The best thing about cryptocurrencies is that there are tons of ways to get passive income. From mining to staking, airdrops, and so on. But what really caught the attention of crypto enthusiasts in the last couple of months is yield farming.
If you are here, that means you also want to earn interest on crypto. But before you start investing, make sure you look into these:
1 – The withdrawals details
As you may know, to earn interest on DeFi, you need to deposit your assets for some time. The downside is that you can’t withdraw them if a bear market occurs, for example. The assets are locked in for the period you agreed upon. At least on most platforms.
Therefore, you need to check if the period is short enough for you to survive in this type of market. If it’s not, then look if there is any possibility to unlock them sooner and at what cost.
The ideal crypto lending platforms have no restriction over withdrawals. We can see this approach in companies like Haru, CoinLoan, and HodlNaut.
2 – Where does the money go?
You earn interest by lending your assets, but for whom?
If you’re a businessman, you probably prefer the idea of compound interest. That means you can lend your crypto to person B, and this person lends the assets further. In the end, you will get at least double interest, depending on how long the chain is.
Another option you can do to avoid frivolous users is to lend your crypto to the team behind the platform. The team will then use your assets to trade and get you interest based on the profit.
Take note that these roles are not given to anyone. We’re talking about experienced traders who know how to get the best out of your crypto.
3 – Look for the best profit
There are a lot of crypto lending platforms that provide high interest compared to traditional fiat saving accounts. The maximum interest rate a saving account can provide is 0.7%, but with crypto, you can get up to 8.6% APY.
But not all platforms can go that high. The average APY is 3.46%. This is still better than fiat, but if you have the chance to earn more, why stop at the first option
4 – Stable or Volatile Coins?
This is a big decision, and it is all on you. Based on your profit expectations and the risks you are willing to take, you need to choose between stablecoins or volatile ones.
Stablecoins can bring less profit since they are linked with fiat values. But at least you can be sure that you don’t risk your assets substantially.
On the other hand, volatile coins can get you thousands of dollars in profit in just a couple of days. However, their value can also decrease and affect your life.
It’s essential never to invest more than you can afford to lose.
Now that you know what aspects you need to take into consideration, you are good to go. Make sure your research is on point and find the best option for you!