Best ways to earn passive income with cryptocurrencies

We have listed the best possible ways to earn passive income using digital currencies with staking, yield farming, and NFTs.

 

Key Takeaways

  • Crypto adoption has increased by more than 880% in 2021 across the globe

  • The best ways to earn passive income using cryptocurrencies - staking, yield farming, automated market making, playing NFT games

  • Lending cryptocurrencies to DeFi protocols allow users to earn additional income

  • Play-to-earn NFT models allow players to earn profits by rewarding them with tokens and NFTs

Best Ways to Earn Passive Income With Cryptocurrencies

Creating multiple income sources is the best way to achieve financial freedom at a young age.


Building digital information products, managing an online dropshipping business, investing in stocks, cryptocurrencies, affiliate marketing, income from rental properties are all the methods to generate passive income. Generating passive income through cryptocurrencies is also gaining traction.


According to the Global Crypto Adoption Index by Chainalysis, cryptocurrency adoption has increased by more than 880% in 2021 across the world. The developments in the crypto space have created a new digital economy that works individually, without involving any central authorities.


People are more interested in the crypto space as it allows them to obtain passive income through multiple ways. Before discussing the best ways to earn passive income with cryptocurrencies, let us understand what passive income is.


What is passive income?

Passive income is the money generated without the demands of active time and effort from the earner. It is an aspired financial situation where you make the money to generate more money, rather than you actively working for money. Experienced investors and business owners earns from passive income even when they are asleep.


How to generate passive income with cryptocurrencies?

In the very earlier days, the only way to make money from digital assets was - buying cryptocurrency at a low price and selling it for a high price. But, this is no longer the case. The expansion of the industry has given innovative ways to engage with cryptocurrencies. Keep in mind that investing in digital assets can bring passive income but requires additional research and skills.


The crypto market is highly volatile. So, generating passive income from trading may not be guaranteed. Apart from trading, there are other methods to create passive income using cryptocurrencies. Let us dive into them.


Staking

Proof-of-stake (PoS) blockchain networks like Cardano and Polkadot are gaining popularity as they eliminate traditional energy-expensive consensus mechanisms like proof-of-work (PoW) of the Bitcoin network.


The participants can stake their cryptocurrencies to help the blockchain validate the transactions. In exchange for staking the coins, users receive rewards in the form of the same cryptocurrency which they staked.


Users have to set up a staking wallet and simply hold the coins to earn rewards from it. In some cases, the staking process involves adding or assigning the funds to a staking pool. If they delegate the funds to a pool, they receive a portion of the rewards based on their contribution to the staking pool.


The top five cryptocurrencies that can be staked are:

  • Ether

  • Cardano

  • Polkadot

  • Solana

  • Polygon


Different exchanges such as Coinbase, Binance, and eToro provide staking facilities to the users with high-interest rates. Coinbase allows users to earn up to 5% by staking cryptocurrencies. Companies such as Staked, Figment Network, Stake Capital are providing staking-as-a-service solutions.


Apart from exchanges, other crypto platforms like Hodlnaut offer high interest rates up to 12.73% for users’ crypto holdings. Users need not manage their cryptocurrencies actively to earn income. All they have to do is hold their cryptocurrencies and their holding will make money for them.


Yield Farming

Yield farming is somewhat similar to staking but there are notable differences too. This latest concept involves lending out cryptocurrencies to DeFi protocols in return for yield. Yield farmers actively look for the places which yield high interest and rotate their funds between the pools.


Yield farming requires users to lend their crypto holdings and lock them in the smart contracts of DeFi platforms. Farmers can either lend a pair of tokens to a pool or single tokens in a smart contract to earn rewards. The returns are measured in annual percentage yield (APY).


The best yield farms to earn passive income are:

  • Yearn Finance

  • Curve Finance

  • Liquidity providing on Uniswap

  • Earning interest in Aave

  • Yield farming on PancakeSwap


Automated market maker

Another method to earn passive income using cryptocurrencies is through an automated market maker. Automated market makers (AMMs) are the pillars of all decentralized exchanges (DEXs). AMMs help DEXs achieve liquidity by eliminating traditional order matching systems.


Yield farming functions based on the AMM model. To provide the necessary liquidity in decentralized platforms, the AMM model depends on liquidity providers. Users who provide liquidity to DeFi pools are called liquidity providers (LPs).


Users need to deposit a pair of tokens (Ex: ETH/USDT) to create liquidity so that the buyers and sellers can trade and swap the tokens from the pool. LPs will get rewards in terms of liquidity tokens or transactions fees. They will get a share of the total transaction fees from the pool, based on their contribution to the liquidity.


The best platforms to earn from automated market-making are:

  • Uniswap

  • Balancer

  • Curve finance

  • PancakeSwap


Bonus: Earn crypto from playing games!

The recent innovative development of blockchain-based games is also enabling users to earn income. Play-to-earn NFT games are generating income for players besides providing an immersive gaming experience. GameFi space is emerging with full force by integrating blockchain technology into traditional gaming.


The interesting fact about NFT games is players not only control in-game assets but also trade or sell them to earn profits. Most of the games are building avatars, weapons, rewards used in games on the blockchain and are providing users to buy and sell them on the in-game marketplaces. Players can earn rewards in the form of tokens and NFTs.


The most popular blockchain-based games are:

  • Axie Infinity

  • CryptoBlades

  • Gods Unchained

  • Plant vs Undead

Creating your passive income using cryptocurrency

Though crypto trading is a trending topic in most countries, there are other promising ways to generate income using cryptocurrencies. Staking cryptocurrencies or lending to DeFi platforms like DEXs will generate a stable income for the users. Automated market makers are the primary concept of running a DeFi pool which also allows the users to earn profits. Overall, cryptocurrencies are a ground-breaking innovation with numerous ways to create passive income, including NFT games. However, before investing it is advisable to perform due diligence and your own research.