Projections show that the global cryptocurrency market will reach a value of $1.902 billion by 2028.
The world of crypto is growing incredibly fast, but there's still a lot about it that most people don't understand. You can make money from crypto in various ways, and one of these is through DeFi. Understanding DeFi is crucial if you want to use it to generate profits.
So what is DeFi, and how can you use it to earn passive income? Keep reading for a complete rundown, along with some essential DeFi tips.
What Is DeFi?
DeFi is short for decentralized finance and relates to financial services or products that operate on a decentralized network. This means that there's no central financial institution or authority in control of things. Users instead interact with each other on a P2P (peer-to-peer) basis.
Traditional financial systems are run by banks, governments, credit unions, and other institutions, but DeFi eliminates these from the equation. Instead, everything happens across a blockchain, and smartcontracts execute all payments and transfers.
How Can It Help You Earn Passive Income?
Several passive income ideas have been put into action over the years. Each of these methods works in a different way, and the money you may be able to make varies.
This is one of the most widely used methods as it's also one of the most simple. Various platforms and protocols allow users to deposit their crypto, and while it's locked up you'll earn money in the form of an APY (annual percentage yield). It's somewhat similar to depositing fiat currency into a savings account and earning interest.
This can prove quite profitable as interest rates are very low these days, while DeFi platforms typically offer fairly high APY rates. Many platforms will allow you to deposit a range of cryptos, with varying APYs. It's worth noting that while Bitcoin is the largest cryptocurrency in the world, most platforms don't allow you to stake it, with the Ethereum blockchain being a more popular choice.
Many platforms also offer borrowing and lending, which is similar to staking. You'll deposit your crypto, and earn passive income while it's locked up. During this time, the platform can lend it out to other users, and you'll make interest as they do.
People are often concerned that a borrower may default when doing this, and they might not get their money back. Fortunately, smartcontracts make this very unlikely, so any assets you deposit should be completely safe.
Generally, the amount of interest you earn will be in line with the amount of crypto you deposit. Platforms have varying rules, but most will allow you to withdraw your crypto at any time without an exit fee.
Through a smart contract in a DApp, you can place your funds into a liquidity pool on a chosen platform. The platform can then use your crypto for things like borrowing and lending. This provides the platform with funds that they need to operate, and you'll earn interest in return.
Yield farmers often move their funds between different pools to take advantage of the best return rates available. Before you commit to yield farming with a platform, you should do your research to ensure it's legitimate. There have been scams in the past where developers have received deposits, and then left the project, taking the funds with them.
Be a Liquidity Provider
For this, you'll deposit your crypto much like yield farming. The difference is in what the platform uses your crypto for.
With yield farming, they'll use it to loan out and confirm transactions. With liquidity providing, they use it to increase the speed and efficiency of token swaps on a DEX (decentralized exchange). All of these token swaps charge a fee, and your passive income will come from a portion of these fees.
This also carries risk with it, so again, you want to do some research on different platforms before committing to it. You can also reduce your risk by contributing to pools with high liquidity and safer assets.
Again, this involves depositing your crypto in a DEX, and you'll earn passive income in return. With liquidity mining, the difference is in terms of how you're rewarded.
Liquidity miners are generally given the native token of whatever blockchain they're supporting. In some cases, they'll also receive governance tokens, which give them a degree of governance within a project. They can then get more involved and have a say in future decisions.
Finding the Best Platforms
Research is one of the most crucial aspects of getting involved in crypto. You should always understand where your money is going, and the risks involved. This also applies when looking at different platforms to earn passive income through.
At Criffy, you can sign up to stay up to date with the latest passive income tips and information. On our website, we analyze and compare various platforms to determine the best ways people can earn income through DeFi. This includes things like staking and lending, with different platforms, cryptocurrencies, locking periods, etc.
We also have information on current promotions that different platforms are running, and details on a range of crypto debit/credit cards. You may want to look through the information we provide if these are of any interest to you.
Earning Passive Income Through DeFi
There are multiple ways you can earn passive income through DeFi, you first just need to research the different options available, and assess the risk involved.
DeFi can be one of the most effective ways to earn passive income in today's world - as long as you find the right platform. Click here to visit our website and see some of the best DeFi passive income options currently available.