Earning yield on crypto assets has become one of the most popular investment approaches in the global crypto markets.
Whether you are lending, staking, or yield farming, there are numerous ways to earn investment incomes on your digital assets - all of which are accessible using your Trust Wallet. For example, you can seamlessly stake several leading cryptocurrencies using the in-wallet staking feature.
In this article, we look at various ways to earn yield on your crypto, diving into how they work, their advantages, disadvantages, and more.
Note: When using Trust Wallet to access earning opportunities, any earnings you receive come from third-party protocols and are not controlled by Trust Wallet. Additionally, earning rates can fluctuate due to factors set by each protocol, as well as market conditions.
Understanding Yield Generation Methods
You can generate yield on your crypto assets in several ways.
One of the more well known ways in crypto is through a process called staking. Staking cryptocurrency involves “locking up” your crypto assets for a period of time on a blockchain operating using a Proof of Stake-based consensus protocol (or on a platform that offers staking) to receive staking rewards paid in crypto tokens. This method makes it easy for anyone to earn investment income on their crypto assets.
Yield farming is another method of generating yield, which was birthed out of the “DeFi summer” in 2020. There are a few different approaches to yield farming (you can even yield farm with NFTs) but the general approach is you deposit digital assets into a decentralized protocol in exchange for an liquidity provider (LP) token, which you then stake in a yield farm to earn returns.
Another way you can earn yield in the crypto markets is by providing liquidity on decentralized trading protocols. Liquidity providers (LPs) make the trading of crypto assets seamless on decentralized crypto exchanges by committing their crypto assets into liquidity pools. These liquidity pools act like a reservoir of tradable assets, so when people transact, there are enough assets in the system to ensure trade continues without interruption. In return for pooling your crypto assets as an LP, you will receive returns based on the percentage of the funds you commit to a pool.
Alternatively, you can also earn crypto through lending on decentralized finance (DeFi) platforms. Here, you can lend your assets to borrowers who will pay you interest on your lending assets. Additionally, some decentralized lending protocols also reward lenders with the protocol’s token as an incentive to provide liquidity to a lending pool.
Lastly, you can also earn a yield on your crypto investments through staking derivatives. By purchasing staking derivatives, you can receive staking rewards in the same way you would if you were natively staking ETH, for example.
In the following sections, we will look at each method of earning yield and how to use Trust Wallet to earn through some of the listed approaches.
Exploring Staking
Staking came up as a solution to the energy consumption issues related to Proof of Work-based blockchains like Bitcoin, Litecoin, Dogecoin, and Ethereum 1.0.
In PoW blockchains, transactions are validated by miners who solve mathematical equations using computers to find the next block that will be added to the chain. While miners are rewarded for their work in the form of newly mined coins, the high power consumption has led to concerns around sustainability of crypto mining, which has been one of the key drivers behind the development of Proof of Stake-basd consensus protocols.
On Proof of Stake networks, users lock the tokens they already hold in a smart contract to help validate the transactions on the network and receive newly minted tokens as rewards. In this system, the locked tokens can typically only be used after the staking period has ended. Over time, the concept of staking went further than on PoS blockchains and into being used in other protocols like decentralized exchanges, DeFi protocols, and more.
Staking is being applied outside PoS systems because of its numerous benefits. Some of these benefits include:
Enable people to earn yield on staking-enabled networks and platforms.
Making blockchains more energy-efficient.
Increased security on blockchains as the more tokens are staked, the more secure the network.
Giving decision-making rights to network and platform participants as some of the systems utilizing staking also gives people on the network voting rights.
Not all staking is created equal. Instead, there are different types of staking mechanisms.
Native staking is where you set up your own validator node on a network by staking a required amount of crypto assets. You then earn a yield on the amount staked and can receive and keep the whole amount to yourself.
In pooled staking, you commit your crypto assets into a common ‘pool’. Here, you share their overall yield depending on how much each person staked. Liquid staking works similarly to pooled staking, where people collectively contribute their crypto assets to a common pool. However, in liquid staking, the protocol gives people a new Liquid Staking Token (LST) that they can use to buy, sell, lend, and more on the protocol they staked on or supported dApps.
To start staking on Trust Wallet, all you need to do is to click on the ‘Discover’ tab on your home screen, then choose the crypto asset you’d like to stake under the list ‘Stake’. Once you have chosen, click the ‘Stake’ button, add the amount you want to stake, and then complete your transaction!
Diving into Yield Farming
Yield farming in DeFi involves depositing crypto assets into a protocol to provide liquidity to receive yield farming rewards in exchange.
Even though yield farming can be easily confused with staking, the major difference is that in yield farming, people commit their crypto assets to provide liquidity to pool. In staking, the main goal of committing your crypto assets would be to help validate transactions.
Liquidity is important to any crypto project because it helps ensure that there are enough crypto assets in the system to enable efficient exchange. This means that if people participate in yield farming by locking their assets in a smart contract, there will be reduced risks of illiquidity in the protocol’s ecosystem.
Like any innovation in crypto, yield farming has risks and rewards. Let’s take a look at these below.
Risks of Yield Farming
Facing temporary loss when the prices of crypto assets reduce.
The smart contracts governing yield farms can be vulnerable to hacks, which could cause a loss of funds.
Gas fees can be too high for people using the protocol, reducing the overall profit you would have gained.
Changing interest rates can lead to a drop in your potential returns. Some protocols may adjust their interest rates to be lower when the supply of tokens in a yield farm is high.
Yield farming is susceptible to rug pulls, where the project founders abandon a project without returning user funds.
Rewards of Yield Farming
You can earn crypto assets passively since the yield farming protocols man all processes without your active participation.
It increases liquidity on DeFi platforms, enabling them to function efficiently.
You can diversify your investment portfolio by investing in different yield farming protocols and potentially generating profits from all of them.
Yield farming promotes decentralization and access to financial products than in traditional finance.
There are several field farming platforms that you can explore and connect to using Trust Wallet. Some of them include:
Venus: The Venus protocol is an automatic algorithmic borrowing, lending, and stablecoin platform built on the Binance blockchain. As a yield farmer on Venus, you can deposit crypto assets like ETH and BNB and earn yield farming rewards.
Curve: Curve is one of the biggest DeFi platforms in the market. It is an automated market maker built on Ethereum that enables the exchange of various crypto assets. To yield farm on Curve means committing your assets to various pools on the platform, receiving a LP token, and depositing that to earn yield farming rewards.
SushiSwap: SushiSwap is a decentralized exchange and automated market maker where people can buy, sell, swap, and trade crypto assets. It is built on the Ethereum blockchain and offers yield farms where people deposit their assets and receive farming rewards in return.
Explore any of these platforms under Trust Wallet's ‘Discover’ section and start yield farming today.
Understanding Liquidity Providing
Liquidity providing involves committing your crypto assets to liquidity pools on DeFi protocols to increase their liquidity and enable efficient trading on the platforms. In exchange, liquidity providers (LPs) earn a share of trading fees and (in many cases) platform tokens as a reward.
Liquidity pools are pools of crypto assets from different users. They facilitate trading on a platform by increasing liquidity in the system and are governed by smart contracts programmed with specific instructions. People who commit their crypto assets to liquidity pools receive rewards in the form of Liquidity Pool Tokens (LPs), distributed according to the amount of crypto assets one contributes to the liquidity pools.
The LP tokens play various roles, depending on the protocols. The main one is to act as a reference point when redeeming your original crypto assets. For instance, you can exchange 500 LP tokens for the same amount of tokens you deposited initially into the liquidity pools.
Further, LP tokens can also be used as collateral in accessing loans in some DeFi protocols or can be reinvested in some yield farms that accept LPs.
While liquidity providing is a great innovation that keeps DeFi rolling, it has its benefits and risks, as shown below.
Risks of Liquidity Providing
You are at risk of impermanent loss as a liquidity provider, especially when there are changes in the prices of assets.
Liquidity pool smart contracts are vulnerable to hacks, which lead to losses for liquidity providers.
Scams like rug pulls, fake tokens, and phishing attacks can happen on a protocol. This is because anyone is allowed to launch smart contracts, exposing people to fake projects.
Benefits of Liquidity Providing
You can potentially generate a profit from committing your crypto assets into liquidity pools.
Liquidity providers bring stability to DeFi platforms and projects like decentralized exchanges.
You help reduce the risks of price spillage on platforms and, in turn, also protect your own assets from losses.
As always, remember to do your own research on a liquidity pool before committing your crypto assets to it.
Exploring Lending and Borrowing
Lending and borrowing exist in the crypto markets, just like in traditional finance. However, you can earn yield quicker and easier by providing your crypto assets to a crypto lending and borrowing platform and receiving interest in return (as opposed to going through the traditional lending markets).
Conversely, you can also use your crypto assets as collateral on various DeFi platforms and get crypto loans through borrowing.
Lending platforms operate on the premise that people can access crypto loans from a collection of pooled crypto assets committed by other crypto holders on the platform. Therefore, anyone can request a loan and then pay it back with interest within the loan period. In this way, lenders can generate yield from the interests accrued over time on the funds they are lending to borrowers.
You can borrow loans from lending platforms using your crypto assets as collateral. Here, you will need to identify the best platform to get your loan from and connect it to your Trust Wallet. Then, you will look at the crypto assets that are accepted as collateral. After this, choose the number of assets you are willing to use for collateral and look at the amounts you can borrow from your platform of choice. Remember that if you default on payment, your collateral will be claimed by the platform to recover the amounts borrowed.
Now, we look at the pros and cons of lending and borrowing.
Pros of Lending and Borrowing
Lending and borrowing on crypto is faster than in traditional finance.
The loans and interests are often more favorable than in traditional finance and have lower transaction fees.
Anyone in the world can participate in the lending and borrowing process as it is accessible to all. No documents required.
Cons of Lending and Borrowing
Most of the DeFi lending and borrowing platforms are unregulated and may expose people to risks.
Over-collateralization is a risk in many lending and borrowing platforms. This is because a platform may charge more collateral as compared to the value of the loan.
Volatility in the crypto markets will impact the yields you make as a crypto lender and can also impact the value of money you pay back as a borrower.
Lastly, we look at staking derivatives as a way of earning yield on crypto.
Staking Derivatives for Yield
Staking derivatives are specific crypto tokens that you receive as rewards for staking. These digital assets represent the value you had staked and can be used on the platforms you had staked on and other ecosystems that would accept the staking derivatives.
These assets came up as solutions to staking, as in the past, people couldn’t use any of the crypto assets they had staked until after the staking period was over.
Another emerging class of derivative-based crypto assets is synthetic staking tokens, which, just like staking derivatives, also get their value from an underlying asset. In this case, the underlying assets are real-world asset groups like stocks, precious metals, and shares. With synthetic staking, you can trade these assets on blockchains.
When it comes to generating yield, staking derivatives can earn you an investment income through their use in different DeFi protocols. You can use them as collateral for loans or even lock them up in yield farms to generate a profit. Synthetic staking, on the other hand, can also generate yields by being locked up in smart contracts that generate rewards over a period of time.
Some benefits and potential risks of staking derivatives are listed below.
Benefits of staking derivatives
You have continued access to your assets and can use it in different ecosystems and settings.
You can earn additional profits by staking your derivatives on platforms that accept them.
Staking derivatives encourage staking activity on blockchains and protocols, therefore increasing security and liquidity.
Potential risks of staking derivatives
There are currently limited opportunities to stake derivatives. This means that the current protocols need time to grow and may be vulnerable to bad actors.
Staking derivatives face market volatility and may lose value depending on internal or external factors.
Staking derivatives are not standardized, so each platform has their own rules for issuing derivatives. This increases user risk.
Closing thoughts
There are various ways to earn yield in the crypto markets, from staking, providing liquidity to protocols and yield farming to lending and borrowing, and staking derivatives.
Regardless of the approach you choose to earn from, it would be best if you always stay informed on emerging issues and trends. You should also always conduct research before participating in any yield-generating activities.
Remember, you can earn yield using the Trust Wallet staking options and by exploring DeFi dApps through Trust Wallet’s Web3 dApp browser or via the Trust Wallet Extension.
Download Trust Wallet today and start earning yield on your crypto today!
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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.
