How people actually make money with cryptocurrencies

You saw the many cryptocurrency-related Super Bowl ads and maybe you found them weird, or deeply dystopian, or just disturbingly familiar. Nevertheless, you may believe that the blockchain still has financial rewards to reap and want to jump in, or you may already have some of your money locked up in cryptocurrencies through companies like Coinbase and FTX who advertised during the big game.

What now? Keeping track of the ups and downs of Bitcoin, Ethereum and other cryptocurrencies and actively trading on those fluctuations can be a full-time job. Day trading, actually. And jumping into NFTs, the digital baubles you can punch, buy or sell, is still a challenge for many.

For many crypto traders who are into it for the medium to long term, there are some other ways to monetize cryptocurrency that just sits in your crypto wallet: staking and harvesting on DeFi networks. “DeFi” is just a catch-all term for “decentralized finance” – virtually all services and tools built on blockchain for currencies and smart contracts.

In the most basic sense, cryptocurrency staking and yield farming are pretty much the same thing: it involves investing money in a cryptocurrency (or more than one at a time) and collecting interest and fees from blockchain transactions.

Staking vs Yield Farming

Betting is easy. It usually involves holding cryptocurrency in an account and collecting interest and fees as those funds are allocated to blockchain validators. When blockchain validators facilitate transactions, some of the fees generated go to stakeholders.

This type of hold-for-interest has become so popular that mainstream crypto dealers like Coinbase offer it. Some tokens, such as the highly stable USDC (pegged to the US dollar), offer about 0.15 percent annual interest rates (not much different than putting your money in a bank in a low-interest checking account), while other digital currencies may earn your 5 or 6 percent per year. Some services require staking to lock in money for a set period of time (meaning you can’t deposit and withdraw whenever you want) and may require a minimum amount to accrue interest.

Crop farming is a little more complicated, but not that different. Yield farmers add money to liquidity pools, often by linking more than one type of token at a time. For example, a liquidity pool that links the Raydium token to USDC can create a combined token that can yield an APR of 54 percent (annual percentage). That seems absurdly high, and it gets weirder: Some newer, extremely volatile tokens can be part of yield farms that offer hundreds of percent APR and 10,000 to 20,000 APY (APY is like APR but takes compounding into account).

The rewards, which add up 24/7, are usually paid out as crypto tokens that can be harvested. Those harvested coins can be reinvested in the liquidity pool and added to the revenue farm for bigger and faster rewards, or can be withdrawn and converted into cash.

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