While many outsiders believe that the crypto industry is not suited for strategies that aim at achieving consistent long-term profitability, the reality is that the DeFi sector is bringing some interesting solutions to the table in this particular field. It is true that only Bitcoin and Ethereum have been strong performers throughout the whole history of the sector. However, contemporary decentralized protocols are offering unique tools to adventurous investors who are not afraid to explore uncharted territories.
Blockchain technology is quite versatile and can be used for a variety of purposes. The idea of decentralized finance powered by immutable and easily verifiable ledgers that allow all users to participate in economic ecosystems in a trustless and permissionless manner is something that attracts millions of investors globally. According to Dune, the number of active wallets in the DeFi sector has grown by 281% in the first quarter of 2024. While this statistic is not representative of the real number of individual users, it is still an impressive growth.
With over 1400 DEXes to choose from and thousands of other decentralized protocols, selecting reliable investment opportunities can be quite challenging even for experienced investors with years of experience. One of the downsides of the DeFi growth is the proliferation of different native tokens that dilute the market and create a chaotic investment environment where newcomers find themselves lost and unable to pick a good destination for capital allocation. We want to give you a list of interesting coins that are great for building a source of passive income.
Crypto passive income strategies
Modern investors have a large pool of unique investment methods that can help them achieve high returns without directly trading assets. The problem here is that some of the approaches are so novel that people with rich experience in financial markets still struggle to identify good opportunities to make money. The world of decentralized finance (DeFi) is quite diverse and has a variety of instruments that are completely foreign to many newcomers to the industry.
Below are some interesting methods of making profits in the DeFi sector:
- Staking PoS coins. Proof-of-stake is an alternative consensus protocol that appeared, in part, due to environmental concerns caused by the immense power consumption of PoW networks. While Bitcoin decided to stick to the Proof-of-Work consensus mechanism, Ethereum, Cardano, and some others decided to go in a different direction. Investors can expect to receive close to a 4% annual percentage yield (APY) by staking their ETH coins. Cardano staking yields close to 2.8% APY.
- Liquid staking. Some investors will be happy to engage in liquid staking since this approach allows them to keep assets active. Platforms like LIDO allow users to stake ETH and receive stETH in exchange at a 1:0.99 ratio. Staked tokens can be used for a variety of purposes. For example, you can use them as collateral to borrow stablecoins and use the latter on other staking and yield farming protocols to receive higher returns.
- Liquidity pools. Decentralized exchanges need liquidity provided by other users. Investors are incentivized to contribute to these pools in a variety of ways. The most common incentive is a cut of fees collected by protocols. Users usually receive interest payments with rates depending on utilization and user activity. You can also receive rewards in native and layer-2 tokens. APYs can vary throughout the staking period making it hard to precisely calculate potential earnings.
- DeFi lending platforms. These are some of the most important DeFi protocols as they enable investors to participate in various ventures without the need to directly exchange digital assets. At the same time, liquidity providers in lending pools enjoy consistent returns that can be quite high with the right level of utilization. For instance, Morpho Aave has a USDT pool that pays 17.58% base APY with the 30-day average in September 2024 reaching 10.42% which is much higher than anything you can get in tradfi.
These investment methods are useful to crypto holders who want to focus on layer-1 coins and stablecoins instead of venturing into the world of yield farming and other novel instruments. Proof-of-stake rewards are a reliable source of income for those who want to simply sit on their ETH or ADA holdings for a long time. At the same time, providing liquidity to lending pools and DEXes can be a good source of earnings if you have stablecoins like USDT, USDC, BUSD, and DAI.
You can also engage in several other types of investing in the DeFi sector using other types of coins. While it is not as reliable and consistent as putting capital into established platforms like Ethereum, Lido, Aave, and others, you can find a good way of utilizing holdings to achieve incredibly high returns.
Cryptocurrency yield farming
This strategy relies on using some of the most popular tokens like BTC, ETH, DAI, USDT, and others to earn native tokens issued by promising protocols and layer-2 platforms. In many cases, it can be a better way of parking capital since you can earn more by accumulating native and governance tokens to prepare for a timely exit.
Below are some interesting examples of how you can engage in this investment method:
- Investing in Aerodrome operating on the Base blockchain network is a great way of accumulating AERO rewards. The OVN-USD+ pool here has a respectable $16 million TVL and offers up to 117% in AERO rewards. The native token of the protocol was launched in April 2024 and has been doing quite well so far. In October 2024, the price is $1.31 with a $863 million market cap and over $14.8 million in daily trading volumes. Since launching, the token’s price has increased by 14.5 times.
- Tokan exchange is a relatively young protocol launched on the Scroll network. Multiple pools are worth exploring but we want to focus on the USDC-CHI stable pool that offers 66.88% in TKN rewards and has a massive $86 million TVL. Note that 30-day averages in Summer have been excellent and consistently outperformed expectations. The TKN token is trading at $0.05 (10 times higher compared to the launch price) and has a respectable $88.9 million market cap. Investors who time their exits correctly can achieve incredible returns by working with this protocol.
Masternode cryptocurrencies
It is possible to earn money passively by running a masternode on some protocols like Dash or Beldex. These are networks that use block verification by specialized nodes that do not add new blocks to the network and instead only confirm that a newly added block is legitimate. Masternodes usually require significant upfront investments from potential operators. However, they produce consistent returns in native tokens.
Let’s take a look at some examples:
- Dash is a digital currency that can be used for quick capital relocation and other purposes. The network uses masternodes to verify transactions and currently has 2,617 of them. The average ROI since launch is quite good and stands at 6.07% APY with operators earning up to 60.7 DASH annually with 1000 DASH or $24,000 required to run a node.
- Beldex is one of the most promising Dapp ecosystems out there. It also uses masternodes for transaction verification with operators earning a staggering 46.8% annually. You will need 10,000 BDX to get started which is roughly $770. The price of the token has been quite volatile and many experienced investors are keeping their distance from Beldex but it can be a great destination for capital allocation if you are interested in high returns.
Searching for high-yield crypto investments
It is possible to find a variety of interesting investment strategies that produce incredibly high yields. The issue here is that many such strategies are based on investing in memecoins, outright scams, or other questionable ventures. We strongly believe that the DeFi sector is incredibly versatile and has an immense potential to change the way we understand investing. However, it is also important to remember that staying safe and building a consistent portfolio is more important than chasing the biggest number.
Risk management in crypto is more than just important, it is imperative. Below are some ways to mitigate the portfolio exposure:
- Make sure to interact with protocols that have high TVL numbers and the goodwill of the community. For example, it is safer to invest in something like Aave with its $12.4 billion TVL and over 7 years of history than in Across (TVL is $134 million and it was launched in 2022 to a mixed community reaction).
- Do not chase the biggest number. In many cases, you will be left holding the bag if you try to invest in low-TVL and high-yield pools focused on memecoins and untested native tokens. While a 19,248% APY in the SOL-PEPU pool sounds amazing, the PEPU coin can be traded only on DEXes like Orca and Uniswap and the price has been dropping quickly.
- Never forget that smart contracts may have vulnerabilities. DeFi protocols appear to be safer than CeFi solutions but many platforms are deploying their contracts without proper audits leading to bugs, performance issues, and exploits. An Arbitrum exploit exposed in January 2024 led to a massive loss of $1.72 million worth of ETH.
- Use the best safety practices. One of the reasons why many people are interested in non-custodial investment opportunities is that they believe that it is safer. However, the responsibility to keep assets safe is on the shoulders of investors. It is important to use multi-factor authentication with all apps where you regularly log in and consider using crypto wallets with cold storage options (hardware wallets like Ledger and Trezor are good choices).
These are some of the basic safety tips for newcomers. It is hugely important to use at least some of them and invest responsibly without falling for some obvious traps like degen farming projects and memecoins. The DeFi sector has a lot to offer and you don’t have to search for some hidden gems when there are perfectly good opportunities right on the surface.
The list of the best staking coins for 2024
While it is true that choosing a good protocol is the most important part of any DeFi strategy, some coins are better than others. You should consider a variety of factors. For example, a good token must be easy to move across the DeFi sector if you identify a good opportunity. It must be popular to be sufficiently liquid. It also must be less volatile than the vast majority of digital assets. Several coins fit the criteria quite well.
Here are some of the greatest tokens to pick in 2024 if you want to build a portfolio focused on extracting passive income from the DeFi sector:
- ETH is the most important token for the DeFi sector as it is native to the most popular blockchain network in the DeFi sector. In fact, Ethereum is often cited as the foundational stone in the architecture of the ecosystem. ETH can be staked directly on the layer 1. Running a node is quite expensive (32 ETH) but you can engage in delegated or pooled staking if you do not have the necessary capital to go solo. ETH is accepted by the overwhelming majority of DeFi protocols and can be used on a variety of liquid staking platforms.
- BTC is still the king of the hill. The most dominant cryptocurrency is also quite popular among DeFi protocols although users have to go through some hoops to start staking BTC. For example, it is possible with layer-2 solutions like BTC Stacks. Many protocols like Pendle are offering incredibly generous rewards to BTC investors. Putting your coins in the BTC-RUNE pool on Thorchain yields 18.15% base APY. Many protocols work with the wrapped version of the coin.
- USDC is the most popular DeFi stablecoin that can be used on a variety of platforms. Many newer protocols that focus on capturing large market shares offer generous rewards to stablecoin holders. For example, Aerodrome pays 54.5% in AERO rewards to users who put their coins in the USDC-AERO pool. The ETH-USDC pool on GMX V2 is a great place to store both Ethereum and USDC tokens as it produces over 7% base APY on average and reaches up to 9.47% base APY. The USDC coin is available across multiple chains and retains value well due to being pegged to the US dollar.
- USDT is another important coin to focus on as it is widely used across the DeFi sector. Most notably, it is a big asset for chains like The Open Network (TON), Scroll, TRON, and many others. In many cases, you won’t even have to check the tokenomics of any given project and simply focus on acquiring as many rewards as possible by investing in USDT holdings. Putting your coins in the TON-USDT pool on DeDust yields a 0.6% base APY and 15.95% in TON rewards. You can also put tokens in the USDT pool on Aave to receive a consistent 4.3% APY.
Some coins deserve an honorable mention despite being less popular or versatile. For example, DAI is a great stablecoin. MakerDAO has a DAI Savings Rate module (DSR) operating as a liquid staking protocol where users receive sDAI in exchange for staked stablecoins to enjoy a 6% APY. DAI is quite popular in the DeFi ecosystem. SOL is a native Solana token that can be useful if you are interested in high-risk/high-reward investment schemes involving memecoins.
