Decentralized finance or DeFi apps enable an array of options for conducting transactions without the services of traditional banks. But DeFi can also offer highly attractive interest rates.
Financial services like decentralized lending, decentralized exchanges (versa centralized exchanges), tokenization of assets are gaining popularity as they open new doors for people to transact within a network. Decentralized finance (DeFi) provides wider global access to financial services, including cheap and convenient cross-border payments. One of the major reasons for their popularity is that DeFi apps allow users to earn passive income. You can earn within the network by investing, lending or staking on these DeFi apps.
Yields in financial markets have reached historic lows. For example, US 10-year bonds are paying a mere 1.52% annually and the S&P 500 dividend yield is down to 1.94%. Investors are looking for alternatives to increase their returns. Compound Finance, dydx, Nuo Network, SALT, Fulcrum etc. are some of the examples of DeFi apps that allow users to earn passive income through lending. The interest rates are very attractive, starting from 2% and going as high as 10.6% per annum.
Make money in six steps
For example, here is the step-by-step process to earn income on Compound Finance, one of the most popular lending services available in the market:
- To start earning, you have to deposit US dollars or euros on your exchange wallet. These wallets are available on centralized exchange services like Coinbase.
- The next step is to convert your US$ or euros into Dai, a stablecoin by Maker, on an exchange that supports Dai’s trading pairs.
- Dai can be easily swapped for Ether, the cryptocurrency running on the Ethereum blockchain. You can directly buy ETH using your fiat currency and then convert your ETH into Dai. Withdraw your ETH to your MetaMask account. Several traders use DEX aggregator services like Dex.ag to find the best prices for this swap on various decentralized exchanges. Swap ETH for your Dai and store it in your MetaMask wallet.
- Navigate to the Compound app where you have to connect your MetaMask account to your Compound Finance account.
- Compound Finance will provide two options: Borrow and Supply. Enter the amount of Dai you wish to lend and click on Supply.
- Confirm the details of your transaction. You will start gaining passive interest every 12 seconds with cDai in your metamask account.
Here, Compound Finance is used only as an example to simplify the flow of the process to start earning cryptos just by HODLing. It is highly recommended to compare the interest rates before choosing your lending platform based on the token you are willing to lend.
Users also have the option of earning by staking their tokens on resource exchange systems like EOS REX. EOS REX manages resources for the EOS blockchain. You need to hold EOS tokens on the platform, which are used as a hedge by derivative traders to write future contracts. The 30-day yield was as high as 7.26% in September 2019.
Decentralized exchanges: DEXs
To earn via decentralized exchanges or DEXs, you can participate in pools like Uniswap and earn for supplying liquidity to the decentralized protocol. Another option is to participate in auctions for derivative or asset platforms like Setprotocol. You can stake your coins on PoS (or their variant) protocols like Waves, where you can delegate the staking power of your coins to a node of the waves of blockchain and earn passive income. Your lent staking power increases the probability that the node mines the next block.
What emerges is that paced-evolution DeFi apps are showing high-yielding opportunities. The financial services are running on smart contracts, enabling an absolutely trustless environment, unlike the traditional banking environment. However, liquidity on different platforms (lending, staking, exchanges and mining) varies enormously. But the platforms collectively offer an attractive investment and earning opportunity compared to the traditional financial markets.
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