With the ever-evolving finance space in blockchain, DeFi provides us with vast ways to generate income. All of this became possible when Ethereum emerged with the smart contract functionality. Ethereum is home to DeFi & as a user, one has to deploy Ethereum nodes to earn through DeFi. Although, now DeFi is available in many other blockchain as well such as Solana, Avalanche, Polygon, and many more.
With many questions in mind regarding “how to invest in DeFi” or “how to earn passive income” with DeFi; in this blog, we will walk you through four ways to generate income with Bitcoin & other cryptocurrencies.
4 Unique Ways to Generate Income
The early DeFi protocols were more about lending, which is still a popular option. MakerDAO is one of the biggest names in lending protocols. As you must have heard, BTC holders can use ERC-20 to participate in Ethereum’s DeFi. By depositing the Bitcoin for Ethereum, one can take a collateralized loan; thus, you can unlock more crypto value.
In simple terms, you lend your crypto assets and lock them with smart contracts. The borrowers on the other hand, can access the assets as loans by placing their assets as collateral. Finally, borrowers can pay back the loans. To facilitate borrowing and lending, smart contracts play a huge role.
Staking is also a way to generate income on DeFi. In the following process, users lock their tokens. However, native tokens of the same blockchain network are being used here. For example, ETH is a native token for the Ethereum network. In this, the users can lock their tokens with a smart contract. Further, by staking one becomes a validator in a layer-1 blockchain and thus validators earn staking rewards. The following process requires a temporary commitment from the user.
As in blockchain, there aren’t any intermediaries. Here in liquidity mining, decentralized exchanges (DEX) use automated market makers to define the price of asset swaps. The liquidity comes from pool tokens that belong to liquidity providers. Those providers are the users who place their tokens into the smart contract. As a user, you deposit your asset into the liquidity pool. The liquidity pool has ETH or USDT for trading. The more the providers contribute to a pool, the more the rewards are generated.
Here you provide liquidity to the DeFi protocol by locking your assets, in the exchange you get Liquidity Provider (LP) tokens. LP tokens are exclusive here thus, it’s essential to become a liquidity provider. Now you have two options: either hold the LP tokens and redeem them to recover the original stake and rewards. Or you can lock the LP tokens and earn rewards for the same or different tokens. The process is similar to staking only that the LP tokens are the facilitator.
Enterprises, organizations, and entrepreneurs opting to earn through DeFi require blockchain functionality. We at Zeeve will make blockchain node hosting easy for your organization.
As a user, one has always to take care that there are risks in the market. For instance, the transaction fee can go high and can cause losses.
In addition, it’s essential to track all your portfolios, this can be done by the aggregators or portfolio trackers. The aggregators can provide cross-chain connections for multiple wallets.
It’s always better to go with reputed platforms. There should not be discrepancies on the platform. As a user, you can check the external auditing of smart contracts of the yield farming protocol.
DeFi is evolving at a rapid rate and introducing a new world of finance. However, there is nothing like quick money, and one has to understand the basics well before trading.