Crypto Exchange: How To Earn Passively by Conversion

Cryptocurrencies are volatile assets that can bring in some considerable profits to the savvy investor. Trading crypto can be a lucrative venture if you know what you are doing. However, because they are so volatile, trading is also very risky and requires some good background knowledge before you can become successful at it. 

Consequently, many prefer to just buy bitcoin with credit card and hold onto their coins until their value appreciates. With that said, cryptocurrencies present many passive income opportunities. What if we told you that you could make profits just by holding some cryptocurrencies? 

In this article, we will lay down some of the best methods for making passive income with crypto. To this end, we will explain the basics of DeFi and how you can use it to make steady profits without trading. Finally, we will provide some more beginner-friendly ways of making passive income with your holdings, including staking and lending.

DeFi liquidity providing

One of the most lucrative and effective ways to gain passive income by converting your cryptocurrencies is by providing liquidity to decentralized finance (DeFi) platforms. 

What is DeFi?

DeFi is a cryptocurrency niche ecosystem that provides users with traditional financial instruments such as lending, trading, or borrowing, but in a decentralized manner. For instance, when you lock your funds in a bank and gain interest, this is considered centralized lending. The bank lends your money to other users and pays you interest for the liquidity you provide. 

In DeFi, it works in a similar way, only there’s no trusted third party. Your funds are locked with the help of smart contracts that will reward you for providing liquidity. As such, DeFi is considered peer-to-peer lending. 

What is yield farming?

DeFi lending platforms work with liquidity pools of cryptocurrencies. Users lock their holdings in these liquidity pools and the smart contracts distribute them to those that wish to borrow funds. Then, the smart contract charges the borrower a transaction fee that is rewarded to all of the liquidity providers. 

Sometimes, these DeFi platforms will reward you with different tokens, that are proprietary to the platform. Usually, these rewards yield much higher APY than if you chose to receive your rewards in the same cryptocurrency that you are lending. 

Moreover, you can then use these new tokens and lend them to other platforms that provide even higher APY. This is called yield farming. There are complex yield farming strategies that can be applied to maximize your returns. While this can seem complicated at first, it’s also one of the best ways to make gains passively by conversion. 

With that said, yield farming can be a risky venture. First, the new tokens distributed by DeFi platforms have low liquidity and can be quite volatile. This means that you can use a lot of value if the price of cryptocurrency drops significantly while your tokens remain locked in the liquidity pool. 

Staking crypto

For a less risky passive income method, there’s cryptocurrency staking. This can be applied to proof-of-stake blockchains such as Cardano, Binance Smart Chain, Tezos, and many more. In 2022, even Ethereum, the world’s second-most popular cryptocurrency will be switching to PoS and will allow staking of ETH tokens. 

Staking is a method for securing a blockchain by locking in your holdings on the network. This allows the network to be insured from 51% attacks. For providing this service, users that stake their coins are rewarded a portion of the transaction fees of the network. 

It’s a much more democratic passive income method than mining, as you don’t need to invest in expensive hardware to be able to do it. All you need to do is buy some staking cryptocurrencies and lock them in your wallet. For a good overview of the currency staking rewards of the top PoS blockchains, take a look at the StakingRewards website. 

Too complicated? Use centralized lending platforms instead

If all of this seems too complicated or you just wish to keep your holdings in Bitcoin, there’s another method for making considerable passive income – centralized lending platforms. 

Platforms like Celsius Network and Blockfi will act as the middleman between you and other users that wish to take a line of credit using their crypto as collateral. Similar to a bank, you can lend your Bitcoins to these platforms and receive interest on a regular basis (usually weekly or monthly). 

Wrapping up

One of the main appeals of cryptocurrencies is their ability to provide users with various passive income opportunities. As a crypto investor, you can use your coins for staking or provide liquidity to platforms to gain extra sources of income and increase the value of your portfolio over time. Passive income is an essential ingredient to start building wealth and begin your journey towards financial freedom.

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Last modified: October 5, 2021

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