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Is there a legitimate way to earn cryptocurrency returns?

Earning a return on cryptocurrency is a problem of hot buttons that evokes a couple of mental images. For one, the image of cryptography as a giant Ponzi scheme persists in many people’s minds. For others, while they don’t believe that cryptography is a scam, they think it’s a sort of quick enrichment, too good to be a real scheme with which to commit murder while it lasts.

But these ways are defined by high risk and high return, not without maintaining the true nature of cryptocurrencies and what is actually the thrill of the game for some people. That is to say that for the intrepid investor, cryptography has the potential to produce attractive rewards.

What is performance?

First, let’s define yield.

In finance, return describes the amount of money generated on an asset over a given period. It expresses the income realized based on the initial investment and its current market value. The specified period could be monthly, quarterly, and so on, but it is mainly annual.

Performance is strongly associated with risk, with high risk often corresponding to greater return potential.

This description succinctly encapsulates the very nature of crypto investments in which the value of a cryptocurrency can suddenly plummet or a DeFi platform simply fails.

Legitimate ways to earn cryptocurrency returns

Unlike other ways of making money with cryptocurrencies, such as arbitrage or day trading, return represents investments that allow you to make money while you sleep. Let’s discover some ways to earn returns in the world of cryptocurrencies.

#1. Performance agriculture

Don’t let the jargon confuse you. Stripped, yield farming is when you lend your cryptocurrency to a DeFi protocol in exchange for more encryption. Usually, the protocol will lend money to investors who want to enter and exit market positions. The protocol then rewards you with a portion of the platform’s fees, interest and token.

Yield farming was introduced by the Synthetix DeFi protocol, but it only exploded when Compound started distributing its native COMP token to users who blocked their encryption on the platform.

Yield farming has become such a rampant success thanks to the appeal of free tokens and the attractive interest in crypto deposits.

Although it cooled down a bit during the inexorable bear market of 2022, the practice remains a legitimate way to gain returns with cryptography, with several new companies and OGs such as Compound, Synthetix, Aave and Curve offering the service.

However, yield farming is more than just wealth and wealth. We’re talking about risks such as impermanent loss, smart contract failure, rips, and more. The performance potential, however, could be a consolation for people who want to dip their toes in.

#2. Staking

Crypto staking means putting your cryptocurrency to work for you. Blockchains that use proof-of-stake (PoS) consensus mechanisms allow you to focus on their native cryptocurrency and become a validator on whom you become eligible to earn interest.

Ethereum is the highest-profile PoS blockchain after its historic migration to PoS in September 2022. To qualify as a validator on Ethereum, you need to deposit 32 ETH.

Enter the peaking pools. These allow investors who cannot increase the required amount to participate in a blockchain, with earnings divided proportionally. Several exchanges support pool staking, such as Binance and Coinbase.

Although it is not risk-free, cryptocurrency staking offers an opportunity to earn decent returns that are light years ahead of the meager earnings of conventional financial instruments. According to data from Staking Rewards, the vast majority of crypto assets have an annual return of more than 11%.

#3. Providing liquidity

Contributing to a liquidity pool is a popular return strategy on decentralized exchanges such as Uniswap or 1inch.

It sounds complicated, but it’s actually just creating a market for people who want to trade between two tokens.

For example, you could contribute $100 Ethereum and $100 USDC to a pool on Uniswap. The pool will help users on Uniswap exchange their Ethereum for USDC or vice versa.

Liquidity providers collect the benefits of each transaction, going so far as to take a percentage of the fees charged on each swap.

There are some dangers in providing liquidity (such as smart contract bugs and impermanent losses), but it remains a reliable way to earn a significant return on decentralized exchanges.

The popular platforms for providing liquidity are all the largest decentralized exchanges such as:

  • Uniswap
  • 1 inch
  • Trader Joe
  • Pancake swap
  • Orca
  • Convex

#4. HodLing

Now for our last entry we’ll add one that isn’t really earning a return in the traditional sense.

HODLing is a concept that struck the infamy and use of cryptocurrencies when a drunk user misspelled ‘hold’ and, in doing so, gave digital asset investors a nickname for a powerful investment strategy.

HODLers evades fear, uncertainty, and doubt (FUD) and fear of missing out (FOMO). They have ‘diamond hands’, the opposite of ‘weak hands’ — mainly investors who sell at the slightest sign of market turmoil.

HODLing doesn’t provide a return, but it worked much better than chasing huge returns on sites like FTX or Celsius. Sometimes simply keeping your assets in a personal portfolio will lead to greater earnings, regardless of any return.

As Scott Galloway, professor of economics at NYU, said, “The smartest people in finance do one thing: they buy a basket of stocks (ETFs, MFs)… And they don’t look at it anymore.” Replace ETF and MF and the statement is true.

A risky method: lending

Crypto lending is a DeFi product that allows you to deposit cryptocurrencies in a crypto lending service and earn returns. The deposited money is lent to borrowers, who repay it with interest.

Cryptocurrency lenders can be centralized or decentralized.

Unfortunately, the loans have led to some of the biggest cryptocurrency disasters with entities such as Celsius Network, BlockFi, and Voyager going bankrupt after lending customer funds and losing them to the market. It’s a giant black eye for the entire industry.

On the other hand, decentralized loans such as those found on Compound and MakerDAO have been fairly successful and have managed to weather the storm in recent years.

It’s an interesting aspect worth keeping an eye on, but it’s important to understand the significant risk involved.

Be careful about chasing returns

It’s exciting that there are several legitimate ways to earn returns with cryptocurrencies. Cryptocurrency has evolved from simple speculative trading to DeFi and to innovative ways to create wealth. There’s just one caveat: while these ways may make you bank, they can also cause you to lose money just as quickly.

If you decide to put your money anywhere, always remember two things: do your due diligence and invest money that you can afford to lose.

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