Passive Income

Understanding Passive Income

Passive income refers to money generated from investments that do not require active involvement from the earner.

Its purpose is to create a steady income stream without the obligations associated with a full-time job.

Passive Income

Passive Income Explained | Source: Investopedia

Passive income can be derived from various investments, including dividend stocks, peer-to-peer lending, rental properties, and royalties.

These investment avenues allow individuals to increase their earnings and work towards their financial goals.

Unlocking Yield Opportunities

With the emergence of the crypto and decentralized finance (DeFi) industries, new opportunities for earning passive income have arisen.

DeFi has provided crypto investors, both newcomers and veterans, with avenues to earn annual percentage yields (APYs) that surpass traditional bank savings.

Popular methods in DeFi for earning passive income include lending, staking, and yield farming, all of which utilize cryptocurrencies to generate passive income.

Empowering Crypto Holders

Lending platforms offer a straightforward concept. Users lend their idle crypto assets to a platform, which are then locked into a smart contract.

In return, the lending platforms pay the crypto holders an APY.

The locked assets are accessed by borrowers as loans, and the interest is repaid to the platform.

With smart contracts overseeing the entire process, crypto lenders face no risk of borrowers defaulting on their loans, allowing them to withdraw their assets at any time.

Leveraging PoS Networks to Earn and Secure

Staking, commonly used on networks that employ proof-of-stake (PoS) algorithms, involves crypto holders locking or staking their assets in a smart contract.

Users can earn more of the same token in return by locking assets for the long term.

Cultivating Passive Income

Yield farming, also known as liquidity mining, is another popular method in DeFi for earning passive income.

Yield farming enables crypto holders to earn additional rewards by providing liquidity to pools.

Liquidity providers (LPs) receive an LP token representing their share in the pool for supplying liquidity.

Rewards for LPs often include trading fees generated when transactions occur within the pool.

LP tokens can be staked in protocols or projects to earn extra rewards, usually as the project’s native token.

These tokens can then be further staked for additional rewards, making yield farming a profitable and reliable source of passive income.

While yield farming carries more risk than staking and lending, it offers higher APYs as a reward.