How to generate passive income by using DeFi
The advent of blockchain tech and cryptocurrency has led to a completely new financial system that is based on Decentralized Finance (DeFi) network. Investors today are able to earn passive income in various ways through DeFi and trading. The possibilities are growing. The total value that is locked into DeFi projects has increased dramatically from 2021 to 2022 and is currently valued at over $200 billion by April 2022. We will review the fundamentals of DeFi means and how DeFi allows people to generate passive revenue in various ways.
What exactly is DeFi?
DeFi is a revolutionary financial ecosystem that has been created by blockchain technology. It facilitates financial transactions like lending, borrowing money, transfer of money, earning an interest and purchasing insurance without the need for central authority and intermediaries. This results in lower fees for transactions and faster transfer of funds.
DeFi provides a variety of advantages when as compared to the conventional financial system, such as an entry-level barrier that is low. Millions of people across the world are not banked and are unable to carry out basic financial transactions like fund transfers. With the aid of decentralized finance people who are not banked have access to financial tools. Furthermore, DeFi provides multiple opportunities for users to earn passive income from their crypto-related assets. With the DeFi protocol, users can earn interest at significantly higher rates than is possible with traditional banks.
When investors deposit or put their crypto investments with a DeFi-based protocol, DeFi uses the funds as a source of funds to validate transactions using a Proof-of-Stake network. Due to these applications that are highly sought-after and the reduction of costs charged by middlemen, DeFi offers high reward opportunities for its users.
3 Strategies to make passive income
The DeFi ecosystem has resulted in numerous passive income options. The most sought-after ways to earn passive income using DeFi include yield farming, staking, and lending.
Yield farming also called liquidity mining, lets investors make more money from their crypto assets. Yield farming is where investors put the majority of their crypto holdings in an intelligent market-based, contract-based liquidation pool. The money that is deposited is distributed to other projects via DeFi protocols. Investors are then rewarded for the deposit of their crypto holdings. Investors who earn income from yield farming are referred to as yield farmers.
Staking Networks of blockchain that use the Proof-of-Stake consensus mechanism is getting more well-known, opening the possibility of Staking. Like yield-farming, participants (also called validators) put their crypto assets at stakes to validate transactions and ensure their network’s integrity. As a reward for staking crypto or validating transactions users get rewards in the shape of crypto. With the aid of delegated proof-of-staking investors can put their cryptocurrency in staking pools, and earn income from passive sources regularly.
Loans: In this method, investors lend their cryptocurrency through DeFi platforms. DeFi platforms let users engage in financial transactions like borrowing and lending funds. Certain DeFi platforms let investors select their preferred interest rate and time period for lending, while some platforms provide defined interest rates and durations. Investors may also lend funds to market makers or liquidity pools that are automated platforms to earn higher interest rates. When depositing funds into liquidity pools, customers can earn passive income by earning a share of transaction fees depending on their share of cryptocurrency deposits.
DeFi Platforms can generate passive income
Let’s review some of the most effective DeFi platforms that allow you to get started earning passive income.
Aave (AAVE) — Aave is one of the most popular and most reputable DeFi platforms in the DeFi market. In order to begin with the AAVE Aave platform, customers must be able to fund their cryptocurrency of choice as well as their preferred amount. Based upon the sum that investors put in, they earn income that is based on market demand. The platform also allows users to take out loans using the amount they have deposited as collateral. In addition, it offers rewards to users who stake with the AAVE token natively onto the platform.
Synthetix (SNX) — Synthetix is an incredibly growing platform for DeFi that lets users to make the synthetic currency of their choice known as ‘Synths’. It allows users to trade cryptocurrency for commodities, currencies, stocks as well as other assets. Although it is based using the Ethereum blockchain it also provides access to derivatives, currencies as well as other assets with cryptocurrency. Customers can bet on the value of an asset without having the asset actually in their possession to earn money, making it the most well-known platform within DeFi.
Curve (CRV) – Curve (CRV) – Curve Finance is a stablecoin and tokenized Bitcoin derivatives exchange platform that is decentralized. Users are able to provide liquidity via stabilized coins to users of the Curve protocol and earn passive income through charges in exchange. The fees earned by transactions through the platform will be paid to users in proportion to the amount they have deposited. Curve protocol also offers the pool tokens of other platforms like Compound or Yearn. finance for earning interest, and to provide additional revenue in exchange for the liquidity services.
Bottom line
DeFi projects can yield impressive yields when compared with the interest generated by traditional systems. The DeFi space provides a myriad of methods to generate passive income as well as boost a trader’s cryptocurrency holdings by a large amount. But, they must investigate the platforms and learn the process before deciding on the DeFi protocol and transferring their funds.
