7 Passive Income Streams in DeFi You Should Know by Ayomide Adeleye

Imagine a world where you can earn passive income without banks or centralized intermediaries—just you and the power of decentralized finance (DeFi). This revolutionary concept offers a fresh alternative to traditional financial systems.

DeFi comprises a range of products and services that provide opportunities for passive income. By committing your assets to high-yield protocols, you can confirm blockchain transactions, keep the network running, and, in return, receive rewards.

This guide takes a deep dive into seven avenues that can earn you money from the comfort of your bedroom. Without further ado, let’s take a look at each of them.

Yield Farming

As the saying goes, “Let your money work while you sleep.” DeFi yield captures this expression as it lets you earn more crypto assets with little effort. How so? You can do this by depositing your holdings in a liquidity pool or Automated Market Maker (AMM).

AMMs automatically set asset prices through smart contracts and operate within liquidity pools, which are the final destination for your funds. These liquidity pools fuel decentralized exchanges and use your invested crypto assets to provide liquidity and facilitate trading. 

You’ll get rewarded with a share of fees generated from such pools. Your payout depends on the amount of tokens you invested and returns embedded in the smart contract.  It’s like planting seeds and watching your crypto garden grow.

Unlike the measly Annual Percentage Yield (APY) from traditional banks, DeFi yield farming has the potential for higher returns. 

DeFi Staking

DeFi staking offers another thrilling avenue to earn passive income by simply holding onto crypto assets for extended periods. Like yield farming, this strategy involves locking crypto and becoming a blockchain validator. Thus, you commit your tokens for a set duration and, in return, earn rewards.

To become a validator, you must meet specific requirements the preferred blockchain network highlights. For instance, Ethereum, upon switching to a Proof-of-Stake consensus, requires a user to hold a minimum of 32 ETH to become a validator. The longer the user stakes, the more gains they benefit from the validation process.

Additionally, staking helps to secure decentralized networks and boosts their performance. So, if you’re ready to contribute to the greater good, put your crypto assets to do the work. You benefit from impressive returns and support a more robust blockchain ecosystem.

Participate in Governance 

Having a say in the future of your favorite digital project can be a monumental feat in your crypto journey. That’s what governance tokens offer to their holders and investors. They do more than just sit in your wallet; they give you a voice in the decision-making of various DeFi projects.

By participating in projects that operate Decentralized Autonomous Organizations (DAO), you become part of a community that votes on important proposals and decisions. If you have the project’s tokens, you can vote on protocol tweaks and upgrades, fee adjustments, and the launch of new features in the ecosystem.

Besides the influence you exude, participating in governance is financially rewarding. Some projects offer incentives to active participants, meaning you can earn as you shape the project’s direction. 

You can get started by buying the governance tokens of the project you’re passionate about. Join the community discussions, cast your votes, and watch how your contributions help steer the Defi project’s future.

DeFi Lending

Another way to earn passive income is to let others borrow your crypto assets. Decentralized finance lending lets you directly lend your assets to borrowers via smart contracts, effectively cutting out middlemen and boosting your returns.

Here’s how it works: you list your crypto tokens on decentralized lending platforms. Over time, borrowers can take loans with your listed assets and pay you interest over a set period. Remarkably, smart contracts handle everything, ensuring smooth, risk-free transactions with or without collateral.

Unlike traditional finance, DeFi lending doesn’t require stringent background checks, making it more accessible and efficient. It’s a peer-to-peer (P2P) service where you can lend to anyone and earn interest. So, if you’re looking for a smart way to earn with your crypto holdings, DeFi lending offers an easy path to passive income and a front-row seat to unlocking your financial freedom. 

Engage in Play-to-Earn (P2E) Games

For avid gamers, play-to-earn games offer an incredible opportunity to turn your love for gaming into a source of income. These blockchain-based games let you earn crypto rewards while you have fun, thus transforming your gaming hours into a lucrative hobby.

Interestingly, P2E games are popping up all over, each with its unique twist. Since the last 2020 bull run, dozens of P2E projects have emerged. Popular titles like Axie Infinity and Decentraland have gained massive followings and offered massive returns to early backers.

Notably, these games became a lifeline during the COVID-19 pandemic, providing much-needed income for those who lost their jobs.

Here’s how it works: as you play, you earn in-game assets that can be sold for real cash. Therefore, the more you play and achieve higher rankings, the more you can earn. These games often have robust communities and tokenomics, offering endless opportunities to engage and profit.

So, whether you’re a casual or hardcore gamer, play-to-earn games offer an exciting way to combine your passion for gaming with the potential to earn real money.

Leverage Non-Fungible Tokens 

Imagine owning a timeless piece of digital art that not only looks cool but has real monetary value. That’s the concept of NFTs (Non-fungible tokens), where digital ownership meets blockchain technology.

Since their inception, NFTs have transformed how users think about art, gaming, and collectibles. They represent digital assets, such as artworks, game items, music, or virtual real estate stored on a blockchain, making each unique and verifiable.

Artists can mint their work as NFTs and sell them on platforms like OpenSea or Rarible. Each sale can also earn ongoing royalties. Also, you can buy rare and popular NFTs from collections like CryptoPunks or Bored Ape Yacht Club. Afterward, you can hold or sell them for profit when their value increases. To get valuable NFTs, you can play games like Axie Infinity. These in-game assets can be sold for real money.

Fractionalized NFTs can also earn you a considerable income. Creators divide the ownership of their artwork or fungible assets into smaller pieces and sell them in fractional units. Thus, many investors can own a piece of these digital assets. 

For instance, these NFTs enable investors to own a fraction of luxurious assets like hotels, resorts, and even an island. Once you own a piece, you can rent it out to other users and earn income passively. If you wish, you can sell them when the assets gain more value in the future. 

Embrace Token Rewards and Airdrops

What if you hold valuable cryptos in your wallet or are an early enthusiast in decentralized finance projects? Airdrops are another avenue to riches in this landscape. Many projects reward their loyal holders with additional tokens. Newer projects conduct airdrops to active community members where they perform simple social tasks.

Keeping specific high-value tokens in your wallet makes you eligible to receive rewards or participate in future airdrops. Existing platforms also invite users to perform simple tasks like trading and get rewarded with crypto tokens. 

This was the case with Uniswap, a top-performing DEX. In 2020, the exchange gave 400 UNI tokens to all users who had made at least one trade during a specific period. Each UNI was worth about $3 at the time, so users received around $1,200 for free. 

However, those who held onto their tokens for a year saw the price soar to $42 per UNI, turning their initial gift into a staggering $17,000. This airdrop became one of the most impressive in terms of potential profit and showcased the incredible earning opportunities within DeFi.

Besides their passive income opportunities, airdrops incentivize long-term holding and community engagement. They serve as a way for DeFi projects to thank their supporters while enhancing their ecosystem’s growth and stability. Regardless of your experience in crypto trading, participating in token rewards and airdrops is a rewarding strategy to boost your portfolio. 

Unlock Your Financial Potential with Decentralized Finance

Decentralized finance unlocks numerous possibilities for financial growth and freedom. From earning passive income to participating in revolutionary projects, DeFi has reshaped how we think about finance. However, it’s essential to tread carefully; DeFi isn’t without its risks.

These risks, such as smart contract vulnerabilities, market fluctuations, and regulatory shifts, can impact investments. To mitigate them, users must diversify their portfolios, research viable projects, stay informed, and adapt to the dynamic crypto market.

Notably, Zypto offers comprehensive tools and insights to help you make informed decisions and optimize your DeFi investments. It offers a wallet where you can hold your digital assets securely and safely. You can also enjoy transacting in crypto with eCommerce merchants via Zypto Pay.

So, whether you’re looking to earn passive income or explore new financial horizons, Zypto is here to streamline your journey.

Are there other avenues to earn in DeFi that you’ve found helpful? Let us know in the comment section. 

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