There are a large number of ways of passive income on the cryptocurrency market: deposits in credit services, provision of liquidity, farming, staking, and others.
Together with experts from a fintech company Coinchange we talk about passive investments in DeFi and how much you can earn from them.
What is profit summation
The DeFi ecosystem replicates the model of traditional financial services: decentralized exchanges (DEX) replace platforms with a single control center, lending services – banks, and governance tokens – voting shares.
The mechanisms of DeFi protocols are embedded in smart contracts that require only one type of intermediary – liquidity providers. The latter contribute funds for use by traders and investors.
For example, on the DEX, providers send tokens to liquidity pools and receive trading fees from each operation – from 0.05% to 1%.
The goal of DeFi projects is to attract and retain liquidity. Decentralized exchanges issue to providers LP tokens. They can be staked and receive additional passive income. This is how DeFi services motivate investors not to withdraw assets.
Depositing tokens into pools and subsequent staking of LP tokens is an example of a chain of actions that can be described by the term “compounding interest”.
Profit Maximization in DeFi
Investors often use complex strategies to increase returns on investments. For example, HODL can be made more profitable with a mint-sell-mint loop:
- Issue 2000 DAI secured by 1 ETH.
- Exchange received DAI for 0.77 ETH.
- Issue a new 1600 DAI on a security of 0.77 ETH.
- Exchange DAI again for 0.6 ETH.
- Get a total of 2.37 ETH.
Similar chains can be built for other instruments that issue some tokens against the security of others. However, when developing strategies, investors face two problems:
- transaction fees can make a potentially profitable strategy unprofitable. For example, in Ethereum, the commission for calling a contract can be as high as $700;
- you need to constantly monitor the market and adjust the strategy. Token prices, DeFi user preferences, and investment returns may change within hours.
The solution is offered by companies specializing in DeFi tools: Coinchange, Celsius, NEXO, BlockFi and others. They analyze the market, create profit accumulation strategies and invest clients’ funds in popular protocols.
How much can you earn on deposits
Coinchange works with DeFi protocols on four blockchains: Ethereum, Avalanche, Polygon and BNB Chain. The platform collects data on the profitability of services and builds investment strategies based on the information received.
To minimize the impact of transaction fees on profits, Coinchange uses an off-chain-on-chain scheme. The centralized server processes information, draws up an investment strategy, and issues instructions to proxy contracts. They combine strategy steps in one transaction and thus spend less gas.
According to Coinchange’s calculations, the yield ceiling for passive investments in DeFi is 20% per annum. At the time of publication, savings accounts bring:
- USDT (ERC-20), USDC and DAI – 13% per annum;
- ETH – 3% per annum;
- BTC – 0.6% per annum.
Unlike DeFi farms and crypto lending services, Coinchange has no withdrawal limits. For example, a user can withdraw funds from the farm for free only a few weeks after depositing, otherwise they will have to pay a commission of up to 20%. Landing services may not allow withdrawals for one or more months.
Stablecoins are constantly in circulation: they are both a trading instrument, and a means of settlement, and collateral for operations on exchanges, so the profitability on such deposits is higher. Ethereum and bitcoin are more interested in long-term investors.
Testing Coinchange
To begin with, let’s create an account: specify the mail, first name and last name, then come up with a password and confirm the phone number for two-factor authentication.
Upon completion of registration, you need to go through KYC / AML. Although Coinchange works with anonymous DeFi services, it has received Canadian license and comply with the requirements SEC for user verification.
The platform does not store personal data of users: verification is carried out by services Jumio and ChainAnalysis. It is not necessary to have a foreign passport: Jumio accepts documents from CIS countries, such as a Ukrainian ID-card or a Russian driver’s license.
After verification, we make a deposit in cryptocurrency or fiat dollars, and then transfer it to a savings account.
If you deposited dollars, they need to be exchanged for cryptocurrency in the tab Trade. Coinchange does not charge any exchange fees, and if you’re lucky, you can even make money on the course.
Choose an item deposit in the menu above, specify the currency and send the tokens to the address in Coinchange. The minimum deposit amount is $50.
The last step is to invest tokens. Coinchange will send them to DeFi protocols and will accrue profits. To do this, go to the tab Investmentselect a token and indicate the amount to invest.
After confirming the transaction, the Coinchange dashboard will start displaying investment statistics. It will take about a day before the interest on the deposit is calculated – Coinchange fulfills client requests in groups to save on transaction fees.
We received the first reward on the second day after the deposit. A Coinchange representative explained that this is normal: the service needs time to batch transactions, invest and withdraw profits.
Transferring funds from an investment account to a trading account takes up to 24 hours. Withdrawal of funds to an external wallet occurs within 20 minutes.
findings
On passive investments in DeFi, you can earn up to 20% per annum, but for this you will have to operate with millions of dollars and analyze the market around the clock.
The same values can be achieved by transferring cryptocurrencies to specialized services. One of them – Coinchange – suitable for long-term investors who want to receive a stable income with payments in stablecoins.
At the moment, the platform charges users 13% per annum, but the yield varies depending on the market situation.
Subscribe to Cryplogger news in Telegram: Cryplogger Feed – the entire news feed, Cryplogger — the most important news, infographics and opinions.
Found a mistake in the text? Select it and press CTRL+ENTER
There are a large number of ways of passive income on the cryptocurrency market: deposits in credit services, provision of liquidity, farming, staking, and others.
Together with experts from a fintech company Coinchange we talk about passive investments in DeFi and how much you can earn from them.
What is profit summation
The DeFi ecosystem replicates the model of traditional financial services: decentralized exchanges (DEX) replace platforms with a single control center, lending services – banks, and governance tokens – voting shares.
The mechanisms of DeFi protocols are embedded in smart contracts that require only one type of intermediary – liquidity providers. The latter contribute funds for use by traders and investors.
For example, on the DEX, providers send tokens to liquidity pools and receive trading fees from each operation – from 0.05% to 1%.
The goal of DeFi projects is to attract and retain liquidity. Decentralized exchanges issue to providers LP tokens. They can be staked and receive additional passive income. This is how DeFi services motivate investors not to withdraw assets.
Depositing tokens into pools and subsequent staking of LP tokens is an example of a chain of actions that can be described by the term “compounding interest”.
Profit Maximization in DeFi
Investors often use complex strategies to increase returns on investments. For example, HODL can be made more profitable with a mint-sell-mint loop:
- Issue 2000 DAI secured by 1 ETH.
- Exchange received DAI for 0.77 ETH.
- Issue a new 1600 DAI on a security of 0.77 ETH.
- Exchange DAI again for 0.6 ETH.
- Get a total of 2.37 ETH.
Similar chains can be built for other instruments that issue some tokens against the security of others. However, when developing strategies, investors face two problems:
- transaction fees can make a potentially profitable strategy unprofitable. For example, in Ethereum, the commission for calling a contract can be as high as $700;
- you need to constantly monitor the market and adjust the strategy. Token prices, DeFi user preferences, and investment returns may change within hours.
The solution is offered by companies specializing in DeFi tools: Coinchange, Celsius, NEXO, BlockFi and others. They analyze the market, create profit accumulation strategies and invest clients’ funds in popular protocols.
How much can you earn on deposits
Coinchange works with DeFi protocols on four blockchains: Ethereum, Avalanche, Polygon and BNB Chain. The platform collects data on the profitability of services and builds investment strategies based on the information received.
To minimize the impact of transaction fees on profits, Coinchange uses an off-chain-on-chain scheme. The centralized server processes information, draws up an investment strategy, and issues instructions to proxy contracts. They combine strategy steps in one transaction and thus spend less gas.
According to Coinchange’s calculations, the yield ceiling for passive investments in DeFi is 20% per annum. At the time of publication, savings accounts bring:
- USDT (ERC-20), USDC and DAI – 13% per annum;
- ETH – 3% per annum;
- BTC – 0.6% per annum.
Unlike DeFi farms and crypto lending services, Coinchange has no withdrawal limits. For example, a user can withdraw funds from the farm for free only a few weeks after depositing, otherwise they will have to pay a commission of up to 20%. Landing services may not allow withdrawals for one or more months.
Stablecoins are constantly in circulation: they are both a trading instrument, and a means of settlement, and collateral for operations on exchanges, so the profitability on such deposits is higher. Ethereum and bitcoin are more interested in long-term investors.
Testing Coinchange
To begin with, let’s create an account: specify the mail, first name and last name, then come up with a password and confirm the phone number for two-factor authentication.
Upon completion of registration, you need to go through KYC / AML. Although Coinchange works with anonymous DeFi services, it has received Canadian license and comply with the requirements SEC for user verification.
The platform does not store personal data of users: verification is carried out by services Jumio and ChainAnalysis. It is not necessary to have a foreign passport: Jumio accepts documents from CIS countries, such as a Ukrainian ID-card or a Russian driver’s license.
After verification, we make a deposit in cryptocurrency or fiat dollars, and then transfer it to a savings account.
If you deposited dollars, they need to be exchanged for cryptocurrency in the tab Trade. Coinchange does not charge any exchange fees, and if you’re lucky, you can even make money on the course.
Choose an item deposit in the menu above, specify the currency and send the tokens to the address in Coinchange. The minimum deposit amount is $50.
The last step is to invest tokens. Coinchange will send them to DeFi protocols and will accrue profits. To do this, go to the tab Investmentselect a token and indicate the amount to invest.
After confirming the transaction, the Coinchange dashboard will start displaying investment statistics. It will take about a day before the interest on the deposit is calculated – Coinchange fulfills client requests in groups to save on transaction fees.
We received the first reward on the second day after the deposit. A Coinchange representative explained that this is normal: the service needs time to batch transactions, invest and withdraw profits.
Transferring funds from an investment account to a trading account takes up to 24 hours. Withdrawal of funds to an external wallet occurs within 20 minutes.
findings
On passive investments in DeFi, you can earn up to 20% per annum, but for this you will have to operate with millions of dollars and analyze the market around the clock.
The same values can be achieved by transferring cryptocurrencies to specialized services. One of them – Coinchange – suitable for long-term investors who want to receive a stable income with payments in stablecoins.
At the moment, the platform charges users 13% per annum, but the yield varies depending on the market situation.
Subscribe to Cryplogger news in Telegram: Cryplogger Feed – the entire news feed, Cryplogger — the most important news, infographics and opinions.
Found a mistake in the text? Select it and press CTRL+ENTER
