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How to earn passive income from your crypto

Khanh Nguyen
|
April 7, 2022
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How to earn passive income from your crypto

Illustration by Hellsjells


When most people think of making money with crypto, the first thing that comes to mind is holding until it goes up before they sell. 

That’s not the only way to earn money, though. You can also receive interest by staking your crypto or lending out your crypto through P2P lending.

In the crypto world, these happen through DeFi.

Staking

What is staking? 

Staking is a way of earning rewards for holding certain cryptocurrencies. It's like earning interest on your savings account. 

The staking process that involves committing your crypto assets to support a blockchain network and confirm transactions. You make your crypto available via an exchange for use in the proof-of-stake process that certain cryptocurrencies use. 

Which crypto can I stake?

To start staking, you need to own a cryptocurrency that works with proof-of-stake. Some of the biggest coins are Ethereum, Cardano, Polkadot, Terra and Solana.

What will I be rewarded with?

You're paid interest that in some cases can be as high as 20% per year. The payout is typically in the same asset you're staking. 

The main benefits

Staking is a straightforward and easy way for you to earn interest on your crypto holdings

You're helping to maintain the security and efficiency of the blockchain

Unlike crypto mining, staking doesn't require any crazy equipment and is substantially less harmful for the environment

What are the risks?

The biggest risk you face with crypto staking is that the price of the cryptocurrency goes down.

Staking requires that you lock up your coins for a set period of time. During this period, you're unable to do sell or trade your staked assets. You can however, participate in "staking pool" in which you pay a fee between 2-5%, but you're able to withdraw your crypto at any time. 

P2P lending

How does lending work in DeFi?

Lenders deposit their crypto assets into a DeFi platform. The platform will then lend out these crypto assets to borrowers and charge them interest. After a certain amount of time, lenders can receive their crypto back plus some interest. 

In order to obtain a loan, borrowers have to deposit a different type of crypto as collateral. They can receive their crypto back after they have paid back the loan and interest. 

How much interest can I earn?

Below are the interest rate range for some of the most popular cryptocurrencies.

Bitcoin: 4-8%

Ethereum: 4-8%

Dai: 5-14%

Solana: 5-8%

USD coin: 8-14%

Why it's better than traditional P2P lending

The loans are over-collaterallized: to manage risk, the borrower has to deposit more crypto than what they would borrow

Crypto lending works through computer-based smart contracts that enable trustless transactions and transparency

Next topic
Get to know stablecoins - cryptocurrencies that don't change in value
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