Passive crypto income opportunities enable ETH traders and investors to offset losses during market volatility.
The cryptocurrency market is volatile, which can be both good and bad for traders and investors. Volatility creates opportunities for gaining profits. However, it can also lead to losses. However, passive income strategies could be handy in offsetting these losses.
Passive income strategies offer traders and investors opportunities to gain profits, even during challenging market conditions like bear markets. For those investing in Ethereum, or any crypto generally, earning passive crypto income provides a way to cover market downturns and crashes.
Ethereum and Its Working
Ethereum is a decentralized blockchain network running smart contracts. These applications are executed exactly as programmed. Also, there is no possibility of fraud or third-party interference. Ether, Ethereum’s native token, allows users to carry out many functions on the network, like making staking, transactions, storing NFTs, playing games, and many more.
Ethereum is also used to build DApps, open-source software that runs on the blockchain. DApps can be conveniently built by anyone with the expertise and skills to do so on Ethereum’s network, making it one of the most famous platforms for developers.
Ethereum once used a PoW (proof-of-work) consensus algorithm, which rewards miners with a profit for validating blocks of transactions. But, Ethereum officially shifted to a PoS (Proof of Stake) consensus algorithm.
Learn more: How Ethereum Transition To PoS Would Be Different From PoW?
Making Passive Crypto Income With Ethereum
Staking
It is the process of locking a person’s funds on the blockchain of PoS like Ethereum to help validate transactions and earn rewards. When users stake Ethereum, they significantly put their skin in the game and help others secure the network. Stakers earn rewards from other Ethereum tokens as a reward for their efforts.
It’s one of the favourite ways to earn passive income from crypto. However, it may be quite expensive for amateur investors. The new PoS version of Ethereum needs at least 32 ETH, approximately more than $50,000, to run a full validator node and to participate in staking.
Hodl
Hodl is a derivative of “hold”. It is also known as “hold on for dear life,” and is a crypto slang used to describe holding onto cryptocurrency for long-term investment purposes. When the investors have their Ether, they are significantly betting that its price will increase in the future. Also, they will be able to get a great profit by selling it. It’s one of the popular and simplest ways to earn passive income via cryptocurrency.
Automated Trading
A great way for users to generate passive income via their Ethereum investment is by using a bit for automated Ether trading. Automated trading bits are software programs that use pre-programmed algorithms for buying and selling cryptocurrency on exchanges 24/7.
These bits are set up for placing trades automatically under particular market conditions like price volume or changes. Bitsgap and Coinrule are some examples where it allows users to set up trading rules, either via using premade templates or customizing them based on risk preference.
Successful automated trading can provide a steady stream of profits, though it does come with some risks. Buts aren’t perfect and can sometimes make mistakes, like buying too late or selling too early.
Furthermore, the cryptocurrency market is volatile. So, you can see abrupt changes that a bot may need help anticipating. For instance, investors need to monitor their automated trading activity closely to avoid major losses.
Lending
Lending is another great way to generate passive income from their ETH investment. Users can profit by lending crypto to borrowers with a high-interest rate. This can be done either via centralized or decentralized lending platforms.
Users particularly don’t need to worry about the technical issues on the centralized platforms, such as data storage, security, bandwidth usage, or authentication. The forum deals with all the technical details, thereby providing the potential for investors to optimize their assets’ yield.
Compared to decentralized lending platforms, centralized platforms usually have higher interest rates. However, the one drawback is that centralized platforms are more prone to data breaches and hacks.
On the contrary, decentralized lending platforms enable users to enjoy higher security, customizability, and transparency, enabling experienced investors to tweak settings to increase their profits.
The negative side is that these platforms are often more difficult to use and need a higher level of technical expertise. Interest rates also need to be lower on these platforms.
Liquidity Mining
Yield farming or Liquidity mining is also an alternative to making passive income from Ethereum. Here, users lend their Ether or other assets to liquidity pools on decentralized exchanges such as SushiSwap, Yearn.finance, and Uniswap to make profits.
Many yield farming platforms may include the ability to exchange a token for another in a liquidity pool. Traders pay a fee when they trade cryptocurrency, which is then divided among the farmers who have contributed to the liquidity of that pool. The reward size varies depending on how much of the total pool’s liquidity is provided by the farmer.
Wrapping Up
Yield farming can be an incredible way to make passive income. However, it is crucial to understand that it is a relatively new practice and, therefore, subject to change. Furthermore, it can be characterized as a risky investment, because the price of the underlying assets can change rapidly, leading to losses.
| Yield farming | Staking | |
| Consensus mechanism | Lenders stake their assets in the lending pool by a Dapp. | PoS consensus mechanism is used in staking. |
| Impermanent loss | If the token ratio is unequal in a pool, you will suffer a great impermanent loss. | There is no impermanent loss when you stake your cryptocurrencies. |
| Incentives | Yield farmers are compensated in the form of APYs. | Staking rewards are rewarded each time a new block is validated. |
| The requirement to lock up funds | While you employ yield farming, users aren’t forced to lock up their funds for a particular time. | Users must stake their funds on various blockchain networks for a pre-determined amount of time while staking. |