Everyone hopes the coin they invested in is worth much more in the future, but holding coins does not give passive returns. Coin Bureau has shared methods to earn a passive income on your holdings.
Centralised Finance (CeFi) Crypto Lending
These are basically lending services that offer deposits and loans on a centralized platform. CeFi platforms handle the user’s onboarding process, exchanging cryptocurrencies and fiat money with a custodial system in place to protect the assets. Depositors earn interest on their crypto which will be held and lent out to generate interest.
Top and most well known CeFi platforms are Celsius, BlockFi and Nexo. Nexo is great for European based individuals, they have over $4B in assets under management. They provide instant lines of credit and crypto lending services as well as a crypto card tied to your account. Nexo has a utility token designed to provide benefits within their ecosystem.
BlockFi and Celsius is good for those based in the USA. BlockFi has been raising hundreds of millions of dollars to fund their growth, they have over $4B in assets under management which increased considerably by 1,500%. They suffered a cyber attack that leaked customers data but no funds was breached, it is for this reason Coin Bureau preference is Celsius Network with about 6.2% APY on Bitcoin and up to 10.5% on stables coins like USDT, they also offer international customers option to earn interest in their native CEL token at a slightly higher rates.
Coin Bureau reiterated these services are centralized which means customers technically do not control their crypto and given the services are regulated, customers will have to complete KYC (Know-Your-Customer) before being able to use them.
Decentralised Finance (DeFi) Lending
DeFi protocols allow users to become lenders or borrowers in a completely decentralized fashion, such that an individual has complete control over their funds at all times unlike CeFi platforms, who work in pretty much the same way as most banks, whereby they take custody of one’s deposited assets, eventually loaning them out to third parties.
Users are in control of their keys all times, no KYC required. All that is needed is a web 3.0 wallet that can connect to these lending DApps to start earning interests. There are numerous lending protocols in market but Coin Bureau preferred choices are AAVE and Compound both having 2nd and 3rd most total value locked respectively. Coin Bureau preferred web 3.0 wallet is Metamask.
Liquidity Mining or Yield Farming
Yield farming, also referred to as liquidity mining, is a way to generate rewards with cryptocurrency holdings. In simple terms, it means locking up cryptocurrencies, providing liquidity to decentralized exchanges (DEXs) and getting rewards. In some sense, yield farming can be paralleled with staking.
What are the risks in Yield Farming? Users will be supplying liquidity to Yearn.Finance vault who will then move around to different lending protocols and liquidity mining programs. There is a smart contract risk and lending pools have been exploited before. However, there is one feature offered by Yearn.Finance which is the cover feature, basically smart contracts insurance. The feature allows users to buy insurance on some of the yearn vaults against the risk of smart contracts exploits. This will reduce interest rate and return but it offers protection.
Staking coins on Proof of Stake (PoS) blockchains is another method to earn a passive income. Users stake coins in order to help maintain the decentralized consensus essential for blockchains to function. The main benefit of staking is users are not only helping in securing the network but also earm decent returns in kind of coins they are most bullish on.
There are a number of things to consider before when staking on blockchains. Wallet Support, Staking Complexity, Pay out terms, Lockup periods and Staking Rewards.
Scams to avoid
Ponzi schemes tend to pay out passive income on investment and are common in the crypto space too. These scam schemes have unrealistic return expectations and come in a number of guises. Examples are investment schemes where someone will trade the markets for you, Cloud mining schemes where you will buy a certain amount of hash power in a mining facility and earn a regular mining reward.
There are a number of red flags to look out for identifying ponzi schemes. Returns look too good to be true, MLM or referral tactics, guaranteed returns etc.
This episode premiered on April 4th, 2021.