5 types of passive income with cryptocurrency: how to make money on cryptocurrency?

What kind of passive income can you get per month? In this article, we will try to understand and try to find out if this type of activity is right for you.

There are several passive income streams in cryptocurrency, and we will talk in detail about some of them below: lending, staking, liquidity mining, income farming, and crypto funds.

However, keep in mind that the niche is constantly evolving and changing. From time to time something new appears, so keep an eye on the market.

The portfolio of passive income strategies includes, but is not limited to, fixed staking, DeFi staking, ETH 2.0 staking, liquidity farming, and swap farming. Here we will look at the most popular passive income options.

Crypto lending what is it?

Lending your funds to a person, service, or smart contracts is one of the most popular ways to generate passive crypto income today. There are usually two to three parties involved in the process: the lender, the borrower, and the DeFi or CeFi platform. Currently, there are three main ways to provide crypto lending: peer-to-peer lending, centralized lending, and more recent types of lending such as quick loans and secured loans.

Peer Lending

Peer-to-peer lending (P2P lending) is a type of crypto lending where you interact with another relevant person to lend or lend digital assets.

As a lender on a P2P lending platform, you have the option to choose the amount you want to borrow and the interest rate, so that the platform will later match you with a borrower of your funds. Typically, this type of lending belongs to the field of DeFi or decentralized finance. However, there are certain centralized platforms that offer these services as well.

Centralized Lending

Cryptocurrency centralized lending services are platforms that allow investors to deposit cryptocurrencies in much the same way as you deposit with traditional banks. So, if you are one of those crypto enthusiasts who prefer to keep their assets in HODL, why not hodl for interest for a certain period of time?

On centralized crypto exchanges such as Nexo, interest rates are often fixed, and loan blocking periods can be fixed or flexible. Fixed blocking periods usually generate more revenue.

Just transfer a certain amount of money to your account and start earning passive income right now.

Margin Lending

The term "margin lending" is probably more eloquent than many explanations. It belongs to the realm of centralized lending, where you lend your money to margin traders or, in other words, traders who are interested in using their positions.

After the blocking period, they return your finds to you and pay you an extra fee for borrowing them. If you feel like it's more than that, yes, you're right. Margin trading is not for everyone, read more about it on the TradeSanta trading bot blog.

However, as a margin lender, you are relatively safe, unless, of course, your service provider is hacked, attacked, or exploited.

Secured Loans

A collateralized loan, part of the recent DeFi paradigm, is a loan where you borrow money from a lending platform and provide collateral in return.

A good example is MakerDAO, a popular choice among most investors because it gives you the ability to use a wide range of different cryptocurrencies that you can pledge into. On such a popular platform with high liquidity, the value of LTV (loan value for money) can also be lower than on other services, for example, 50%.

This means that if you want to borrow $5,000 in Dai, you will have to pledge $10,000 in Ether as collateral. Once your deposit drops below $10,000, the platform will require you to top up your balance.

Once your margin drops by 40%, you will be liquidated. But if all goes well, this is a way to put your money on a platform like Compound or Aave and earn passive income.

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Is passive income possible with crypto project?

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Instant loans or flash loans

Also part of the booming decentralized finance (DeFi) niche, these term loans are a unique form of loans where you borrow and pay back without collateral in a single transaction. You kind of have to be a techie to use these credits.

For example, Aave requires you to write your own smart contract.