We were all taught the old adage that “you can’t have it both ways.” "put in a solid day's work and you will be rewarded with a good life in time". A character from a Hong Kong television show said: "I see plenty of cows and buffalos working their asses off. I don't see them getting rich." What is the problem? Wealth doesn't happen to living beings through hard work alone. It's not us or the animals that need to be pulling all-nighters. It's our money that needs to be doing that.
Money: What’s the best thing? It never complains about overtime, take smoke or pee breaks, and doesn't require extra pay during the holidays. Not only that, it doesn't have any intelligence so we don't need to be concerned about "The Rise of the Money King" Crypto assets are the same. Crypto assets have the same characteristics. The best workers in the entire world, their only job is to simplify our lives. This article will not only look at the ways we can put our crypto-assets to work but also how to use our money in order to invest into companies that are using crypto and blockchain technology to transform our lives.
The thing about passive income is that it's a long-term game. Most of us who are just beginning to invest may only get a small amount from our investments. The magic of automatic compounding can turn those drops into a trickle and then even a flow. The suggestions here are aimed at cautious investors.
The returns aren't spectacular, especially if measured through the lenses of exponential crypto gains in 3-digit percentage points and more. They are still better than anything that you could get at a bank today. The prospect of investing in something brand new is often daunting. The fear of "what if I lose everything I invested?" This is an important concern. That's why preserving capital is the most important thing, followed by growing profit. Alright, let's see how we can get started in a relatively safe way.
Blockchain Staking
What it does
It is a simple matter of putting in what you want. You get back the token that you put into a stakepool, or use with a validator. You may find a Lock-up Period involved. It depends on what blockchain project you are working with.
What are the possible risks?
The biggest risk is the project falls over, whether because it's falling behind in competitiveness or the people in the project lost interest in it. There's also the risk of a rugpull, ie someone running away with all the money. It is more unlikely that this happens the longer a project has been running.
How much APY should I be expecting?
APY varies from 4,6% to 14%, depending on which project and location you choose to stake. If you're interested to find out which are the best tokens for staking in terms of APT, check out this page for the most updated rates.
What are the projects that you should consider?
There are basically two kinds of blockchain projects when it comes to choosing which ones to stake: the Layer-1 projects and anything else. In order to keep things simple, this section will focus on Layer-1 projects. The least-risky projects are those that are built around it. There's a huge reliance on the blockchain to be in good shape. Although it may not appear so, decentralised project are also quite competitive. If it's even slightly behind, there's always something snapping at its heels, ready to take over its spot anytime.
There are major players and minor actors in the Layer-1 project.
Ethereum
There's a Chinese saying "Women hold up half the sky". Substitute "women" Ethereum" and "The sky is the limit" for "Crypto world" and that's pretty much the state of things now. Thanks to Ethereum and smart contracts, we get DeFi, NFTs and who knows what else coming down the road. It's undergoing growing pains now as it transitions from a PoW to PoS consensus mechanism. As part of this change, it's looking for people to stake ETH tokens on its platform.
Risk of falling over: next to zero. With the amount of institutional interest in it, not to mention all the existing dApps relying on it, it's the 400-pound gorilla next to the 800-pound one that is Bitcoin.
Lock-up period: Yes, all ETH tokens staked cannot be withdrawn until after the migration is over, which could be another 1-2 years away.
Solana
Touted as the next "ETH killer", Solana has made great progress since its inception in 2017. Born later than Ethereum, it's got serious VC money invested in it. Boasting a theoretical throughput of 710,000 transactions per second, its ecosystem has also grown by leaps and bounds within the past year, not to mention its impressive price gains of 600% in the past 5 months.
Risk of falling over: very small. There is a small but growing institutional interest in it. The ecosystem is thriving, ie people are using the dApps in its ecosystem. It also has an active team of developers that are itching to chomp away at Ethereum's share of the market.
Lock-up period: No. However, tokens withdrawn may need to wait for the end of an epoch, which would be anywhere from a few minutes to a few days, depending where you are in the epoch when the withdrawal request was made. One epoch lasts for two days.
Cardano
Cardano started before Solana but got caught up by it in terms of progress. The verdict is still out on the future prospects of this project. As a peer-reviewed blockchain, it is a solid method, perhaps a tad bit too solid, ie it needs to get reviewed faster. There were high hopes for the Alonzo update but judging from the reaction of the community and onlookers, it did not go as well as expected.
Still, it was the no.3 project on the blockchain before being dethroned by Solana. It is also actively making inroads into Africa, one of the least-banked (and more corrupt) continents in the world. If, through the usage of cryptocurrency, it is able to help governments realise that corruption is not the only way to get profits, that would be one of the biggest blessings indeed.
Risk of falling over: Small. The community support is strong and many believe in the founder Charles Hoskinson's vision. The developers are presumably working hard to get things back on track.
Lock-up period: No. Tokens can be withdrawn anytime.
Minor Players
A number of smaller players are jostling for space in this territory and gaining adoption fast like Fantom, Avalanche, Terra to name a few. All of them are worth looking into with small to medium risks of failing (as of time of writing).
How do I get into it?
There are two ways to start staking: through a validator or stakepool that you get to select on your own or through the exchanges or a third-party that may or may not involve giving up custody on your tokens. The one-two steps are:
- Select a project you want to stake your tokens in.
- Choose where you want to stake them in.
- Sit back and go do something fun while your asset starts working for you. Some of them require your account to be on at all times. Check on it every few months or so to make sure it's growing at a happy and healthy pace.
Disclaimer: I stake on Cardano via the Daedalus wallet and I hold SOL and ETH tokens too.
Lending
One of the most common ways to earn interest on your crypto assets is to lend them out. There are plenty of lending platforms available. Most of them are separated into two types: centralised and decentralised. Both carry their own rewards and risks.
CeFi Platforms
How it works
Deposit your crypto assets into the platform and get the interest in either the original token or its native token. These platforms allow you to convert fiat to crypto, hence there is a KYC process in place to protect against money-laundering. These platforms work for those who are new to crypto and would like an easy way to get onboard.
⚠️Safety Notice⚠️- In light of the recent liquidity issues and bankruptcy faced by the lending platform Celsius, BlockFi, Voyager Digital, VAULD, and others, and the high risk of contagion that could result in further company failures during these difficult market conditions, we do not recommend users keep funds on any lending platforms or centralized exchanges until the markets recover. We suggest crypto holders self-custody during these uncertain times.
What are the risks?
The biggest risk associated with this method is custody issues. You are basically (temporarily) transferring ownership of your assets to them for them to do as they see fit. This is no different from having money in the bank. With banks, if they fall over, there is the government coming to the rescue. For the platforms, most of them are insured up to a certain amount, but there is not much recourse if things go pear-shaped for all parties involved, ie more than one platform asking for the insurance entity, thus the insurer itself running out of money.
There is also the issue of collateralisation. Some platforms require over-collateralisation, so that if there is huge volatility in the market, the collateralised assets get liquidated. This affects lenders because the liquidated assets acts as a kind of guarantee that you will get your deposits back. Therefore, when reviewing the platforms, also check out their Loan-to-value (LTV) ratio. The higher the ratio, the riskier it is for your deposits.
What sort of APY can I expect?
A brief comparison of the diagrams above show that APY can range anywhere from 5% – 12%. These are still fairly conservative numbers compared to serious yield-farming. However, they're still nothing to sniff at.
Which projects are worth looking into?
Nexo
The Nexo platform was deployed in 2018 but is a subsidiary Credissimo, which has been around since 2007. Nexo has paid over $200 million in interest, gathering over 2.5 million users in over 200 jurisdictions, and supports 27 different cryptocurrencies. Nexo offers both lending and borrowing as well as a crypto payment card. Nexo also has its own native token called NEXO.
**Notice**⚠️ In January 2023, Bulgarian authorities announced a raid on Nexo, with allegations of legal misconduct that are being actively investigated. We do not recommend users sign up for Nexo at this time until the investigation is complete and Nexo is cleared of all wrongdoings.
Nexo has extremely good rates and offers higher interest than most platforms. For example, the interest on your Bitcoin and Ether can be as high as 8% if you opt for a fixed term and get paid in Nexo tokens. Other interest rates are also extremely high, DOT at up to 15%, and then AVAX and MATIC have limited time boosted rates 17% and 20% respectively.
Crypto.com
Crypto.com has become a massively popular platform for users with various different crypto needs. This powerhouse platform supports just about everything crypto-related such as trading, an NFT marketplace, a self-custodial DeFi wallet, their own blockchain network, one of the most popular crypto cards, and an attractive Earn program
With Crypto.com, users can earn interest on their crypto holdings up to 12.5% APY through the Earn program. Interest rates will vary depending on how many of the platform’s CRO tokens a user stakes as that determines their loyalty level. Users can earn passive income on a pretty impressive list of 37+ crypto assets, making this one of the best Earn programs available.
You can learn more about Crypto.com and find out why they are considered one of the top crypto platforms in the industry in our Crypto.com Review.
YouHodler
Slightly less well-known is YouHodler, an up-and-coming platform in the crypto lending space. Headquartered in Switzerland and Cyprus, this platform offers a unique product called MultiHODL for lenders. It basically allows depositers to allocate a small percentage of their deposits to something risky with the potential to earn more while keeping the majority of the deposits safe. This is based on the Barbell Strategy introduced by Nassim Taleb, he of the "Black Swan" book fame.
Unlike the other two platforms, YouHodler doesn't differentiate between small and large balances. Instead, they have a flat rate based on tokens deposited:
Insurance Risk YouHodler uses Ledger Vault as its custodian, providing up to USD150million in pooled crime insurance. This is the same company that creates Ledger cold wallets for consumers, the Vault being the enterprise-version. They safeguard the keys so that only select people have access to them.
DeFi Platforms
How it works
When you deposit your crypto onto a DeFi platform, you get interest-bearing tokens generated by the platform. For example, depositing ETH, you get xETH back. As the interest grows, you get more and more xETH. When you surrender the xETH back to the platform, you will then get more ETH than what you put in in the beginning.
Unlike centralised platforms, there is no KYC process involved. This is also because there is no way for you to convert your fiat into cryptocurrency on these platforms. You'd need to have some other way of getting your hands on the crypto beforehand. These platforms also utilise a non-custodial approach, which means the assets always remain in your hands, or rather, wallets.
What are the risks?
Smart Contract risks These are essentially computer programs written by humans, which means that there is a potential for errors to occur, sometimes intentional, sometimes not. The worst-case scenario is that you lose what you put in.
No insurance The platform itself doesn't offer any insurance but there are other blockchain projects that allows you to buy insurance up to a certain amount.
Systemic risks This is basically the entire blockchain project going pear-shaped due to various reasons. One of them can be due to poor liquidity. This means not enough people borrowing from it, thus you're earning very little interest.
What sort of APY can I expect?
Oddly enough, stablecoins and other more established tokens don't get as a good a rate compared with CeFi platforms. These are usually around 2% – 3%. However, the newer blockchain projects like Curve Finance fetch quite a decent 10%.
Which projects are worth looking into?
Maker
According to DeFi Pulse, a reference website for all things DeFi, Maker is currently the most dominant DeFi lending platform with almost 17% market share in a market worth USD108 billion and growing by the day. It is one of the earliest known projects in the crypto world with DAI being one of the first crypto-backed stablecoins.
The idea is for users to deposit crypto-assets and get DAI in return. As a stablecoin, DAI can be used to earn interest on other platforms. These crypto-assets are over-collateralized to counter the volatility of the market. If the value of the loan is greater than the value of collateral provided, liquidation occurs.
AAVE
The second spot for lending on DeFi Pulse is AAVE. It's a "The system of loan pools" where depositers can lend their crypto assets into pools, governed by smart contracts, in exchange for earning interest. Starting life on the Ethereum blockchain, it has branched out to be available on the Polygon and Avalanche blockchains.
AAVE in its current incarnation was launched in 2020, but it has origins from 2017 when it was known as ETHLend. Back then, it was a peer-to-peer lending platform, which required someone else on the other end. After it switched to smart contracts, it was a success last year, even going head-to-head with Compound, the then-no. 1 DeFi lending platform.
Compound
Compound is one of the first projects in the DeFi space. It pioneered the idea of issuing a ERC-20 version of the token deposited, so that the ERC-20 version can then be put to further use, acting as a foundation block for "money legos" commonly seen in yield-farming strategies. DeFi’s other projects have also adopted the same method to double or triple potential returns, while assuming a level of risk.
Holding dividend-paying tokens
If staking isn't really your cup of tea, there is another way to earn passive income in a relatively safe manner, which is holding dividend-paying tokens. The projects share the profit they make with holders of their native tokens. Some of them are issued by cryptocurrency exchanges.
What it does
Buy the platform's tokens, hold it in an assigned space, and just wait for the dividends to come trickling in.
What are the possible risks?
It is important to look at the stability of a platform or project. As long as it's getting used with gradual adoption, your investment will be safe.
How much APY should I be expecting?
A range between 5% and 15% is possible when you take into consideration the different variables for each token.
What are the projects that you should consider?
KuCoin Shares (KCS)
KuCoin has become one of the most popular cryptocurrency exchanges despite its centralised structure. The platform has lots of promotions going on, mainly related to margin and futures trading, which I don't do. The only thing I did was to buy KCS Tokens for trading. KCS offers bonuses regardless of how many tokens are held in your Trading account or Main Account. The price of this cryptocurrency has reached new highs at the time that we wrote. It’s a nice feature that the platform reminds you to collect bonuses if you forgot.
Watch out for the platform toppling. Since it is a centralised exchange based in Hong Kong, here's to the Chinese government not trying to do any funny business with it. The platform is also updated periodically. It makes things better sometimes, but other times I am left wondering.
VeChain
VeChain is a blockchain that has been widely adopted by enterprise businesses. The blockchain was originally designed for supply management. By combining a physical tracking component, such as RFID (radio-frequency ID), QR codes etc and adding that information to the blockchain, each step of a product's manufacturing steps and standards are clearly visible for all in the supply chain to see.
VeChain works closely with many companies, including PwC’s (Big 4 Auditing Firm), LVMH(Louis Vuitton), Walmart China, BMW and others. VeChain is also working in China and Cyprus on record management. It was selected by the Chinese government to provide a system for storing tax and business registrations, certificates and audits for the Gui'An New Area. In the meantime, the Vechain Blockchain was used by a Cypriot clinic to store the first 100 records of vaccines for Covid-19.
Staking VET gives stakers VTHO, which can be used to pay all the transactions related to adding data to blockchain. Every 10 seconds, rewards are given when a block is generated. Atomic Wallet will soon offer 1.63% APY to VET staked through their platform. Exodus Wallet offers VET staking with a 1.5% APY.
Risques Singapore and China are the offices of this project. While I don't see the Singapore government doing anything underhand, especially if it's trying to position itself as the cryptocurrency hub of the world, I can't say the same for China due to its track record. It’s hard to say how much this will affect the Chinese team. Let's hope no undue influence is involved.
Other Players
Aside from these projects, there's also NEO, Nexo (security token) and Wink (online casino) to name a few. Do your research and be careful.
Mortgages with Tokens
While DeFi is the standard way for most crypto users to make money, the economy can't purely be based on money making money all the time. In the end, there’s still some pragmatism involved. Smart contracts and blockchain technology are on their way to disrupting a number of sectors in the economy. The mortgage and real-estate sector is one of those most likely to undergo change.
What it does
The general public can now buy a tokenized property instead of purchasing shares in real estate companies or investing in an index fund to gain exposure to this sector. It doesn't mean that you are the actual owner of the property. It's that you own a share of the company that issues the bond that finances the property. Rents will be divided proportionally among token holders. The tokens are also able to be sold on secondary markets.
What are the possible risks?
This is an emerging sector, so it's fair to expect a certain amount of risk involved. These risks do not all relate to the blockchain. Some of these risks include:
- Renters are not paying their rent
- bad real-estate properties – when you don't live there, how do you know if it's a good property or not?
- The company that finances the property fails
- You are the last person in line to recover your investment if the owner of the property becomes insolvent. You might find that there is nothing left to you once all creditors are paid.
How much APY should I be expecting?
The APYs depends on the property you've decide to invest in, which could be from 20% – 50% and above. This sounds delicious, but there are risks involved.
What are the projects that you should consider?
Companies offering these services are all based in America, so the properties will be located there. It does not stop overseas investors buying those properties. This adds a layer of risk because you'd have to trust the evaluators who provide evaluation for the property. Or, do your research first.
Lofty AI
Lofty AI, as the name suggests, uses AI technology in order to evaluate properties before investors invest. This is the short and sweet of it:
- This tool collects data on the property market.
- Look for statistical features to predict future changes in real estate price.
- Group these features by applying labels.
- Train the Deep-Neural Network to predict and identify future prices.
Here is a link to the detailed methodology.
To get started:
- Open an account and provide KYC information.
- Investment Minimum: $50
- Deposit your desired investment amount into the property of interest
- The tokens for the Algorand wallet will be transferred as soon as the Algorand project has been built. The future interest/income is also deposited into the wallet.
A professional company manages the property to keep it in top condition. The platform also allows you to sell your property.
Vairt
Vairt’s services are similar to those offered by LoftyAI. Vairt uses a 100-point proprietary tool, combined with data from third-party sources to determine the value of a property. Also,
- The minimum investment amount is $1500.
- For security, the funds are held in a separate bank account.
- Thirty days is given to the property for raising funds. The money is returned to investors if the goal cannot be reached.
Important to keep in mind is that Limited Liability Company’s (LLCs) are created for each successful property. Tokens represent shares in an LLC and not the actual property.
Players Other than the Listed Player
These two are just examples of what's started happening in this space. If you’re interested in learning more about this, consider the following list.
Other options to passive income
You can still squeeze out more cash from your crypto-assets besides the main four options. Some carry greater risks than others. I still thought they were worth noting.
Earn cash by Playing Games
Although not exactly passive revenue, the trend of play-to earn games is growing, particularly amongst the young crowd. If you're going to play, why not earn some money on the side? Some of the games requires buying a NFT to get started, so there's your investment there. You can sell the assets in-game on secondary markets or earn points that you can convert into crypto.
Unlike the other types mentioned above, this method doesn't rely on you putting some tokens or money somewhere, so there isn't any kind of APY per se. The gains would primarily be measured by the gamer's ability and whether the NFTs are of value in the secondary market, which can be quite arbitrary.
HNT Mining
Helium network (HNT), a blockchain project, provides coverage through radio frequency shortwaves. You can become a miner by purchasing one of those modem-like device to provide coverage. After that's set-up, you can check, through an interface, how many tokens you can get. Due to their popularity, you may have to wait a while for a device to arrive at your door.
To generate optimal returns, there must be a balance of the number and type of miners. The miners are either Transmitters, Witnesses, or Challengers at all times. These are some numbers for your reference.
- 3-5 Witnesses > 150 HNT per month
- 5-15 Witnesses > 500 HNT per month
- 15< Witnesses > 800 HNT per month
(source)
Air Drop BAT
Brave Browser gives BAT tokens to users who opt in for their ads. They also do ad-blockers if you don't want to see any ads. It's a crypto-friendly browser in the sense that the ads are usually for blockchain projects. What they give isn't much but it's better than nothing. Tokens are deposited directly into Uphold’s wallet to be kept safe. Check out the link below to see upcoming airdrops. You will need to hold a crypto token or perform an action in order to participate.
Looking at my own history of receiving BAT, I'm getting anywhere between 3-4 BAT a month. It’s possible to earn even more by depositing BAT tokens on one of the cryptocurrency lending platforms. For something I'm getting free, it's quite a good deal!
The conclusion of the article is:
Crypto offers many ways for anyone to earn some extra cash. While crypto is seen as a high risk asset, due to the volatility in pricing, as more and more industries are affected, the utility and use-cases expand so that it's not hard to imagine a world where tokenization of real-world items is the norm, just as we have generations of people growing up unable to imagine a world without the internet and fibre connections.
It’s all about group participation and network effects in blockchain projects. In contrast to web2.0, which is based on reaching as many people as possible, blockchain projects are primarily aimed at early adopters. Have you got the vision to be one of them?