This post on yield from cryptocurrency is a guest contribution by Gerelyn Terzo, Wealth of Geeks on Sure Dividend. We were given permission to republish it here.
One of the key features of cryptocurrency prices is volatility. Most veteran crypto investors are used to being taken on a roller-coaster ride, but it can throw newcomers for a loop. Fortunately, there’s no shortage of ways to generate yield in crypto. So no matter the market cycle, investors can take advantage of all the innovation that blockchain developers offer.
Decentralized finance (DeFi) has paved the way for creative ways investors can earn yield in crypto or stablecoins through activities such as lending, yield farming, and staking. Market participants have flocked to this space, with the total value locked (TVL) currently hovering at $214.7 billion, according to DeFi Llama, reflecting the cryptocurrency assets that market participants have poured into DeFi projects.
Source: DeFi Llama
The main idea behind DeFi is that users don’t need a bank or broker to access financial services or invest. They aren’t stuck with the paltry returns of close to 0% that savings accounts offer, either. Thanks to the blockchain and automatically executed agreements known as smart contracts, they can generate yield in other more innovative ways.
In some cases, investors generate annual percentage crypto yields of 20% from DeFi activities. However, investors might have to sit back while their token value plunges by 20% in some cases. The stakes are high, and it isn’t for the faint of heart. Eric Parker, who is at the helm of staking platform Giddy.co, told Forbes:
“While the average investor buys bitcoin hoping that someone else pays more than they did for it, sophisticated investors are yield farming, lending crypto in DeFi protocols, providing liquidity to exchanges, and collecting NFTs.”
Not to be outdone, non-fungible tokens (NFTs) have also harnessed the potential of DeFi to amplify returns potentially. Let’s look at the various ways to earn yield in crypto below.
Yield Farming & Staking
Yield farming is the blockchain’s version of a savings account. However, instead of socking your money away in a bank account, you agree to lock up your crypto holdings on a given platform for a certain period. Technically, you deposit your coins onto a DeFi protocol via a decentralized app (Dapp).
This paves the way for other investors to borrow your crypto via that DeFi protocol, providing liquidity to the market for that particular token, whether it’s a stablecoin like Tether (USDT) or a DeFi native token like Aave. Borrowers pay interest on those coins, which is then directed to the lender and the protocol. Speaking of Aave, users can earn as much as 15% APR with this DeFi crypto.
The yield you earn by staking your crypto is meant to bolster your returns as long as the price rises. You could also earn other rewards for staking your coins, such as other cryptocurrencies. If those coins’ value rises, you are generating even more yield. Just be prepared for price swings along the way. Here’s a list of popular DeFi apps in Dapp Radar’s rankings:
- PancakeSwap: This Dapp’s Yield Farms lets participants earn CAKE tokens in exchange for staking LP tokens to support the decentralized trading protocol.
- Katana: This automated market maker lets users earn swap fees for providing liquidity to the platform and earn RON tokens in exchange for staking Liquidity Pool tokens.
- Trader Joe: This is a “one-stop-shop decentralized trading platform” on the Avalanche network. Features include farming, staking, borrowing, and more.
- Raydium: This automated market maker is built on the Solana blockchain. Features include trading, earning RAY tokens, yield farms, liquidity pools, etc.
- Sushi: This protocol is focused on what it describes as a “liquidity problem” and supports DeFi features like Kashi lending, Sushi yield farms, SushiBar staking, and more.
NFTs and Yield
The use cases for NFTs have grown beyond digital avatars and can now be used in areas such as gameplay in blockchain-based games, which in some instances paves the way for earning yield. One example is HOKK Finance, which is behind a set of 4,444 unique NFTs on the Ethereum blockchain. Hokk Finance has added some utility to its NFTs to be used to participate in the DeFi market.
HOKK Finance is more than just NFTs — they’re building an entire ecosystem revolving around DeFi. So NFT holders can use their digital collectibles to access decentralized applications Dapps built on the Hokk Finance platform. At the moment, the way users can generate yield with this project is to mint an NFT on the platform, the current price for which is 0.04 ETH, or about $120.
In addition to their entertainment, these NFTs will deliver yield to their owners in the form of USDC, one of the leading stablecoins in the cryptocurrency market. Stablecoins like USDC tend to be less volatile than other cryptocurrencies because they are pegged to traditional money, in this case, the U.S. dollar. So if you want, you can generate the yield and then cash out into dollars.
Source: Twitter/HOKK FInance
There are many other examples of how to generate yield with NFTS. For instance, blockchain project Propel is behind a metaverse-as-a-service technology that streamlines the process for other projects to offer crypto yield opportunities. One of the services is NFT utilities, which has to do with generating passive income with NFTs. The activities include:
- Renting NFTs — Lenders lend out their NFTs to borrowers, who pay a rental fee and provide collateral for the asset’s value. Users might want to rent out an NFT to play crypto play-to-earn games.
- Fractional NFTs — This is a “fractionalized version” of the asset. Unlike non-fungible tokens, these fractions are fungible in that “they can be exchanged for one another since they are a part of the same NFT.”
- Staking NFTs — Use your NFTs in the metaverse and earn rewards for staking your NFTs.
Do Your Own Research (DYOR) on Yield From Cryptocurrency
Investing of any kind involves risk, and crypto is no exception. The rules on cryptocurrencies are still being written, leaving investors vulnerable to issues like software breaches, excessive fees, price losses, and rug pulls. As with any investment, market participants should do their own research before buying.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas has investments in real estate.
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