3 Ways to Earn Crypto Passive Income: A Quick Guide

Do you want to earn some side income but have no experience in trading?

Or

do you want to maximize your cryptocurrency funds instead of simply HODLing?

We already considered yield farming as one of these possible revenue streams. But the decentralized finance industry offers many options for passive earning, and there seems to be no shortage of opportunities.

How can I earn passive income with crypto?

Before you start, you need to assess how much money and effort you are ready to invest, what your goal is, how patient you're willing to be, and what risks you are able to withstand.

Compared to traditional finance, cryptocurrencies are much more susceptible to market fluctuations, therefore, you should understand that if the price of your asset falls, this can “eat” your percentage of passive income.

Below are some popular options that may suit your stress levels much better than trading...

STAKING As A Source Of Earning Passive Income

In simple terms, staking is the act of locking up your cryptocurrency (putting something at stake) in order to receive a reward of some kind. There are many various and unique applications for staking in DeFi and Web 3.0 

For example, Decentralized Autonomous Organisations (DAOs) such as MakerDAO offer a way for members (holders) to participate in the governance of the project by staking and voting on various proposals. To incentivize active participation, holders earn interest on their tokens at stake.

A blockchain itself requires its own users to have a stake of some sort. You cannot participate in a blockchain network without holding its token, which is essentially a "share" of that network. 

You may have also heard of the Proof of Stake consensus mechanism, which powers and secures certain blockchains. Staking is crucial to its own network design.

How much can I earn by Staking?

There are many staking options with different APY and initial investments. Below you can see a quick summary of the several largest cryptocurrencies offering staking rewards, most of which are higher than 10% per year:

The full list of staking options is here. There is always the risk of a significant price decline that can result in loss of your returns.

Where can I stake to earn passive income?

In most cases, you can stake coins directly in crypto wallets or on exchanges:

+ Locking funds in a wallet is also called cold staking. Among the leading cryptocurrency wallets that support staking are Ledger and Trust Wallet.

+ Top exchanges Binance, Coinbase and Kraken offer staking services for their customers.

+ Another possible option is Staking-as-a-Service Platforms, such as Stake Capital or MyCointainer, also known as soft staking. Unlike wallets and cryptocurrency exchanges, staking-as-a-service platforms are designed exclusively for staking. They take a percentage of the rewards earned to cover commissions.

You can use the Staking Rewards Calculator to consider the various options and returns.

MASTERNODES And Earning Passive Income

Masternodes are nodes in the blockchain network that perform special functions. Users receive financial rewards for launching them. Masternodes work to accomplish the same task as PoS, however, they cannot create new blocks or verify transactions.

As in the case of PoS, any user can operate a masternode, however, the barriers to entry are much higher, and can amount to thousands of dollars.

Moreover, in addition to providing a certain number of tokens to secure the network, users are also forced to maintain a 24/7 online computer or network running cryptocurrency wallet software with a static IP address.

This option requires more effort and has a higher barrier to entry, but typically provides a much higher ROI than simply staking.

How much can I earn by running a Masternode?

Passive income from masternodes depends on the chosen coin, the dynamics of price development, initial investment, market trends and other factors.

Taking into account all of the above, node operators can potentially expect a 5% to 20% reward per block. You can see potential annualized returns below, however, market volatility affects these numbers in real-time:

Figure 2. Potential APY of different masternodes

For example, to run a Dash masternode, the provider must buy 1000 Dash coins, which at the current exchange rate will cost the provider 257,000 USD. At the same time, the annual income in block rewards will be about 15.872 USD in Dash. You can see the full list of masternodes here. 

LENDING

Lending and borrowing in the blockchain industry operate similarly to the traditional financial system. DeFi projects offer new opportunities for earning income by lending your funds to others and receiving interest in return.

In the blockchain space, lending and borrowing can be provided both through a centralized financial institution (CeFi), such as BlockFi and Celsius, or through the use of decentralized finance protocols (DeFi) such as Maker, Aave and Compound.

Centralized cryptocurrency platforms function in the same way as most intermediary banks. On the contrary, decentralized alternatives allow you to borrow money from lenders directly through a smart contract.

As an example, a decentralized platform like Compound allows you to loan your assets to create and support liquidity pools. When users in the blockchain community borrow from these pools of loaned tokens, they pay interest. To incentivize users to stake their tokens and provide liquidity, all lenders receive a distributed share of interest (which usually comes from accumulated network fees). Interest rates are based on supply and demand algorithms. Coins or tokens have their own cToken version, such as cDAI for DAI, which you’ll receive in exchange when you supply that asset to the pool. cTokens simply represent your loaned asset which is earning interest. 

How much can I earn by lending crypto?

СeFi providers usually offer a fixed percentage of income for lenders, while the annual APY for DeFi is constantly changing as it depends on the demand for a particular asset, also known as utilization rate. Since there is a risk of cryptocurrency assets depreciation, stablecoins are the least risky option for lenders. For instance, you can earn between 6.27% and 18.65% APY depositing USDT on different lending platforms:

So, what option should I choose?

The DeFi industry is scaling fast right now and liquidity supply needs to meet growing demands. If you want to ride the wave (and hype), you can test out a few different options with just a small amount (even just a few dollars) to join the game and learn to master the rules.

Various projects run liquidity engagement programs with a higher guarantee of returns and rewards, such as ours at Mysterium Network.

Mysterium's current QuickSwap campaign rewards early liquidity providers. You can add your tokens to the MYST/USDC liquidity pool between the 8th and 14th of April, and hold them there for at least 30 days. You'll then receive a percentage share of 10,000 MYST reward tokens, according to your contribution to the pool. (You can check more details in our blog post.)

Beyond this campaign, Mysterium has created an entire network which enables anyone to contribute their resources and receive tokens in exchange. In this case, users can download software for their computer or Rasberry Pi and power the network. It’s as simple as plug, play and earn. You can share your unused bandwidth (internet connection) while you work or sleep - possibly the most stress-free way to earn some crypto.

Title graphic by Taylor Reddam.