if you have crypto Gathering dust in your wallet I've got news for you you could be missing out on some serious gains I'm talking about using your crypto to earn more crypto and news flash this is how people get rich you think people get rich from working a 9 to-5 of course not one of the only ways regular folks like us can make it is to use your money to make more money and compounding that over years probably many many years but that's okay because you're planning for your entire life that's why today we're dropping all the knowledge you need to earn passive income from crypto so strap in and let's get started now passive income in crypto generally means earning yield this is usually expressed as an annualized percentage or apy now there are some really eye popping yields out there in crypto if you go on to the yields page of defi Lama you can even find cryptos paying out more than wait 12,000 oh my God I can't believe it Bros I finally made it it's been nice knowing you but I have to go shopping for a private island immediately tooo of course I'm kidding this is ridiculous and you should never click on anything like it where do I even start okay in crypto high yields are often paid for by inflation that means you are not earning something of value say fees or interest paid by borrowers instead said the project is just printing tokens out of thin air to give you this is why real yield is so important the yield you earn in excess of inflation is real yield and this is the only yield that matters whatever kind of apy you're looking at the first question you should ask is what is the real yield here so for example let's look at the yield from staking atom we're on staking rewards. com here by the way we have no affiliation with staking rewards but this site is a very useful resource for all things staking now here we can see that atom has a staking rewards Benchmark of 17. 91% this is the mean reward offered across all Cosmos validators that is a pretty juicy yield for an established Blue Chip crypto like atom but what is the real yield well if you scroll down you'll find the inflation rate which is 12% so the yield you're getting is nowhere near 17.
91% it's a little under 6% now that's not necessarily bad but 12% inflation is kind of a lot maybe that's why atom is At a 4-year low right now and this brings me to a related point the APR you get is meaningless if the crypto is looking bearish on a high time frame do you want to earn a yield on something that's tanking the bottom line is you want to earn real yield on a strong asset that people want to hold so whatever passive income strategy you prefer you have to balance the yield you get with the prospects of the asset performing well these things are often inversely correlated so if something is paying 12,000 apy it's safe to say that nobody wants it and it's not worth your time now with that out of the way it's time to look at the strategies you can use to make your crypto work for you let's start with the obvious staking there are many proof of stake cryptos out there but we'll take eth as an example there are several routes to staking your eth but unless you have the 32 eth required to become a validator on the ethereum network yourself your options all involve giving your eth to another validator who will stake it on your behalf you may have seen staking services offered by centralized exchanges or mobile wallets that allow you to stake in app in the former case The Exchange will often be running its own ethereum validator in the latter the wallet is just providing you with an interface to send eth to thirdparty validators you're likely to get the same yield from either of these options but since that's the case we suggest not staking via exchanges because it's not great for the blockchain in the ethereum foundation's words quote centralized providers consolidate large pools of eth to run large numbers of validators this can be dangerous for the network and its users as it creates a large centralized Target and point of failure making the network more vulnerable to attack or bugs this is also true for another kind of staking that is extremely popular liquid staking if you're not familiar liquid staking Services provide you with a tokenized representation of your staked asset whose value is pegged one to one to that asset this liquid staking token is basically a receipt for your staked asset and when you unstake it will be burned for the user liquid staking means you earn compounding interest on an asset that is both in your custody and free to use in other transactions if you've ever dipped your toes into defi you'll have seen some exotic tickers that look like eth but with various prefixes and hyphens many of these will be liquid staking tokens which are a huge part of the defi ecosystem among these the most common and easy to read is stth which is the liquid staking token issued when you stake eth with Lio speaking of Lio I mentioned that liquid staking comes with centralization risks this is not a problem intrinsic to liquid staking itself it's just because liquid staking has been monopolized by Lio which has managed to Corner 28% of the state eth Market the good news is that the Lio da doesn't directly operate nodes on ethereum instead the Lio DA has elected 30 separate node operators none of whom control more than 5% of Lido's staked eth or more than 2% of all ethereum validators the bad news is that although validators in the staking pool are run by independent operators they all share common incentives and points of failure for example they all rely on the same smart contracts that govern and operate the protocol any vulnerability in Lio smart contracts would be extremely bad news for ethereum or any of the other assets you can stake with Lio and this brings me on to another Point smart contract risk last year $2 billion was lost to crypto hacks scams and exploits almost half of this around $850 million was stolen by exploiting vulnerabilities in smart contracts this is an oft overlooked type of risk but smart contract exploits are unfortunately very common every time you interact with a smart contract you are exposing yourself to any vulnerabilities that may exist in the code passive income strategies in defi often involve interacting with multiple smart contracts so the more complex your strategy is the more smart contract risk you're exposing yourself to and speaking of complex strategies we're not quite finished with staking because how could we forget reaking as the name suggests raking enables validators to redeploy Stak assets across multiple protocols at the same time this means you can restake staked assets including liquid staking tokens in protocol calls like igen layer to earn an extra yield inevitably this has led to the rise of liquid reaking tokens so you're free to use your restak assets in other defi strategies reaking is supposed to improve the security of the underlying blockchain's ecosystem but perhaps ironically it exposes the user to added smart contract risk after all reaking Protocols are just a bunch of smart contracts at the end of the day now we can't mention defi without mentioning lping or in plain English providing liquidity decentralized exchanges rely on pairs of assets pulled together in a smart contract called a liquidity pool this is what makes it possible to trade on chain without any intermediaries it's kind of like a vending machine when you trade on a decentralized exchange you'll pay trading fees some of which are directed to the people who have provided crypto into the liquidity pool anyone can provide liquidity and collect these fees this strategy is called lping and if you have a trading pool with a lot of trading volume this could be quite lucrative especially if you compound your fee rewards back into the liquidity pool rinse and repeat however this is a complex strategy with several layers of risk involved to LP you need to deposit into a liquidity pool the correct pair of Assets in the correct ratio sometimes there are more than two assets in the pool but well let's stick to two for the moment ideally you want to choose a pool with assets whose prices are highly correlated a pair of US dollar stable coins for example or eth and St pairings like these are best If You LP with two assets that are not closely correlated you'll suffer impermanent loss this is a loss that can occur due to the difference in the exchange rate between the two assets when you deposit them into the pool versus when you withdraw them the question for you is whether the yield you earn minus the impermanent loss you take will be worth your trouble in some cases impermanent loss can make this entire strategy unprofitable and you'd be better off just hodling hodling is certainly much less risky too because lping involves exposing yourself to Smart contract risk so if you do want to try your hander lping here are two recommendations first Google impermanent loss calculator the first result works great it'll help you get an idea of how much impermanent loss your strategy could incur second lping manually is a pain and you need to know what you're doing it's not for beginners thankfully there are aggregators out there that can make this process much easier you'll have to look these up on your own time should have no issues though if you're smart enough to LP now we've covered staking liquid staking reaking and lping but still barely scratch the surface of defi if you're thirsting for a yield on non proof of state cryptos and you don't want to deal with impermanent loss then defile lending might be for you on the vanilla end you can lend crypto through Blue Chip protocols like arve to earn a modest rate of interest usdc for example currently has a supply apy of 3. 8% it's not life-changing but it's still probably better than what your bank is offering or instead of Ave you could earn a yield on stable coins through real world asset or rwa protocols Ono is offering a more attractive yield of5 .
