Just a few years ago, putting your crypto to work meant investing in a cryptocurrency and playing the HODL game. It was simple back then – buy low and sell high. With cryptocurrencies being the subject of water cooler talks throughout the world, it’s clear that blockchain technology and DeFi advancements have made their mark on the general public. With these advancements came innovations in the way cryptocurrencies can be put to work. In this article, we will go over different ways to make your crypto assets work for you in a safe way. Be careful because there are a lot of scams, pump-and-dump schemes, and rug pulls out there, so make sure to keep a clear head and be careful buying crypto.
Crypto Trading Bots
Experimenting with candlestick charts to try and predict the next breakout seems a bit dated these days. Crypto bots can do that, plus make hundreds of trades for multiple coins at one time in a fraction of a second. Because these computer programs are coded to submit buy and sell orders automatically on exchanges, you don’t have to spend time performing technical analysis anymore. You can set the parameters of a bot so that it executes concurrent orders such as take-profit, stop-loss, limit, or market, to name a few.
Do your research to create a strategy to avoid crypto scams. Various bot strategies are available, such as arbitrage, market making, or grid. Plenty more exist, and some bots will allow you to program your own strategy, but the most common predefined bot strategy is arbitrage. With an arbitrage strategy, the bot will scour different crypto exchanges to find differences in coin prices and automatically buy and trade to make profits. These arbitrage bots, for example, might identify that ETH is trading for $100 more per coin on Binance than it is on Kraken. It will then buy ETH on Kraken and quickly sell it on Binance to make a quick profit.
Liquidity Provider
Whales and hedge funds on the NYSE can cause the price of a stock to plummet if they decide to liquidate large portions of their shares. Decentralized exchanges (DEX) were created so price manipulation tactics were prevented. DEXs need adequate liquidity to ensure that the token price doesn’t fluctuate significantly due to large single trades.
Liquidity pools are an integral function of DEXs, and their main purpose is to stabilize potential price shifts in low liquidity markets. DEXs depend on ample liquidity of tokens for stability so the more tokens there are in the liquidity pool, the better. Anyone who provides tokens and locks them in a liquidity pool is called a liquidity provider. Doing so will provide your assets for others to trade and borrow within the same pool. The DEX will offer liquidity providers rewards, typically in the form of extra tokens.
The rewards will come as a percentage of a transaction fee from the activities on the DEX. For example, if a seller trades a token, a 0.3% trading fee is charged by the DEX. The DEX will pocket 0.2% but will allocate 0.1% to you. In short, if you provide liquidity in the market you stand to gain rewards on any and every transaction within that DEX. The fees and rewards will vary on each DEX so make sure to do your research.
Staking
Ethereum is currently transitioning into a proof of stake (PoS) model, while third-generation blockchains such as Cardano were built with this in mind. Many of these PoS blockchains enable users to stake their coins. Staking means you are locking in your coins to be used to validate transactions which help to keep the network secure.
Once your coins are staked in a crypto wallet, you can earn rewards usually in the form of additional coins. The downside here is because your coins are staked, they can’t be used for any transactions for a set period. Additionally, not everyone who stakes will earn a reward. However, the more you stake, the better your chances. The rewards will vary depending on what coin you stake, how long you stake it for, and where you stake it so you will need to do your homework to find out what your expected returns will look like.
The three main ways to stake your coins are through exchanges, staking pools, and becoming a validator. Exchanges provide the simplest staking option because once you’re signed up with them, you can stake right out of the provided wallet. It’s convenient especially for users who already have an account with them.
Staking pools are created and operated by individuals called validators and they aren’t governed by the rules of custodial wallets and exchanges. Joining staking pools are ideal for those who don’t want to risk losing their assets by leaving their coins in an exchange. Research is necessary to ensure that the validators have a proven track record and has a solid reputation. Of course, you can also become a validator yourself and command the rules, policies, fees, and commissions.
Lending
Banks and lenders typically offer APYs in the 0.05% to 0.50% range for interest-bearing savings accounts. However, crypto-based interest-bearing accounts start at 2% APY in 2021 and can easily get into the double digits. Be very careful when investing in crypto for the intrest because some of the crypto companies in 2022 and 2021 were found to give high yields for people early in the game then in true Ponzi scheme fashion, wither away. The way you can earn interest is by parking your crypto holdings in the account for a set period. The crypto will then be lent out to borrowers who are looking for loans. To become a crypto lender, it’s as simple as signing up for an account and depositing crypto. Be careful investing in crypto.
The two types of platforms available are either CeFi or DeFi-based. CeFi platforms are centralized which means the company manages the funds and executes the services that they advertise. DeFi platforms are decentralized and they operate autonomously without any custodial management of funds. Choosing one type over the other will largely depend on the level of trust you give to the platform. The rates will vary across all services but check for differences in interest rates, terms lengths, and coin availability.
If you want to lend your crypto to someone directly, you can also look into peer-to-peer (P2P) lending. The advantage here is that there is no intermediary involved in this process. Instead, smart contracts execute trustless transactions which enable crypto-backed loans to process quickly and easily. Rates are agreed upon before transactions are executed all the while being anonymous.
Putting Your Crypto To Work
To grow your net worth, it is often said to put your money to work. Traditional methods such as trading or lending still apply in the crypto world but they are a bit different. Because blockchains introduce decentralization into the picture, it isn’t necessary to rely on centralized platforms to manage your funds or holdings. This brings about innovations in earning methods and strategies such as staking and becoming a liquidity provider. We can even look forward to earning passive income through crypto trading bots. Take your time to research each method because the number of strategies is growing by the day and the options can be overwhelming.
This post was written by Ironsung on Fiverr. I hire Fiverr writers to write about topics they understand very well, this helps us all learn more and invest smarter. I’m not a financial advisor, I’m of the opinion that crypto is very risky. Do your own research and never invest what you aren’t willing to lose. Subscribe for more investing posts. Have a lovely day.
Disclaimer
I want to make it unequivocally clear that I do not promote any cryptocurrency, nor do I endorse any crypto investments. This website is dedicated to providing information and insights into the world of cryptocurrencies to help you better understand what crypto is.
If you ever find yourself in a position where you need to explain your decision not to invest in cryptocurrencies to friends or acquaintances, you can use the content on this site as a guide to discourage people from falling victim to scams or making hasty financial decisions. My ultimate goal is to empower individuals with knowledge and awareness so that fewer people become financial victims.
Life is already challenging with its inherent obstacles; we don’t need the added burden of unscrupulous individuals looking to exploit our hard-earned money. Stay vigilant, stay informed, and make financial decisions with caution. Your financial well-being is of paramount importance, and it is my sincere hope that the information here can assist you in making prudent choices.
