The Key to Crypto Success: Be Lazy and Do Less (part 1)
The cryptomarkets are volatile beasts at the best of times. In recent months they have been in volatility overdrive, with one bloodbath following another as basically every token with any utility crashed and burned. Those who bought in at the height of crypto’s astonishing bull run in 2021 - and there were many - have been absolutely REKT by the disaster that followed. While Bitcoin is currently down about 70% from its November all-time high of $69,044, altcoins have fared even worse, with the likes of SOL down 85% and AVAX crashing by an incredible 93% in the last few months.
Some have tried to trade their way out of trouble, but even the best traders can get REKT. Smarter traders operate on the idea that every good trade helps them to survive a couple of bad ones, but when the market is in freefall it becomes tough no matter what you do. Add to that, trading is a labor-intensive occupation that’s far too absorbing to be just a side hustle. Once you get started, it becomes incredibly consuming, with every waking moment spent watching the charts, news and trends in an attempt to second-guess what will happen next.
So what to do in a bear market as depressing as this one? Try as we might, it’s almost impossible to do nothing at all, and all the more so when your portfolio’s value evaporates to nothing before your eyes.
Luckily for crypto fans this is a unique space that always presents opportunities to eke out a profit, no matter what the market conditions are. Even better yet, there are ways to do so that don’t involve spending countless sleepless nights watching the market crumble away to hell. Here are five of the laziest yet most profitable ways to make it big in crypto.
Staking
First up is taking, which is something that can only be done on a proof-of-stake blockchain. PoS, as it’s known, provides a way for network users to participate in the validation of new transactions to the blockchain and earn rewards for doing so.
Staking is perhaps the simplest way to earn money from crypto because unlike miners on proof-of-work blockchains, there’s no need to invest in tons of expensive hardware. All that’s needed is to deposit tokens on a platform that supports staking. The rewards will be determined by the amount of coins staked, though bear in mind that they are paid out in the same native token, whose value constantly fluctuates. So, if the price of the token drops, so does the value of the rewards.
Some of the best blockchains for direct staking include Coinbase, Crypto.com, Binance, eToro, Kraken and Gemini.
The way staking works is that, the more tokens staked the higher the rewards will be. The exact mechanism for choosing a validator varies from network to network, but in most cases it's a randomized process that gives greater weight to those who stake more tokens. The average rewards vary from token to token, but as an indication most platforms that support Ethereum staking will pay out an APY of 6%. From the lazy investor’s point of view, the most important thing to remember is that the more coins you stake, the higher your rewards can be.
Providing Liquidity
Also known as yield farming, this involves depositing coins into liquidity pools on decentralized exchanges.
DEXs, as they’re known, incentivize users to deposit tokens into their liquidity pools so that traders have the liquidity required to make seamless, instantaneous swaps on their platforms. This is unlike centralized exchanges, which rely on order books to pair the various buy and sell orders they receive. LPs can then receive a portion of the transaction fees generated by each pool as a reward for locking up their assets and providing this liquidity.
Liquidity pools are created using smart contracts that self-execute and often require that users agree to lock their tokens in the pool for a specified amount of time. This can be risky because you never know what will happen to that token’s price during that time, but the rewards are among the highest of all in terms of passive income, with some platforms offering an APY of 30% on the best known tokens.
Providing liquidity isn’t without risk though. Because most liquidity pools are dual-asset pools, participants are usually required to deposit both tokens in a pair. This puts them at risk of impermanent loss, which is a unique risk that refers to the value fluctuations of those two assets. Impermanent loss occurs when funds are deposited into an Automated Market Maker and then withdrawn at some later date. In some cases, the price movements might mean the LP has lost more money than they’d have made simply from hodling those tokens.
Luckily, there are a number of DeFi protocols trying to address this risk. Balancer has created a unique approach to liquidity that makes it possible to provide liquidity to Ethereum trading pairs without exposure to the price of ETH. So they can earn passive income on the trading fees of assets such as MKR or ZRX, without any risk of impermanent loss. Users simply earn rewards from the trading fees involved in those asset swaps. Further, it provides higher returns on low demand assets by leveraging arbitrage opportunities and the desire to mitigate slippage.
Lending
Another opportunity to make money in crypto is with lending, the concept of which is fairly self explanatory. Lenders can earn a profit by putting their funds into a pool that other users can borrow against.
There are multiple platforms that facilitate crypto lending, with some of the most popular ones being Aave, Compound and Nexo. What’s great about this model is that borrowers are still vetted by third parties and they are often required to deposit some kind of collateral, usually another kind of crypto token. What’s more, by depositing tokens into a pool with other user’s funds, the risk of a borrower defaulting on a loan is spread across multiple users.
To be continued
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