What makes Decentralised Finance (DeFi) a lucrative investment opportunity?
Passive income with DeFi is slowly gaining in popularity as more and more investors are drawn towards decentralisation. By lowering the barrier of entry, intermediary charges, and regulations, DeFi offers new avenues and methods for investors to earn profits through blockchain technology. Platforms like Ethereum that support the creation of Decentralised Apps (DApps) lower the barrier of entry while offering all the benefits of a bank–like earning interest on investments, borrowing or lending capital, trading assets, getting insurance–without the hassle of opening a bank account and sharing personal details.
In the constantly expanding crypto space, DeFi is generating new methods for investors to earn passive income every day. Here are the top picks for income generation from DeFi, including DeFi’s passive income opportunities.
1. Staking:
Staking closely resembles a traditional savings account. By staking crypto assets, investors can earn rewards in exchange for providing liquidity. The rewards are usually in the form of more tokens. A popular and common method of earning passive income with DeFi, staking is widely used with proof-of-stake blockchains like Polkadot. Some even come with governance benefits and utility tokens in exchange for which investors get to vote on the functioning of the blockchain. By locking tokens with a smart contract, investors also have the opportunity to earn long-term passive income.
Staking is also used by Decentralised Exchanges (DEX) to make automated market makers. Investors can stake their tokens in liquidity pools of the DEX and earn rewards for providing liquidity and the ability to swap tokens on these liquidity pools, which, in turn, keeps DEX afloat.
2. Yield Farming:
One of the most reliable and common ways of earning passive income with DeFi is the yield farming method. Similar to staking, when investors lock in their assets to provide liquidity to a DeFi project, they are awarded liquidity pool (LP) tokens. Investors can then choose to hold or redeem LP tokens to recover their original stake or earn other rewards. This method would make trading tokens for other associated benefits or tokens incredibly seamless. The difference between yield farming and staking is that yield is limited to earning LP tokens only, which means investors have to become liquidity providers to earn money through yield farming. Investors looking to earn passive income with DeFi through yield farming must look out for proper due diligence measures and be careful of the rug-pull scams where developers withdraw tokens from the liquidity pools by compromising the LP tokens. Reputed and popular platforms are the safest bet when opting for yield farming.
3. Lending:
A straightforward method of earning passive income with DeFi, lending is also one of the first methods introduced in the DeFi space for income generation. Investors can lend their crypto assets and lock them using a smart contract. Borrowers will then access these assets by placing their assets as collateral. At the time of repayment, borrowers pay additional tokens in the form of interest. Multiple lenders can come together to fulfill the needs of one or more borrowers. The smart contract will be deployed for equal or proportionate distribution of interest amongst the group of lenders.
DeFi lending offers higher returns and is a globally trusted form of income generation compared to traditional banking. Instead of intermediaries like the bank, smart contracts act as the legally binding document and facilitator of the transaction between lenders and borrowers, automatically implementing error-free repayments and transactions.
Parting Thoughts
The methods to earn money from the blockchain technology wave are endless. From playing-to-earn and buying virtual land to investing in the aforementioned DeFi instruments, the opportunities are endless. Investors can also trade crypto assets like NFTs directly through crypto exchanges like ZebPay. Generating sources of income from DeFi is also a popular retirement strategy for the current generation, with 50% accepting investing in crypto as part of their retirement plan.
very day, new DApps are being launched in the DeFi space with unique techniques of earning passive income from DeFi while benefiting from decentralisation. However, investors must always do their due diligence before making any form of investment.
