8 Ways to Earn Passive Income

The crypto space is taking the financial industry by storm and offering a variety of ways to generate passive income. There are multiple ways to earn cryptocurrencies even during market volatility cycles. In this article, we review 8 ways to generate passive income in the crypto market.

8 Ways to Earn Passive Income in 2022

Staking

PoS (Proof-of-Stake) is an advanced consensus mechanism for mining or extracting cryptocurrencies. In addition to being an effective way to maintain network consensus, PoS also allows cryptocurrency holders to earn returns through staking. There are many types of PoS, including simple PoS, designated PoS, and delegated PoS.

To earn passive income from staking, users need to set up a validator node and lock a fixed minimum amount of tokens. Users can actively validate the network, or they can delegate their tokens to selected validators and earn income from them.

Cryptocurrencies such as Solana, Cardano, Avalanche, Terra, and Polkadot are using the PoS mechanism and allow currency holders to earn returns through staking. If users stake Solana coins, they will receive returns in Solana coins. The percentage of returns that can be obtained depends on various factors such as the rate of return and the staking period.

Borrowing

Lending cryptocurrencies is one of the best ways to earn passive income from cryptocurrencies, whether in the centralized or decentralized sectors of the industry. There are four main ways to lend cryptocurrencies and earn interest as passive income.

Peer-to-peer lending: Similar to how crypto exchanges match buyers and sellers, some platforms connect lenders and borrowers. With P2P lending, lenders can set their terms, deciding the amount they want to pledge and the interest rate they want to be charged.

Centralized lending: Users borrow and lend through centralized platforms and earn interest on their cryptocurrency assets. The interest rate and lock-up period are determined by the platform. Although users do not have much say in the terms of the loan, this is also one of the reliable ways to earn passive income.

DeFi lending: Unlike centralized lending, users can lend their cryptocurrencies directly on the blockchain and earn interest. Lenders and borrowers interact through smart contracts on the blockchain and set interest rates independently.

Margin Lending: Users can also lend their crypto assets to individuals who want to borrow funds to trade. These traders use the borrowed funds to expand their positions and repay the loan with interest.

Liquidity Mining

Liquidity mining allows cryptocurrency holders to earn cryptocurrencies using their current digital assets in a decentralized manner. In this process, users lock their cryptocurrency assets in a liquidity pool with the help of smart contracts. In exchange for providing liquidity, users will receive new tokens as rewards.

Users of liquidity mining constantly move their funds around to ensure they get the maximum return on the crypto they hold. Some of the best liquidity mining platforms are Pancakeswap, Curve Finance, and Sushiswap.

Automated Market Maker (AMM)

While liquidity mining and AMMs are closely related processes, they also have some differences. In AMMs, users contribute their funds to a liquidity pool and are known as liquidity providers. In exchange for providing liquidity, users receive a portion of the transaction fees from all trades made through the pool.

Uniswap and Balancer are the best examples of automated market maker platforms.

Interest-bearing digital asset account

Investors who plan to hold cryptocurrencies for the long term can use this strategy to earn passive income. Instead of holding digital currencies on other platforms, users can deposit funds into their accounts and earn interest on their cryptocurrency holdings.

Just like traditional banks offer interest for money stored in bank accounts, these digital asset accounts also offer interest for storing cryptocurrencies. Nexo, Celsius Network, and BlockFi are some of the popular platforms that have this feature.

Join a Guild

Play-to-earn (P2E) NFT games are emerging rapidly. However, in order to obtain a substantial income, players need to spend a lot of time and money to obtain the necessary props in the game. So this may not be a passive way to generate income.

However, the formation of guilds is creating a new way to generate passive income using NFTs. P2E game guilds are groups of investors, players, and managers who purchase game NFTs. NFT holders can join a guild and rent out their NFTs to players and earn interest.

Generating income from renting NFT transactions can sometimes be much more effective than making money directly from playing games. The amount of income will vary from guild to guild, depending on the games the guild supports and the skills of the players. Yield Guild, Good Games Guild, and Merit Circle are all platforms that provide this service.

Holding income tokens

Users can earn passive income by holding yield tokens. When users hold these types of tokens, they receive a portion of the profits generated by the underlying issuer. This is similar to dividend yield stocks in the stock market.

Popular yield tokens include KuCoin and AscendEX. Both platforms pay a small portion of trading revenue to t token holders. Nexo is another platform that shares part of its profits with token holders. Holding tokens is all users need to do to earn their share of profits as passive income.

Join Crypto Fund

Crypto funds allow users to earn passive income through their digital currencies. Similar to traditional hedge funds, crypto funds also help digital asset holders earn passive income.

Some examples of crypto funds are Grayscale’s Bitcoin Trust and Decentralized Trust. They allow fiat investors to gain exposure to changes in the price of a single cryptocurrency. Other crypto funds like Pantera Capital have more complex funds like the Pantera Blockchain Fund. However, these funds require large minimum funds to start.

Also: NFT Staking

Similar to cryptocurrencies, NFT staking is based on the Proof of Stake (POS) consensus algorithm. NFT staking allows users to earn rewards as a passive income method without selling NFTs or transferring ownership. Stakers receive rewards for holding or locking their NFTs on the platform.

Source: https://medium.com/the-capital/top-8-crypto-passive-income-streams-in-2022-eaca37ec068d