Crypto: The Definitive Passive Income Guide
Earning passive income from your crypto holding is a good way of generating income. Today we will look at some of the best legitimate ways you can generate a passive income from your crypto holdings.
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🤓 About Crypto Skills 🤓
Bitcoin is about to transform the financial system as we know it. This revolution is what we will cover here at Crypto Skills. We will give you bite-sized explainer videos on crypto, Bitcoin and the crypto market in general. In our videos, we will cover a wide range of topics, such as "what is DeFi", "how smart contracts work", "NFT games" and "how you can earn money in the crypto market". We will also talk about popular and new altcoins such as Shiba Inu, XRP, Safemoon, Dogecoin, Cardano and others.
There are two types of lending in crypto - Centralized or CeFi Lending, and Decentralized or DeFi lending. Centralized platforms are basically a company that offers crypto lending and borrowing services. They hold your cryptocurrencies and lend them out to others who need to borrow. A percentage of the interest paid by the borrower is sent to your account on a daily basis. This way, you can simply deposit your crypto holdings and generate passive income every day. The best thing about CeFi crypto lending is that you don’t have to keep your deposit tied up for a certain amount of time. On most centralized lending platforms, you can take out your deposits any time you want. Also, the interest rate offered by most CeFi platforms is fixed - meaning that whatever the market condition is, you will always earn a fixed interest rate.
Centralized platforms also offer great alternatives to traditional banks. If you’re not a conventional crypto user and instead want to generate income from your regular savings - then you can buy stablecoins like USDC or USDT and get greater interest than you’d from a bank.
Let’s look at some of the best and most reliable centralized lending platforms today. YouHodler is perhaps one of the most common CeFi platforms today, that offer between 3%-8% interest based on which token you are staking. The platform supports 30+ cryptocurrencies, including tier-1 tokens like Bitcion and Ethereum.
There’s also CoinLoan which offers between 5.2% - 12.3%, and supports traditional currencies like Euro and GBP in addition to cryptocurrencies. For higher interest rates, you can choose Haru Invest which offers between 5.1% - 16.5%. However, the platform only supports Bitcion, Ethereum, USDT, and XRP.
But, Centralized lending services aren’t without risks. As they are controlled by a single entity or organization, CeFi platforms retain ultimate control of your deposits - meaning that:
You won’t know where your assets are being invested or who they are being lent to.
They can suspend deposits and withdraw at any given time.
If they become bankrupt, all user funds may be lost.
They have a rather complex and extensive registration and onboarding process including financial checks and KYC.
The risks of Centralized lending are better understood through the case of Celcius Network. This centralized lending platform was on top of its game last year, generating over $700 million in revenue in November 2021. However, when the bear market hit, investors rapidly took their money out of Celcius - causing it to experience massive liquidation. The platform froze its withdrawal functions overnight and ultimately went bankrupt.
To avoid such risks, a better alternative for crypto holders might be decentralized lending or DeFi. Unlike centralized platforms, DeFi lending services provide variable interest rates. These platforms function through smart contracts - which charge interest rates based on the supply and demand of coins on the platform. So, the risk of bankruptcy is significantly reduced.
However, the most positive feature of DeFi lending is that you are in full control of your funds. Platforms can’t seemingly suspend deposits and withdrawals out of their will. Also, you don’t need to complete any complex registration or KYC process. All you need is a web3.0 wallet like MetaMask, and start earning interest.
Some of the most popular and trusted DeFi lending protocols are Aave and Compound. Both platforms have over $2 billion in funds deposited on them, and consistently offer good yields on various cryptocurrencies. You can go to Defipulse.com to see the highest-performing Defi Lending protocols on a daily basis.