In just a few years, crypto adoption has accelerated with participation from retail and institutional investors. Major companies like Tesla, Square, and MicroStrategy have all added crypto to their treasuries. This growth has led to incredible cryptocurrency innovations and decentralised finance (DeFi). As a result, crypto presents exciting opportunities for passive income. From staking rewards, crypto lending, liquidity pools, and more, the options to generate profits in decentralised finance keep expanding. However, crypto comes with its own set of risks.
Understanding Passive Income In Crypto
Several emerging crypto trends are expanding possibilities for earning yields, including:
Real-World Asset Tokenisation
Tokenisation refers to issuing tokens that represent ownership of real-world assets like real estate, commodities, or debt. This unlocks liquidity and allows fractional ownership.
Automated Portfolio Management in DeFi
As decentralised finance is expanding, automatic portfolio management tools are created. This tool and platforms optimise the investment methods using algorithms.
Expansion of DeFi Opportunities
DeFi aims to recreate traditional financial services in a decentralised manner. New protocols are launched frequently, providing growing options for lending, trading, derivatives, and more.
Top 13 Methods To Earn Passive Income In Crypto
Here are 13 of the most popular methods for earning crypto passive income.
1. Staking Crypto
Want to earn passive income from crypto assets? Crypto staking is one of the most popular and beginner-friendly ways to earn passive income from idle crypto assets. It involves locking up the cryptocurrency to help validate transactions on proof-of-stake (PoS) blockchains.
Staking participants earn compounding block rewards for providing resources to the network. In networks like Ethereum, annual staking yields typically range from 3-6%. A simpler option is available for staking crypto, like centralised crypto exchanges.
The risk factor is the volatile market and the inability to withdraw funds during the lockup period.
2. Running Lightning Crypto Nodes
The Bitcoin Lightning Network relies on nodes to facilitate faster BTC transactions. This method generates passive income for node operators who earn fees for routing transactions through their nodes.
Returns are generally modest but relatively hands-off. The only downside is that running nodes requires some level of technical expertise.
3. Participating In Liquidity Pool Or Liquidity Mining
The liquidity mining method has become popular due to the rise of decentralised platforms (DEXes) and swap pools.
In liquidity mining, users provide liquidity to cryptocurrency swap pools on DEXs. Users are known as liquidity providers (LPs).
Liquidity mining allows users to earn governance tokens by providing crypto liquidity to DeFi protocols. Tokens are distributed as rewards and can be sold or used to vote on protocol changes.
4. Yield Farming
Yield Farming is the way to earn passive income in crypto by providing liquidity to the decentralised platform for lending and borrowing services and earning interest from it. It’s a popular method to earn crypto income but requires research due to the wide variety of DeFi protocols and pools.
Yield farming provides higher returns than traditional savings and other passive income methods and can be highly volatile, leading to potential losses if the value drops significantly.
5. Decentralised Crypto Lending And Borrowing Platforms
Crypto lending is one of the popular methods for users to earn passive income through cryptocurrencies. Multiple centralised and decentralised platforms allow lending and borrowing.
However, many peer-to-peer (P2P) lending platforms like Aave, Compound, MakerDAO, dYdX, etc., enable users to lend crypto to an individual directly.
Users have to deposit their cryptocurrencies into lending platforms. These platforms lend money to borrowers. In return, users will get the interest in the form of rewards.
6. Earning From Crypto Cloud Mining
Crypto mining requires expensive hardware to mine crypto profitably. One easy option is to turn to cloud mining. Cloud mining allows investors to participate in crypto mining without needing technical expertise and such equipment.
In cloud mining, investors pay a monthly or yearly fee to the service providers to rent their mining hardware and resources. The service provider mines the crypto on the investor’s behalf and pays back the proportion of the mining rewards.
7. Crypto Mining
Traditional crypto mining is a common way of earning passive income. Blockchain networks, such as Bitcoin, use the proof of work (PoW) mechanism to validate transactions. It involves solving complex mathematical puzzles to add new blocks to the blockchain and earn rewards through transaction fees.
Unlike cloud mining, crypto mining requires expensive hardware and software. It also requires a high cost and some technical knowledge to mine cryptocurrency.
8.Collecting Airdrops
Airdrops are one of the popular methods to earn free crypto tokens. Crypto projects and exchanges give out free tokens (airdrops) to get more attention and increase trading.
Projects distribute free coins or tokens to wallet holders as a promotional activity. Users must perform some tasks to get these free tokens, such as linking their wallets and following projects on social media pages.
9. Playing Crypto Games
Play-to-earn (P2E) is a new form of gaming that rewards players to earn cryptocurrency for playing games. There are many P2E crypto games available today. Some of the more popular ones are Axie Infinity, Sandbox and Decentraland.
Games like Axie Infinity reward users with tokens and NFTs for playing games. These tokens and NFTs can be traded on marketplaces.
10. Earning Interest With Crypto Savings Accounts
This crypto passive income method is similar to traditional banks. Crypto saving platforms allow users to deposit crypto. Users earn interest on the amount they deposit.
These crypto platforms or exchanges lend, stake, or invest crypto funds that users deposit and profits earned are paid to users as interest.
11. Earning Dividends With Governance Tokens
As the name suggests, dividend-earning tokens are similar to traditional stock dividends, where dividends are paid out to cryptocurrency holders—some tokens like BNB and KCS share fees, buybacks, or revenue earned by projects.
12. Providing Infrastructure With Masternodes
Masternode is a dedicated server that supports the operations of a network. Maintaining a master node requires locking up large amounts of coins and technical expertise. The operators receive rewards in the form of coins or transaction fees.
13. Participating In Crypto Affiliate Programs
Affiliate programs are part of marketing strategies for companies to get more customers. Various exchanges, wallets, DeFi platforms and crypto companies have adopted the affiliate marketing model like traditional businesses. By referring a user to these platforms, users can earn crypto income.
Binance, Paxful, and KoinX are some of the industry’s most popular crypto affiliate programs.
Comparative Analysis: Choosing The Right Strategy
There is no single best yield generation method in crypto. Based on risk appetite, time horizon, and capabilities, one can choose which crypto passive income method best fits them.
Here’s a high-level comparison of key passive crypto income strategies:
Passive Income Strategy | Potential Risk | Potential Benefits |
Staking Crypto | Network vulnerabilities and Market volatility. | Earn rewards on crypto holdings and reliable earnings. |
Running Lightning Crypto Nodes | Hardware costs and skill requirements. | Consistent returns for providing infrastructure. |
Participating in the Liquidity Pool | Impermanent loss, high volatility and complex strategies. | Potentially, very high rewards, and you can earn governance power. |
Yield Farming | Smart contract risk, impermanent loss and high gas fee. | Additional tokens or fees by providing liquidity and maximum yield across protocols. |
Decentralised Crypto Lending and Borrowing | Counterparty risk, smart contract vulnerabilities and insolvency of borrowers. | Earn interest on idle crypto holdings. |
Earning From Crypto Cloud Mining | Scams and contract risk. | Earn coins without running your hardware. |
Crypto Mining | High upfront costs, competition from larger mining operations and a decline in rewards over time. | Earn newly minted coins and transaction fees. |
Collecting Airdrops | Depends on external projects. | Get free coins and tokens from promotions. |
Playing Crypto Games | Unproven model and token volatility. | Play games and earn tradeable tokens and NFTs. |
Earning Interest With a Crypto Saving Account | Technical glitches, platform failure risk and market volatility. | Earn interest on crypto holdings. |
Earning Dividends with Governance Tokens | Project failure and token price fluctuation. | Regular dividend income from token ownership. |
Providing Infrastructure With Masternodes | High upfront capital requirements, loss of collateral due and market volatility. | Higher returns compared to other passive income methods |
Participating in Crypto Affiliate Programs | Dependent on the platform. | Easy to start, recurring payouts on referred activity. |
Conclusion
While crypto is still in the early days, it is opening new opportunities to earn passive income. The opportunity to earn attractive APYs (annual percentage yield) on holdings of cryptocurrencies.
However, risks remain substantially higher in crypto passive income options. Loss of funds is possible, and crypto requires proactive management. Research, continuous learning, and diversifying are key principles to combine.
As you explore these income opportunities, remember that earning from cryptocurrencies is subject to tax. Using a tax platform like KoinX can help investors easily and effectively pay taxes on crypto income.
Frequently Asked Questions
Can I Make Passive Income With Crypto?
Yes, there are various methods by which passive income in crypto can be made. Investors can earn passive income from staking to lending and from airdrops to affiliate programs.
Which Strategy Is Riskier, Margin Or Options Trading?
Margin trading carries higher risk as losses can exceed your initial investment, whereas options have limited risk.
Is Crypto Passive Income Taxable?
Yes, crypto income is taxable. You can use KoinX to calculate your taxes.
