The crypto space is fast-paced. Investors can record sharp rises and falls in their portfolios in just a few hours. Staying on top of these market movements can often be a full-time job involving many active trading and investment decisions. This usually involves in-depth research covering technical and fundamental analysis, which is time-consuming and may not guarantee a profitable outcome.
However, there is another way of earning a decent income in the crypto space without the torturous rigour outlined above. It’s called passive income. Generally speaking, passive income is income that requires minimal interaction or time-consuming activity. It is the opposite of active trading and cryptocurrency investment methods.
There are several ways to earn passive income with cryptocurrency.
Let’s discuss these approaches in greater detail.
Mining: This is perhaps the oldest form of earning passive income in the crypto space. Mining is the process of creating new crypto tokens by solving computational problems. It started with Bitcoin and has since been adopted by other proof-of-work coins. Miners set up specialised equipment requiring a constant power supply to run nodes. This action helps secure the cryptocurrency network, and in exchange, miners earn coins for their proof-of-work in the network. Bitcoin is a representative example. Early miners used their laptops or computers to mine the cryptocurrency. This is usually now not the case as bitcoin mining is now practised on an industrial scale by giant corporations that set up large mining farms.
Staking: In staking, a cryptocurrency user/investor locks their funds in a wallet to help maintain a proof-of-stake (PoS)-based blockchain system. As you stake your coins for some time, they are used to validate transactions on a block. For your stake, you receive a percentage of the staked tokens as a reward.
Airdrops: New or existing cryptocurrency projects sometimes reward their loyal community by sharing tokens in the form of airdrops. As part of their marketing efforts or task-reward system, projects distribute their native tokens, some of which could be worth a fortune later. For instance, the decentralised exchange (DEX) Uniswap distributed some UNI tokens to its community of beta testers and exchange users in September 2020, worth at least $1,200.
Lending: Like the traditional lending approach, where an investor lends funds and is paid an interest rate for those funds, a crypto investor or trader can also earn passive income by lending their crypto assets. There are different means to do this, which include peer-to-peer or exchange-based lending.
Several DeFi protocols offer peer-to-peer lending where users lock up their funds for a period to collect interest payments later. The interest rates are either calculated by the protocol’s algorithm or set by the borrower mimicking the current market rate. Additionally, most centralised exchanges that allow margin trading also offer a lending feature on their platforms.
The DeFi Summer of 2020 ushered in countless projects offering users the opportunity to farm yields. Specifically, when DeFi projects offer their smart contract protocol users a portion of their native (governance) token in return, this is called liquidity mining. This usually occurs during a project’s launch phase and is adopted to attract massive liquidity into their projects.
However, it’s not only DeFi projects that offer yield farming opportunities. SwissBorg, a hybrid of CeFi and DeFi, also provides its users with the option to earn yields in its app with SwissBorg Earn . SwissBorg app users who activate this feature earn passive income from their idle wallet balance. And Premium account users earn a boost on top of the standard yield!
Perhaps what makes SwissBorg Earn an even more attractive passive income opportunity is that it compounds earnings. Your yield is paid out daily, which means not only are you earning a return on your Earn balance - you’re earning a profit on your yield!
Each of the above methods of earning passive income with crypto has clear advantages.
As a wise investor, you must not just consider the pros of any investment opportunity; you should weigh the risks involved as well. With the surging interest in cryptocurrencies, these are some of the accompanying risks to consider while exploring passive income opportunities:
While these risks cannot be fully eliminated, you can still shield yourself from some of them with adequate due diligence.
Take smart contract failure as an example. To reduce the likelihood of this risk, remember to check the team’s pedigree behind the DeFi project. Many charlatans floated projects during the DeFi summer peak only to disappear after users staked their funds in the projects’ smart contracts. The term “Rug Pull” is synonymous with anonymous devs behind flashy DeFi projects carting away community funds. Most of these DeFi projects roll out with unaudited smart contracts. One tip to avoid this risk is to look out for projects with audited smart contracts.
Also, be wary of parking your coins or tokens on exchanges. Remember the saying - “not your keys, not your coins”? A lot of people have lost their fortunes when the exchanges housing their assets were hacked. If you must leave your assets on exchanges to take advantage of certain passive income opportunities, remember to choose only reputable exchanges to minimise your risk.
Passive income in the crypto market is income that requires minimal interaction or time-consuming activity. It is the opposite of active trading. Anyone seeking passive income in crypto can explore mining, staking, airdrops, lending or yield farming.
Are you ready to start earning a passive income on your cryptos? SwissBorg Earn can help. Available on over 20 cryptos, SwissBorg Earn empowers you to make smart investment decisions by not only sharing your potential yield, but also the potential level of risk in any strategy. This means you can invest according to your risk profile, along with managing your overall risk by investing different portions of your assets into strategies with different risk levels.
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