With each passing day, the cryptocurrency world is changing, creating new and exciting ways to earn passive income. With crypto staking, yield farming and airdrops, new opportunities to earn returns on investors’ digital assets are more available than ever before. Knowing the mechanisms and risks involved with every hot new method is key to mastering this ever-changing landscape.
Crypto Staking Explained
Crypto staking, or staking, is the practice of using crypto assets, or crypto tokens, as collateral to process and validate transactions in proof-of-stake (PoS) blockchain networks. By staking their tokens, participants help maintain the integrity of the network through security and transaction validation, receiving staking rewards as a result. These rewards are often 3% to 6%. They provide the kind of passive income that you receive by actively contributing to the network’s proof of stake consensus.
Ethereum, Solana, and Cardano are some of the most well-known networks that use staking. The Future Ethereum 2.0 provides a potential annual yield of 5%-6% via staking. This long-term opportunity is appealing to investors who have a hunger for more stable and predictable income streams. Cardano is one of our picks for the best cryptocurrencies to stake. Like many other proof-of-stake blockchains, Solana provides staking opportunities for its users.
Exploring Yield Farming and Airdrops
Outside of staking, yield farming offers another option for generating passive income in the crypto world. This strategy consists of lending or staking your crypto assets on decentralized finance (DeFi) platforms. In exchange, you receive rewards, often paid out in more tokens. Perhaps the biggest lure is yield farming’s potential for really high returns, typically well over 50% APY. It also poses risks such as impermanent loss and smart contract vulnerabilities.
Airdrops, the distribution of free tokens to existing cryptocurrency holders, have had a dramatic history of providing handsome returns for investors. The value and legitimacy of airdrops can vary widely, requiring careful selection to identify opportunities with genuine potential. The potential upside of these airdrops could be tremendous, but a number will likely turn out to be worthless or worse — scams.
Risk Considerations and Safer Alternatives
The hunt for passive income in the crypto space can be a dangerous game. However, high-yield opportunities are generally accompanied by high volatility and risk of loss. Investors must thoughtfully consider their risk appetite and do their due diligence before pursuing any passive income approach.
For those who want to dip their toes in a more conservative and time-tested approach, platforms such as Ethereum 2.0 provide a much safer option. Returns may be less than what you would get from riskier alternatives. The stability and security of these platforms provide a more predictable, sustainable source of passive income.
