Saving fiat currency and earning interest from banks is quite a common practice. However, did you know that you can also earn interest from your crypto assets? This means, you will not only benefit from the increase in the value of your crypto assets, but also the interest on the savings?
How exactly do you earn interest on crypto assets? We’ll cover that further in the article below!
How to earn interest from crypto?
Many traders are taking advantage of the extreme volatility of crypto assets to maximize their profits. However, trading isn’t the only way to get the most out of your crypto assets.
Another option is to store it on a platform or applications that will pay interest on the assets. As a result, investors benefit not just from asset value but also from interests in their savings.
Here are some ways to get passive income with crypto assets.
1. Yield Farming
Along with the development of decentralized applications (dApps) on blockchain such as Ethereum and Binance, more and more decentralized finance (DeFi) applications that offer interest to users like saving in a bank.
One way to earn interest from DeFi applications is by yield farming. Yield farming is the practice of lending crypto assets to generate high returns or rewards in the form of additional cryptocurrencies.
Crypto asset lending applications such as Compound and AAVE are among those that facilitate yield farming. Compound and AAVE bridge the needs of lenders who want to earn interest on unused assets, with borrowers who need assets as investment capital.
Here’s how it works:
💡 When lenders deposit crypto assets into Compound Protocol, lenders will earn interest instantly. In Compound, the interest rate is called the Annual Percentage Yield (APY), and the interest rate varies depending on the asset.
Compound determines interest rates with an algorithm that takes into account the supply and demand for assets. Generally, the higher the loan demand for the supplied asset, the higher the interest rate (APY) and vice versa. APY on Compound is updated every 3-5 minutes.
However, it is not only lending and borrowing applications such as Compound and AAVE that facilitate yield farming. Decentralized exchanges such as Uniswap also provide incentives to users who deposit assets on the platform.
Uniswap uses a system called Automated Market Maker (AMM). With AMM, Uniswap bridges the needs of traders who want to buy assets with asset providers or liquidity providers. By becoming a liquidity provider or depositing assets at Uniswap, you will receive an incentive in the form of a part of the fees paid by traders when making transactions.
Staking is a mechanism for obtaining crypto assets by storing funds in a crypto wallet and then performing functions such as validating transactions, before receiving rewards in the form of coins.
💡 Usually, staking involves locking assets in a cryptocurrency wallet for a certain period for users who wish to participate in the transaction validation process. Staking users will get freshly minted coins as a reward. This framework is specifically for blockchain that uses a proof-of-stake consensus mechanism, such as Cardano and Solana.
However, several crypto applications offer staking features and promise incentives and various benefits for users who lock their assets in these applications. Examples are Binance and Kraken which simplify the staking process for their users. Users simply click on the staking page and specify the number of assets they want to deposit.
Setting up a staking system for blockchain with a proof-of-stake mechanism can be very difficult, as you need to learn the crypto infrastructure and require background knowledge that many investors don’t have. Therefore, there are currently many crypto-asset trading applications that offer the staking feature to increase added value for application users.
3. Earn Compound Interest
Apart from yield farming and staking, several crypto-asset trading platforms have also provided the earn feature, which provides interest for users who store their assets on the platform.
In theory, crypto interest-generating features like earn work like a regular savings account. You can deposit assets such as bitcoin or any available altcoins, without any lockout period or deposit limits as is the case with staking. Then your assets will generate compound interest (compound interest), and you can withdraw the assets at any time.
What makes saving crypto assets with compound interest more attractive than saving at conventional financial institutions is the much higher interest rate. Interest that can be obtained from an ordinary savings account is currently only 0.70% per year. While on crypto assets, the interest earned can be 3% to 10% per year.
Not only that, but with the earn compound interest feature in crypto applications, the amount of profit you receive will be even greater, because interest is earned every hour, allowing the value of assets that earn interest to continue to grow.
💡 Example: You save 1 ETH with an interest of 3% per year using the earn feature of a crypto application. If you keep your assets for 1 year, you might think that your assets will grow to 1.03 ETH the following year, or increase by 3%.
But actually, the assets you get can be more than that, because on crypto exchange platforms you usually get interests every hour. So even a year after you first deposit your assets, you can earn more than 1.03 ETH.
By understanding this concept, you can project the amount of your investment and the potential profit you can get in the future.
Earn interest on your crypto with Pintu
You can also save crypto assets at Pintu through the Pintu Earn feature which will be available soon in the app. Pintu Earn is one of Pintu’s features that can be used by users to store crypto assets and earn a certain amount of interest from the assets stored.
At the initial stage, there will be four crypto assets that you can invest in the Pintu Earn, namely Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), and Dogecoin (DOGE). Going forward, other crypto assets will continue to be added that you can invest in the Pintu Earn.
- What happens when cryptocurrencies earn interest? Harvard Business Review. (2021, March 4). Retrieved December 2, 2021, from https://hbr.org/2021/02/what-happens-when-cryptocurrencies-earn-interest
- Yield farming vs. staking: Which one is better? BeInCrypto. Retrieved December 2, 2021, from https://beincrypto.com/learn/yield-farming-vs-staking/
- Yahoo! (n.d.). How to earn interest on Crypto. Yahoo! Finance. Retrieved December 2, 2021, from https://finance.yahoo.com/news/earn-interest-crypto-134001859.html
- CoinMarketCap. (2021, November 10). What is yield farming?: CoinMarketCap. CoinMarketCap Alexandria. Retrieved December 3, 2021, from https://coinmarketcap.com/alexandria/article/what-is-yield-farming
- Businessinsiderinternational. (2021, September 21). What to know about staking – the process of locking up crypto holdings to earn rewards and interest. Business Insider Australia. Retrieved December 3, 2021, from https://www.businessinsider.com.au/staking-crypto
- Markets. Compound. (n.d.). Retrieved December 6, 2021, from https://compound.finance/markets
- “How to DeFi?”, CoinGecko (2020)
- Staking. Solana. (n.d.). Retrieved December 6, 2021, from https://solana.com/staking