centralisation risks. The price of these tokens is often highly volatile, as more tokens are given out the price usually decreases, and they usually consist of a centralised dev team that might fuck up or leave the project. The plus, however, is higher yields, more rewards, voting power and more upside potential.
As you can see some of these rewards are entering the triple-digit yields. As this seems like the most profitable, a lot of caution and research have to be taken into account before investing in these projects. These are highly risky and there are often caveats that are not immediately obvious. If it is too good to be true, most of the time it is!
There are many opportunities in the crypto market whether DeFi or CeFi and investors need to know where to go to start generating passive income. There are many different ways of investing, and the methods and forms mentioned above will give the investor an idea of the different possibilities in the market. BHO Network will always advise investors to divide their investment evenly across multiple lines, thereby keeping themselves from taking too much risk and helping to diversify investment portfolios.
Published on May 17, 2022
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