There are many options to increase income from digital assets. For example, depositing bitcoin and getting interested without doing anything. Next, we’ll break down what can bitcoin make interest in detail, as well as learn what is btc lend and Rug Pulls.
Investing in Cryptocurrency
Cryptocurrency investing and trading are the basic ways to make money in the digital asset market. But there are other options as well. Some of them will suit those who have bought Bitcoin, Ethereum, or other coins and are not ready to sell them short. Others can be useful for active traders who want to make money here and now and as much as possible.
For example, bitcoin holders who are confident in the future growth of its price and intend to keep the asset for a long time can deposit it on special platforms. They can open a deposit in BTC and other cryptocurrencies and thus passively increase the number of coins and potential profit. Such an option is available at blockchain.com, crypto.com, and other services, the deposit rate is 5-8% per annum.
Decentralized Finance (DeFi) offers a similar solution. Their users can also use cryptocurrency to make deposits on various platforms. There are two options. The first, with less potential income and less risk, is to provide liquidity to decentralized trading platforms such as Uniswap, 1inch, and others. These exchanges need capital so that traders can trade. That is why the services pay remuneration to those who provide them with assets for use.
The exact profitability cannot be predicted; it may be 3%, 5%, 10%, or more. It depends on the volume of trades on each site and with each token, as users who have made a deposit receive a percentage of the commissions paid by traders.
Services help you to choose
Services such as dextools.io will help you choose the most profitable option. They allow you to sort trading pairs on Uniswap and other sites by profitability. Because this index is constantly changing, users who earn from providing liquidity are constantly “moving” from one pair to another in pursuit of the highest percentage.
The second option for earning in DeFi is “profitable farming.” It works the same way, but here, as a rule, users provide deposits to separate platforms created specifically for this strategy. You deposit Ethereum or other coins to the platform, and it pays a percentage in its tokens for this, thus “harvesting”.
The difference from the first option is that both risks and potential returns increase significantly. Often “farming” platforms offer deposit rates of thousands of percent per annum in the early days. This result is calculated based on the price of the token in which users will receive payouts for making deposits. “Farmers,” receiving coins, sell them, causing their rate to fall. Accordingly, the initial rate of thousands of percent begins to decline dramatically, which happened, for example, with DeFi-service Spaghetti Money, which offered an annual yield of 35,000% for a deposit in BTC on the first day of operation, but a week later that figure fell below 50%.
Aggregators such as coingecko.com and coinmarketcap.com help “farmers” find the best option. On them, you can sort DeFi-platforms by the highest rates, the amount of which currently reaches 20,000% per annum.
For bitcoin holders who want to make money from “income farming,” there is a solution – “wrapped” bitcoin or Wrapped BTC. This is a token issued based on Ethereum, the rate of which corresponds to the rate of the first cryptocurrency. This asset can be stored like a real BTC and, at the same time, deposited as liquidity on DeFi-platforms to earn interest on the deposit.
When working with cryptocurrency, security is very important, especially for investments in DeFi instruments, which are popular nowadays, Alexey Markov, a leading trader at United Traders, stressed. He recommended being cautious about promises of exorbitant yields. Dozens of percent a day is “absolutely unrealistic,” but many traders count on getting rich quickly without even thinking about the banal economics of such investments. One should be no less vigilant with the new surge of token sales (ICOs, IEOs, IDOs) taking place in this area.
Because the crypto industry is largely unregulated, the DeFi space operates solely on trust. From buying to selling to lending to stealing, trust is one of DeFi’s defining factors. When that trust is violated, as it often is, it is called Rug Pulls.
In cryptocurrency lending, developers can create a new token, link it to a stablecoin, create a liquidity pool, and start mass advertising. When these pools have a lot of stablecoin deposits, developers use the backdoor they have put in the smart contract to issue millions of their new tokens.
This causes a shortage of stablecoin. Rebalancing the pool would mean the new token would be virtually worthless. Founders will dissolve into thin air with millions. Surprisingly, all of these risks can be avoided if investors do basic checks before putting their tokens or fiat into credit platforms. Need to verify:
- Conduct online background checks on founders (social media accounts, past projects, etc.). A founder not seen online should be treated with caution.
- Watch for red flags on how much they spend on marketing if a third party has criticized their project and the interests they promise.
The tool allows you to have a passive but small income from the interest on the deposit. This method is suitable for beginners because you do not need to understand the quotes on the stock exchange and know complex terms. How it works: like a deposit in the bank – the investor “rents” to the exchange or platform a part of his savings to return later with interest. The interest depends on the terms of the exchange itself or the digital currency in which the investor deposits his assets.
Interest is charged when a bank uses users’ digital assets for other transactions, cryptocurrency loans, and other blockchain transactions. Smart contracts typically record a guarantee to return on demand. For example, you can send $1,000 to a lending account and get up to 15% interest in USDT, which is about $150.
There are two types of contracts found in lending: open-ended and fixed-term. The perpetual has a low-interest rate and allows you to withdraw at any time. A fixed term is set for a specific period (a few days or months), so it has a higher interest rate. It is not possible to withdraw funds before the end of the term. The only disadvantage of lending – you may get caught by fraudsters if you choose an unreliable platform.
The most high-profile case happened in 2016 with the Bitconnect platform. It offered users to invest in BCC cryptocurrency and place it in the service’s system at interest to earn passive income. The creators came up with a referral program with several levels, as is common in pyramid schemes. After an investigation, the U.S. Securities and Exchange Commission found that investors had invested at least $2 billion in the project.
One of the easiest ways to spot scammers is overly sweet and overstated promises. Pay attention to the yield offered by the platform. If the figure is around 10-15% per annum – you can trust it, but if the creators promise 2-3% per day – it’s better to give up.
- Pros: you can start with a minimum investment and see how it works; no equipment or investor qualification is required; if you choose a reliable platform for placement, the risk of losing funds is minimal.
- Disadvantages: the risk of falling for a fraudulent platform is still there; you can’t earn very much at once; offers with a high-interest rate are quickly dispersed.
Recommendation: allocate for banding, steaking, and “profitable farming” not more than 10% of your crypto portfolio in total.
Three platforms for lending:
- Binance. If you choose to invest your currency in Ethereum on a fixed contract, it will yield about 3.6% over six months, and if you invest in Ethereum Classic, about 5% over six months;
- Nexo. Offers investors a fixed rate (about 8% p.a.) on all available assets, including currencies (USD, EUR to GBP) and stablecoins (USDT, SAI, USDC);
- Salt. One of the major platforms for lending has its token of the same name. Owners of the token get access to preferential interest rates. In addition, investors can borrow currency, paying interest in convenient digital assets – Bitcoin, Ethereum, USDT, and others.
Investors can earn 8% for keeping their digital money in deposits. It is more reliable than a classic exchange because blockchain does not allow you to recover a lost password, and in a cryptocurrency bank, you can return access to the account with your passport.