The ability to earn passive income is one of the many attractive features of the cryptocurrency market. Investors can earn rewards on their cryptocurrency holdings in a variety of ways, with varying degrees of risk and technical knowledge. Here are two ways cryptocurrency investors can earn passive income in 2022.
Lo staking it is my favorite way to earn interest on cryptocurrencies because it carries less risk than other options and is relatively easy to do. If your cryptocurrency exchange offers it staking, you can activate this option with the click of a button. You may need to commit to wagering your coins for a certain amount of time.
If you can't do it staking with your coins on your cryptocurrency exchange, you might consider moving your assets to a wallet or platform that offers this option - for example you can try Bitcoin system. The staking can pay rewards of up to 15% APY or more, depending on various factors, such as the platform and the cryptocurrency.
Here's how it works staking and why you can't do it with all cryptocurrencies:
- Proof-of-stake (POS): Some cryptocurrencies use a proof-of-stake system to keep the network secure. Proof of participation is a popular and more sustainable model than that used by Bitcoin, and you need a POS cryptocurrency for it. staking.
- Transaction Validation: Validators earn rewards for checking that new transactions are legitimate. In the proof-of-stake model, validators must have a certain amount of currency to participate.
- Earning Rewards: When you do staking of your coins, you are usually contributing to a validator node, and you earn a percentage of the rewards from that validator.
2. Crypto Savings Accounts and Crypto Loans
There are a number of crypto accounts that pay interest, and the rates are often much higher than what you'll find with a traditional savings account. Unfortunately, these higher rates are accompanied by equally high risks.
Many platforms that offer interest-bearing crypto accounts do so by lending your assets and giving you a portion of the interest that is paid on the loan. The level of risk depends on who the platform lends your money to and what collateral they require. A low-risk loan to a large financial institution presents a very different risk than an unsecured loan to someone who may not be able to repay it.
Lend-earn accounts usually pay higher rates on stablecoins - cryptocurrencies that are tied to traditional assets like the US dollar - than ordinary cryptocurrencies. DeFi apps also offer other types of cryptocurrency lending. The fees on these apps are worth paying attention to. If you are using an Ethereum-based platform, you may find fees of more than $ 50 per transaction that cancel out the extra interest you will earn.
Risks of lend-earn products and crypto savings accounts
The biggest risk with many crypto lending products is that your savings are not covered by FDIC insurance or other consumer protections. FDIC insurance means your money is covered for up to $ 250.000 in the event of bank failure.
The Securities and Exchange Commission (SEC) recently reached a $ 100 million deal with BlockFi, a major cryptocurrency lender. The SEC said BlockFi's interest-bearing product was a security and should have been registered as such. He also said BlockFi had made misleading claims "regarding the level of risk in its loan portfolio and lending business". We can expect to see similar action against other cryptocurrency lenders in the near future.