5 Little Tricks To Achieve The Best Results In Crypto
For investors seeking investment returns in addition to capital appreciation, today’s fast-evolving crypto marketplaces provide a variety of yield-generation options.
Continue reading to learn about five strategies to generate a return on your cryptocurrency investments.
Staking coins is often one of the first alternatives for crypto investors when it comes to generating returns on their digital assets.
Staking is the act of locking up your currencies in order to sustain a proof-of-stake (PoS) based blockchain network and gain rewards in the form of freshly minted tokens in the crypto markets.
Sunny King created the PoS consensus method in 2012 as an alternative to the proof-of-work (PoW) idea to address the latter’s environmental sustainability and scalability difficulties.
Cryptocurrency holders can stake a fixed amount of money on the blockchain to validate transactions under the PoS model. Typically, you may only bet a certain number of coins. Cryptocurrency investors can also validate block transactions depending on the number of coins they own. The more the profits received by an investor, the more coins he or she owns.
Algorand (ALGO), Cosmos (ATOM), Tezos (XTZ), and Tron (TRON) are examples of popular staking currencies, while Ethereum (ETH) is also migrating to the PoS algorithm and already offers to stake on its Beacon Chain. APYs (annual percentage yields) for staking often vary from 3% to 10%, depending on the asset.
To generate a return on their holdings, crypto investors can stake tokens on decentralised finance (DeFi) platforms in addition to staking coins in PoS-based crypto networks.
For example, you may stake CAKE tokens on PancakeSwap, a decentralised exchange powered by Binance Smart Chain, and earn 50% + APY (at the time of writing).
Prior to DeFi, almost all crypto platforms followed the centralised finance (CeFi) approach. That suggests the platform’s operation was delegated to a single organisation.
In addition to trading platforms for crypto assets, crypto lending marketplaces have arisen, allowing crypto holders to lend their digital assets in exchange for interest.
When borrowers pay interest on the digital assets you lend them, you earn crypto yield via CeFi lending apps. You just have to worry about the interest payments because the platform you’re utilising manages all of the payments and links borrowers and lenders.
BlockFi, Nexo, and Ledn are among the most popular CeFi lending systems, with APYs ranging from a few percent to double digits.
The major disadvantage of centralised lending applications is that you must entrust your coins to a third party and may be required to go through a KYC (know-your-customer) process.
DeFi lending is a decentralised alternative to CeFi lending. The DeFi business has grown rapidly in the previous two years, and it is now a multibillion-dollar crypto sub-sector.
Decentralized lending pools like Compound (COMP) and Aave let crypto holders earn interest by lending their coins to others (AAVE). Smart contracts link lenders and borrowers without the need for credit checks on lending dapps (decentralised applications), and collateral is provided to lessen default risk.
Depending on the platform and the loan asset, DeFi lending rates might vary significantly. On top DeFi lending services, for example, you can presently earn between 0.5 percent and 7% on US dollar-backed stablecoins.
The biggest disadvantage of DeFi lending is that the protocols have a history of being hacked, resulting in the loss of cash. For investors wishing to earn income in the DeFi lending markets, sticking with the most established DeFi lenders is definitely the best option.
Yield farming is another common method of generating cryptocurrency income. Although all techniques of generating crypto yields are dangerous, yield farming is likely the riskiest. It does, however, have the highest APYs.
Yield farming, also known as liquidity mining, is a concept in which crypto holders stake some or all of their digital assets in a lending or DeFi trading pool, thereby providing liquidity, and receive liquidity pool tokens in exchange, which can then be staked in a yield farm to earn additional yield in addition to the liquidity pool fees.
Sovryn, SushiSwap, PancakeSwap, and Yearn are some of the most popular yield farms, with APYs in the triple digits.
Investing in NFTs
You may not realise it, but staking non-fungible coins may also give you yield (NFTs).
Since the start of the year, the NFT business has seen a significant expansion, therefore it shouldn’t come as a surprise that developers have devised new ways for NFTs to offer a yield to holders.
Although NFT staking (or NFT farming) is a relatively new idea, there are currently a few dapps that allow you to stake your non-fungible tokens in exchange for protocol tokens as staking incentives.
Staking NFTs is similar to yield farming, with the main distinction being that yield farming needs depositing digital assets into a liquidity pool and receiving token returns, whereas staking NFTs does not.
While generating a return on your cryptocurrency might be rewarding, it can also be perilous. Only invest what you can afford to lose, and do your homework on the assets and platforms you’ll be using in your yield-seeking quest.