Rather than waiting on your crypto assets to skyrocket (which is almost never the case), many people opt into using several passive income strategies to grow their portfolios.
In this article we’ll go over the 13 best ways to get started with earning passive income with crypto and what you need to look out for.
13 ways to earn passive income with crypto
Staking is one of the most popular and lucrative means of earning passive crypto income in cryptocurrency. It involves locking up your tokens on a Proof-of-Stake (PoS) blockchain to facilitate transaction validation and contribute to network security. In return for participating in staking, investors are rewarded with interest in the form of newly minted tokens alongside voting rights to create and approve governance proposals.
On most PoS blockchains, staking occurs via delegation or by running a validator node. That said, delegation is the most convenient staking method for investors looking for passive income. It allows you to stake by simply assigning your assets to a validator node instead of operating one yourself. With this staking mechanism, you gain a portion of all staking rewards earned by the validator based on how much you are staking. Examples of blockchains that allow staking via delegation include Ethereum, Cardano, Avalanche, Fantom, and Polygon.
You can also stake crypto assets by subscribing to staking products on centralized exchanges (CEX). These platforms usually offer staking products for PoS chains with a flexible or fixed term and specific interest rate. Staking via a CEX is easy, and beginners are often advised to begin staking via this route. Nevertheless, staking is a top crypto passive income venture regardless of which method you decide to use.
2. Crypto Lending Platforms
Crypto lending refers to the process of lending your crypto assets to decentralized finance (DeFi) protocols, centralized crypto exchanges, or directly to other crypto users. Like traditional finance, crypto lending allows you to earn interest on any token you loan out, serving as an excellent stream of passive income in cryptocurrency. Crypto lending is also highly profitable as it offers higher interest rates (on average) than traditional banking rates.
That said, there are four primary forms of crypto lending – centralized lending, decentralized lending, peer-to-peer lending, and margin lending.
Centralized Lending Platforms
In centralized lending, investors lend their tokens to two primary entities, i.e. centralized crypto exchanges that offer loan services to other users (e.g. Binance) or private crypto lending companies (e.g. Nexo). These platforms are usually regulated by governmental authorities and offer the safest and most secure method of participating in crypto lending.
Decentralized Lending Platforms
Decentralized lending involves investors depositing their assets on DeFi lending protocols, e.g. Aave. These platforms operate with no intermediaries or central authority figures. The lending liquidity and user collateral are locked in a smart contract regulating all platform transactions. Decentralized lending offers freedom to its users and is all-inclusive. However, it is essential to verify the validity of any DeFi lending project before choosing to utilize its services.
Peer-to-Peer (P2P) Lending
Peer-to-Peer lending is designed to allow traders to interact directly with one another, setting their terms for each transaction. For example, when using a P2P lending platform, you can set parameters such as the interest rate for the amount you want to lend out.
Peer-to-Peer platforms usually generate a creditworthiness score for borrowers to help lenders avoid the risk of insolvency. That said, there are two types of platforms with peer-to-peer lending features. Some centralized exchanges like Binance offer P2P trading services and other platforms designed explicitly for P2P lending, e.g. Esketit.
Margin lending is the process of lending out your crypto assets to margin traders who use these borrowed tokens as leverage to execute trades from a strengthened trading position. In return, you are paid interest on your tokens.
This is a good form of passive income and requires little work or technical expertise from you. Margin lending is mainly available on centralized exchanges which specialize in derivatives. As a lender, you need only make your assets available on your chosen platform and start earning your interest.
3. Yield Farming
Yield farming is a passive crypto income venture that is present only in DeFi. It involves depositing your assets into liquidity pools that automatically generate returns. Two forms of liquidity pools are used for yield farming: pools on lending protocols and pools on yield management apps.
When you deposit tokens in a pool on a DeFi lending platform, such as Compound, Aave, or MakerDAO, these tokens serve as loans to other users who borrow on the platform. In return for depositing the tokens, you receive a portion of the interest paid on all loans taken from the pool. Earning via lending pools is the most prominent form of yield farming and is highly popular with DeFi investors.
As stated earlier, yield farming also extends to liquidity pools on yield-generating protocols. On most of these platforms, the assets in the liquidity pools are used as an investment in different profitable DeFi ventures. Yield protocols are designed to aid you in maximizing your crypto investment without needing to do manual work yourself. Examples of top protocols in this sector are Yearn Finance and Convex Finance.
4. Liquidity Mining
Liquidity Mining is a DeFi mechanism in which participants deposit assets in a liquidity pool and are rewarded with liquidity pool (LP) tokens which serve as synthetic assets for reinvestment on other platforms.
It is a passive income strategy associated with decentralized exchanges (DEXs). Essentially, liquidity mining serves as an incentive mechanism to attract liquidity providers, as DEXs usually require a massive amount of liquidity for their operations. A few examples of DEXs with liquidity mining initiatives include Uniswap, SushiSwap, and PancakeSwap.
Normally, liquidity providers on any decentralized exchange earn trading fees based on the volume of trading activity in the pool. However, in addition to these fees, liquidity mining rewards these investors with LP tokens representing their respective sizes of a liquidity pool. LP tokens can be used for governance, reinvestment (e.g. staking), trading, or just HODLing.
5. Crypto Savings Accounts
Crypto savings accounts are simply interest-bearing accounts. They are available on centralized exchanges and function similarly to traditional bank savings accounts. The assets you deposit in the savings account are used for investment purposes such as staking and lending, with the profit earned being paid as interest to you.
A crypto savings account is a low-risk and lucrative means of passive income. And depending on your preference, you can choose to hold your assets in a flexible savings account which allows you to withdraw your funds at any time, or a fixed savings account which requires you to hold your assets for a stipulated amount of time.
Rather than keeping your crypto assets in a digital wallet, you can store them in a crypto savings account while they are put to work for you. Examples of centralized exchanges which offer savings accounts are YouHolder, AAX, ByBit, etc.
Mining is the oldest method of earning income in cryptocurrency. It is used in securing the operations of Proof-of-Work (PoW) blockchains. Mining requires several computers, called miners, competing against each other to solve a complex puzzle. The winner of each puzzle is allowed to verify the next transaction on the network and is rewarded with a new block.
You can become a miner and earn passive income if you have a spare computer. However, depending on the blockchain network, mining may require high technical expertise and computers with high processing power. For example, Bitcoin can only be mined with computers that use ASIC processors. Other examples of chains with mining operations include Litecoin, Zcash, Bitcoin Cash, and Vertcoin.
See more: Is Bitcoin Mining Still Profitable?
7. Cloud Mining
A regular mining operation demands massive investment in the form of expensive computer hardware to compete with other miners. However, you can successfully mine cryptocurrency in cloud mining without owning or operating any mining equipment.
To use cloud mining, you need to pay a fee known as “rent,” either monthly or yearly, to a third party that runs a mining rig. In return, you are paid a portion of the mining rewards won by that mining rig during your rental period. Examples of platforms that offer mining services are Shamining, Gminers, and Genesis Mining.
An airdrop is the distribution of a project’s native cryptocurrency token, usually for free, to several wallet addresses. It is an excellent means for investors to acquire new altcoins and an excellent marketing strategy for cryptocurrency projects. While airdrops are employed mainly with new projects, they can be executed with existing and established projects too.
To qualify for an airdrop, participants are typically required to complete tasks such as interacting with a specific network or protocol, sharing a post on social media and being active in the community, or holding an existing coin or NFT.
The main point of airdrops is to create a vibrant user community for cryptocurrency projects, i.e., blockchains or decentralized applications (dApps). To get the latest updates on upcoming airdrops, you can visit sites such as AirdropsMob and Airdrops.up.
???? Arbitrum Airdrop: What you can do to be eligible
9. Affiliate and Referrals
On several crypto platforms, you can earn rewards by helping expand their user base via referrals and affiliate marketing. Like traditional businesses, affiliate marketers in cryptocurrency are paid commissions on every user they bring to the crypto platform.
Therefore, if you write a blog with a high number of readers or are a social media influencer with a good number of followers, running referrals for crypto platforms is a no-brainer way to earn passive income.
10. Dividend-Earning Tokens
Dividend-earning tokens are cryptocurrencies that pay out dividends to holders at regular intervals. Like investment shares, an investor’s dividend is proportional to the number of tokens they hold. Dividend-earning tokens payout rewards automatically, requiring investors to take no extra action asides from purchasing the tokens.
Currently, the top dividend-earning tokens with significant rewards include Battle infinity, Lucky block, VeChain, KuCoin Token, and DeFi Coin.
A hard fork is a radical change in a network’s protocol that results in splitting the network into two separate chains that run parallel operations. Hard forks happen when developers implement a new protocol update that isn’t compatible with the existing blockchain. The new chain can be created to fix security risks, enable new functionality or reverse transactions on the previous blockchain.
Now, the launch of forked chains is accompanied by free distribution of the chain’s native token. And the receivers of such tokens are usually investors who hold the native token of the previously single blockchain. Therefore, by investing in chains that are set to undergo a hard fork, you automatically gain tokens from the new chains, which can be traded or held for long-term investment.
12. Play-to-Earn Games
Play-to-Earn (P2E) games are crypto games in which players can earn cryptocurrency by playing and completing tasks, winning battles, or creating in-game characters. Tokens earned from P2E games can be used for purchasing NFTs, trading, or converting to fiat currencies for profits.
Examples of popular P2E games to check out include Axie infinity, Decentraland, Gods Unchained, and The Sandbox.
13. Crypto Funds
A crypto fund is an investment fund that consists exclusively of crypto assets or one that invests in cryptocurrency alongside other traditional instruments such as bonds and stocks. Crypto funds allow traditional investors to get exposure to volatility and high returns of crypto investments while offering protection against the high risks associated with the space.
However, while crypto funds are a great way of earning passive income, they usually require a substantial minimum amount for investment. Examples of popular crypto funds include Bitcoin Trust, Decentralized Trust, and Pantera Blockchain Fund.
Frequently asked questions
Is crypto good for passive income?
Yes! In the cryptocurrency industry, several opportunities are available to investors to explore as a source of passive income. So while you wait on the price appreciation of your crypto tokens, these income streams can increase the value of your portfolio in the meantime.
What are some of the ways to earn a passive income through cryptocurrency?
Some of the best ways of making a passive income in cryptocurrency include staking, cloud mining, yield farming, play-to-earn games, and affiliate marketing.
Earning a passive income through cryptocurrency can be considered an intelligent way of diversifying your investments and portfolio. Numerous opportunities exist, and you must find a passive income strategy matching your expertise and risk levels.
However, all forms of crypto passive income should be given the same consideration as regular cryptocurrency investment. Therefore, it is essential to conduct comprehensive research when deciding to adopt any passive income strategy.