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In recent years, DeFi had shown tremendous growth and the rise of various DeFi projects has given users more opportunities and potential to earn profits through DeFi. In this series, we broke down 4 different method that users can use to earn profits through DeFi.
Method #1: Staking
Since DeFi eliminates corruption, lack of transparency, and hidden fees, DeFi Staking is considered a safer and less risky way of generating passive revenue than traditional means. DeFi staking means "locking" your crypto tokens into a DeFi smart contract to earn more of those tokens in return. The concept is somewhat similar to the traditional method of having a fixed deposit with your bank, where you will profit through the banks' interest.
For example, Ethereum allows users to lock their ETH into the Ethereum 2.0 smart contract, and anyone who fulfilled the minimum stake amount can participate in staking and earn rewards relative to their staked amount.
Method #2: Liquidity Provider
Liquidity supply can be an extension of the first method. Some DeFi platforms allow users to swap between token pairs. Liquidity Provider (LP) happens when DeFi users place their token into the smart contract controlling the liquidation pool to provide liquidity. Platforms such as Pancakeswap provide this option to exchange one token for another without any intermediary. The token swap can occur via liquidity pools between the token pairs. This is when users can earn rewards by staking their tokens to provide a liquidity pool.
While highly liquid pools containing less volatile assets can help you gain profits passively, be sure to research and analyze data from LP aggregators prior investing as Liquidity Provider does not always guarantee profit.
Method #3: Yield Farming
Yield Farming allows users or farmers can earn rewards when they lend or stake cryptocurrency to contribute liquidity to the market. Like the traditional bank loan, these tokens can be considered a share in a traditional finance system and enable owners to debate, propose, and vote on how the protocol is used and changed.
Method #4: Lending
Like anything else, users can lend their digital assets to a platform by locking or staking their digital assets into a smart contract. The lending platforms will then pay users an APY proportional to the amount of locked assets. DeFi Lending Platform might be the easiest, less complicated, and safest way to make a profit through DeFi because borrowers have to lock up collateral to borrow assets, reducing the risk of losing the locked digital asset
Stay tuned and see you again next time!
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