Decentralized Finance, (DeFi), a sector in the booming crypto industry, comes with a ton of opportunities; for example, the chance to earn passively with continuous income settings over a long time. The beautiful aspect of it is that this space can be accessed through either Defi apps or even through the regular web interface as all it requires is a device that can be connected to the internet. Undeniably, individuals and firms across the world are taking advantage of this space and they are loving it.
All through the previous year, DeFi enjoyed tremendous success as participants leveraged on its many use cases to their own benefit, the space has continued on that note this year too. Businesses are using its smart-contract feature to automate various part of their operations; we have seen instances of where Defi-smart contracts help firms automatically carry out transactions or investments plus with the ability of some of the contract tools in insurance pooling and escrow, quite a number of people are taking advantage of this.
Since the advent of the pandemic, it is only wise that everyone seeks a field where they can effortlessly stack up profits with little to no efforts. This is where Defi comes in, it is a space where students or those in the education space can easily earn profits, commonly referred to as yield, passively. It is important to note that the space comes with its own level of risks but on the flip side, which human endeavor doesn’t?
Here, we are going to explore how one can easily earn “yields” despite the legendary level of volatility that is attached to the crypto space. Note that this is not a “get rich quick” scheme but in the long run, through patience, consistency and perseverance your capital would grow and even when the market dips, you would still be able to pull up the greens.
How to earn through DeFi
There are numerous ways to earn through Defi but here, we would consider only four of them. Having a little knowledge of how the crypto space works and how to use some of its features would be very helpful in the course of this article.
One way you can earn passively through Defi is by staking your assets. In this case, you lock your token into a smart contract and you are able to earn the same token as rewards. In most cases, the asset you are locking is the native token of the blockchain.
In staking, blockchains with Proof-of-Stake networks depend on the stakers who act as validators in ensuring that no one cheats the system and also maintaining the consensus rules of the chain. But how do they earn?
Stakers are incentivized to keep their assets in the contract for an extended period of time with the lure of earning rewards for contributing to the network’s security and decentralization. An example one can easily point to is ETH as there are already millions of stakers of the token into the Ethereum 2.0 smart contract.
- Be a liquidity provider
Another way to earn would be to be a liquidity provider (LP). Here, some decentralized exchanges(Dex) like Uniswap allow their users to swap between token pairs. The liquidity for these swaps come from liquidity providers who have placed their tokens in smart-contract controlling pools like this, thus, for every swap happening within this pool, users earn a 0.3% fee.
There is a level of risk attached to this method though, a liquidity provider could lose money in a process known as impermanent loss (IL). To avoid this situation, it is advised that a trader chooses liquidity pools that contain less volatile assets, such e.g. WBTC/ETH.
- Yield farming
A LP using Uniswap would earn tokens from his pool, these earned tokens can still be locked in a yield farm that allows you to earn in the same token or rewards you with a different asset. This means your assets in the pool are accruing profits on your behalf, and your profits also are earning more profits.
The downside to this is one has to be careful when yield farming because there are tons of unscrupulous farms out there looking to “rug pull.” Rug pulling is a situation where the developers of a protocol steal tokens of their traders.
This is another way of earning passively through Defi. Here, a lending platform pays their users APY for locking their asset into smart contracts. These platforms then lend out these assets to borrowers who have to pay interests. It is this interest that is shared between the protocol and the lender.
Here, all of the process is governed by smart contracts so there is little to no risk of the borrower absconding with the borrowed assets.
Conclusively, earning through Defi could be one of the best decisions anybody in the education space could make for themselves as it provides a viable way of making a passive income without affecting other fields.