How you can earn a passive income via DeFi

As cryptocurrencies, blockchain technology and similar digital concepts have been growing in popularity over the last decade, it’s easy to see that they have a host of applications in the finance industry. One of the most useful to be developed in recent years is Decentralized Finance. DeFi begins with a network of independently owned computer software that runs on a blockchain, to provide users with a financial system that isn’t governed by traditional institutions.

So far, payments, loans and transfers are executed via smart contracts, but there is a lot of potential and defi earn capabilities to be enjoyed. With this in mind, let’s take a look at the ways you can earn money using DeFi protocols.

How you can earn a passive income via DeFi

Many people simply use DeFi to store their digital coins, and as tech geniuses are always looking for ways to maximise potential, several ways to earn a passive income have begun to take the spotlight. With this in mind, here are the top 3:

1. Deposit into a DeFi platform that offers an Annual Percentage Yield (APY)

This is easily the simplest way to earn a passive income using DeFi. As you already store your digital assets, why not make them work for you? Just like your money goes into your Fiat bank account and earns interest, your cryptocurrency can do the same.

You may have come across the term ‘staking’ and this is what it’s referring to – and the APY you’ll get can be either in the staked currency or in another currency of your choice (depending on the ones supported by the blockchain you use).

The reason why DeFi providers give you money for your custom is because your selection validates their transactions, therefore improving their security and functionality for other users.

2. Engage in DeFi lending

Again, just like with Fiat banks, when you deposit your assets, some platforms will lease it out to others in need of collateral. You’ll earn interest while you store your coins and this will typically be dependent on the amount you provide. As the whole process is taken care of via smart contracts, the risks associated with lenders defaulting are all but negated.

3. Yield Farming

One of the most popular options is yield farming. When you opt to use a DeFi platform that places your funds in a liquidity pool, you will be agreeing to lock your investment into a smart contract in a decentralized app, or Dapp. As with the other forms of passive income, you will get interest for allowing the Dapp to use your assets to support other users, but there is a downside to doing this: the market is full of scammers who will suddenly exit projects and take your money. With this in mind, be sure to do your research before making a decision.