07 May, 2024
07 May, 2024
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The majority of people from across the globe are employed and are earning a monthly income. However, the global unemployment statistic continues to rise, and following the aftermath of the Covid-19 pandemic, and recent political decisions, the number of unemployed people in the world is now climbing faster than ever.
With this being the case, many people are left looking for alternative ways to make ends meet. These alternatives could fall under different types of incomes. In this article, we will take a look at what the different types of incomes are and how they can be earned in the DeFi space.
Cryptocurrency technology and the overall DeFi space has empowered people from all over the world, offering an alternative financial system that is not plagued with the corruption, centralization, and limitations of the traditional money system. In this new financial system, everyone is their own bank, and can benefit from the passive income opportunities that the DeFi ecosystem has to offer.
In this article, we will take a look at some of the passive income opportunities in the DeFi ecosystem, as well as other ways that you can earn free crypto.
Income is money that an individual or business receives in exchange for providing labor, producing a good or service or investing capital. Individuals typically earn income through wages or salary, while businesses earn income from selling goods or services above their cost of production. Most forms of income are subject to taxation.
Before we proceed, let’s quickly recap what DeFi, or decentralized finance, is.
Decentralized finance (DeFi) is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. The system removes the control banks and institutions have on money, financial products, and financial services.
Decentralized finance eliminates intermediaries by allowing people, merchants, and businesses to conduct financial transactions through emerging technology. This is accomplished through peer-to-peer financial networks that use security protocols, connectivity, software, and hardware advancements. These networks are blockchain networks.
Similar to cryptos, DeFi is being billed as an alternative to fiat-based platforms. As such, financial operations such as loaning, lending and staking can all be done without intervention or interference from a third party or intermediary.
Furthermore, smart contracts are able to address inefficiencies in the system, lower costs and even minimize the risk of default by debtors. By challenging the monopoly of fiat currencies, Decentralized Finance can offer a new world of financial opportunities to users from all over the world.
Understanding the different types of income can help you make informed decisions, explore investment opportunities and plan for a financially stable future.
If you’re interested in exploring alternative ways to make money over an extended period of time, understanding the different types of income can help you reach your goals. It’s important to review the tax rates and timelines of passive and portfolio streams of income so you can make long-term decisions with confidence and clarity.
If you have a job and receive a paycheck for the work that you do there, then you have an active income, also called an earned income. With this type of income, you basically exchange time and energy for money. Active income includes payment in the form of wages, salaries, tips and commissions.
Active Income In DeFi
Active income in DeFi is similar to traditional active income in that you exchange time and energy for a salary or paycheck. The only difference is that in DeFi, the paycheck amount is paid in cryptocurrency coins or tokens.
Anyone can create a DeFi active income stream for themselves by either becoming a content creator for DeFi projects, offering blockchain programming services, serving as a DeFi and blockchain consultant for projects, etc.
The nice thing about an active income stream in the DeFi space is that you get paid in cryptocurrency, which is currently unregulated in most parts of the world.
Furthermore, anyone getting paid in cryptocurrency can benefit from the medium- to long-term speculative price of the token or coin. Of course, the price can also fall, meaning the person gets less value than originally paid.
Portfolio income comes from investments such as dividends, interest, royalties and capital gains. For example, you might buy stock in a corporation at a low price and sell your shares for profit when they increase in value.
This would be considered a capital gain and fall in the category of portfolio income. Many people use portfolio income to save for retirement or generate extra money for large purchases.
Portfolio Income in DeFi
Portfolio income in DeFi refers to earning profits from cryptocurrency investments, or earning royalties from a launched decentralized application such as a token, DEX, or other decentralized automated service.
The great thing about cryptocurrencies is that they are known for their huge short-term gains, with some cryptocurrencies offering investors 10X on their initial investments. However, with the high potential gains comes the high probability of investors falling victim to scams. To protect yourself from scams, just remember one thing: “If it’s too good to be true, then it probably is”.
Another way to earn portfolio income from DeFi is through royalties. If you are a programmer or entrepreneur and have a good understanding of what the space needs, then you can create a technology or form a business that addresses a major issue in the DeFi ecosystem, and then sell it and earn a royalty from it.
Passive income is money earned from a rental property, limited partnership or other business in which you’re not actively involved. For example, if you invest in a business without participating in its development, you’d be considered a silent investor receiving passive income.
Passive income streams typically require an upfront investment and time to grow and maintain profit. However, investments like these can provide you with a regular stream of income in the future with little to no effort on your part.
Passive Income in DeFi
There are a lot more passive income opportunities in the DeFi space when compared to the number of other income opportunities. Popular passive income opportunities in the DeFi space include yield farming, savings accounts, staking and liquidity farming.
Each one comes with varying returns on investments – it all depends on what is available in the market at the given time. In addition, each one also comes with different levels of risks and amounts of effort required to set up. The one option with arguably the lowest amount of risk and the least amount of setup effort required is staking.
Staking is the process of locking up, or “staking” tokens into a smart contract to earn interest on the staked amount of tokens. This interest is paid out in the same type of token that was staked. Oftentimes, the token in question is the native asset of the blockchain, such as ETH in the case of Ethereum.
Now you’re probably wondering why any project would give you free tokens for simply just locking up your existing tokens. Well, the rationale behind this token incentive is more than just rewarding a holder for staking their tokens.
Blockchains that are secured by a consensus mechanism called Proof of Stake rely on users locking up their assets into special smart contracts. These are controlled by the network validators, who are then tasked with upholding the blockchain’s consensus rules and ensuring that no one tries to cheat the system.
Any validators who try to cheat the network or who act dishonestly will be penalized and will lose part of their stake.
Because cheating makes no sense from an economic perspective, stakers are incentivized to lock up their assets for an extended period of time and earn rewards for contributing to the network’s security and decentralization.
When you provide liquidity in a DEX like Uniswap, you will receive tokens denoting your pool share. These tokens can then be locked into yield farms, which are essentially DeFi protocols that reward you with more of the same token or with a different token.
This means that while your pooled assets are earning a share of all fees in Uniswap, your LP tokens can also be earned.
It’s important when yield farming to conduct due diligence on the platform in question, to ensure that it is scrupulous and that its developers have no intention of “rug pulling” by stealing LP tokens and using them to withdraw liquidity from DEX pools. Select established platforms that have a positive reputation and whose smart contracts have been externally audited.
Lending platforms pay users an annual percentage yield (APY) for locking their assets into a smart contract.
These tokens are then utilized by borrowers, who pay interest, a portion of which is returned to the lender. Compound Finance, for example, currently offers an APY of 8.19% for lending DAI. Because the entire lending and borrowing process is governed by smart contracts, there is no risk of the borrower failing to repay their debt.
Thus, you should always be able to withdraw your staked assets at any time.
Decentralized exchanges such as Uniswap and SushiSwap facilitate token swaps between token pairs, for example: ETH and USDT. The liquidity needed to perform these token swaps comes from liquidity providers (LPs).
These are ordinary DeFi users who place their tokens into the smart contract controlling the pool in question. In doing so, the user will earn a 0.3% fee from all swaps, proportionally to their pool share, on Uniswap’s DEX. The more trades that are conducted via that pool, the more the user will earn.
LPing doesn’t always guarantee profit. When the price of one of the pooled tokens fluctuates significantly, you can actually lose money through a process known as impermanent loss (IL). There are ways to mitigate this, though, by choosing highly liquid pools that contain less volatile assets, such as WBTC/ETH.
To maximize your profits, you can analyze data from LP aggregators that pull real-time data and help you project potential returns from various pools.
Another way to earn passive income with DeFi is liquidity mining. Similar to some of the other methods to earn crypto in DeFi covered in this article, crypto holders lend their assets to decentralized exchanges (DEXs) and are rewarded in return.
One key difference is that liquidity miners often get paid in the native token of the blockchain they’re using and they also have a chance to earn governance tokens – maximizing the types of involvement they can have with a particular project.
Like any liquidity pool, providers are rewarded based on the amount of the liquidity pool that they provided for.
Airdrops have become one of the hottest new trends in the industry and can enable you to earn some great crypto prizes if you stay updated on when they take place.
Essentially, a crypto airdrop is the distribution of free cryptos to people who have been supporting a specific project from the beginning. It’s a great marketing stunt as it builds hype around an upcoming launch, which also helps create a larger community around a token.
As a matter of fact, most of the popular DeFi coins nowadays have created their communities with the help of airdrops before launching their crypto coins officially.
Each platform may have its own criteria that you have to meet to be eligible for the airdrop. In most cases, eligibility usually includes promoting the token on social media and other platforms. This may include posting tweets, sharing posts on Facebook and Instagram, speaking out in Discord groups, or signing up for different newsletters.
Although airdrops can be a great way to receive free crypto, in most cases, the project does not build the desired traction which results in the token having little to no value. So, it may take a bit of luck to get a hold of the profitable crypto airdrops.
This method allows you to earn crypto when you’re on the move, all you will need is a valid credit card to get started. A crypto credit card is similar to traditional credit cards, except you get cash-back rewards in crypto instead of fiat.
Considering the current popularities of crypto, there are a variety of platforms that offer crypto credit cards to users. An example is the eToro platform which provides committed credit card services which traders can use to pay for goods in crypto.
One of the main benefits is that the merchant you are buying from does not even have to accept crypto purchases as the platform handles all of the backend work regarding the exchange process. In other words, you are able to pay for goods and services in crypto while the merchant receives fiat for the payment.
Some websites offer visitors the chance to learn about crypto and earn a little bit of it at the same time. Website visitors may need to watch some videos, take a short quiz and pass before earning the bonus.
Coinbase Earn is one website that offers rewards for learning about crypto, as well as CoinMarketCap.com which also provides an opportunity to amass rewards. The only drawback with these “learn to earn” promos is that you may not always receive the crypto you want.
This may sound like an old internet game, the whole take a survey and get some cash. But you can now earn crypto by doing surveys.
One such website is Freecash, which offers up surveys, games, or other paid offers every day. While you can get your payouts in crypto, you can also opt to receive the payouts in dollars, with some websites even allowing you to earn the payouts in gift cards.
The world of crypto is known for attracting scams, with tales of crypto scams being told ever since the launch of bitcoin (BTC) in 2009. The frequency of scams can worsen in the world of free giveaways. This is mainly because scammers love to prey on those looking for a giveaway on the next big project or token.
With this in mind, always be on the guard when looking for ways to earn free crypto. Some cryptos such as initial coin offerings (ICOs) and airdrops have a high potential to be total frauds.
As a rule of thumb, stay away from any promotion that asks for your login credentials or private keys to your crypto wallet/wallets. Meanwhile, ICOs may require that you trade your legitimate coins for a fake coin with dubious value.
Crypto and the broader DeFi space have opened up many opportunities for people to earn a passive income that may give a much better return on investment than a traditional savings account at a bank. With DeFi, you can earn crypto either through staking, lending, becoming a liquidity provider or miner, or even visit websites that enable you to earn crypto while learning about crypto simultaneously. Lastly, you can also earn crypto by completing surveys on websites like Freecash.
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