What Does DeFi Mean & How to Earn Passive Income

Not so long ago, blockchain assets had only limited uses at the time of crypto development. Even though some were able to earn millions during this stage, now everyone can earn passive income by knowing some tips in this field. These assets could be traded or stored on exchanges and digital wallets. However, the implementation of DeFi delivered new ways and maximised returns, even when your assets simply stay in your account.

In case you have already been in the crypto world, you might be familiar with the term “HODL”, which has also become one of the most popular strategies in crypto for buying and holding tokens regardless of price swings. Using Decentralised Finance, token holders now have many new ways of getting a stable passive income by making their idle assets work on lending protocols, liquidity pools as well as decentralised exchanges. And the list is counting.

Just like replenishing fiat funds, crypto holders can park their digital funds within a vast range of decentralised platforms, receiving interest payments. To be more specific, these rates offered in digital assets are higher than traditional finance, which makes it an appealing option for most people.

This is why earning passive income with DeFi can become a highly valuable investment strategy, especially during market turbulence. This small guide will help you learn more about DeFi, its benefits and ways of creating stable passive income.

What Does DeFi Mean?

Before diving into benefits, let’s first explore the meaning of DeFi for those unfamiliar with the term. DeFi is the abbreviation for Decentralised Finance. To put it simply, DeFi represents financial products and services that work on a decentralised software network without any central authority or intermediary responsible for executing transactions. DeFi users work through a peer-to-peer (P2P) concept.

DeFi is known as a more appealing and effective alternative to the traditional financial system, which is run by financial organisations like banks, central banks, credit unions and others. In contrast to regular systems, the DeFi protocol supports operations including payments, loans and transfers, which runs on the blockchain ledger and works via smart contracts, which are self-executed when all terms are followed.

Thanks to these technologies, DeFi seems to create a global financial system that will aid transparency, reduce bureaucracy, increase safety, and be cheaper and accessible to everyone.

What Are The Advantages Of DeFi

Just like cryptocurrencies, DeFi is named as an alternative to fiat-based platforms. Through this technology, financial operations such as lending, loaning and staking are performed without the need of an intermediary. Since DeFi platforms use smart contracts for transactions, they also possess higher efficiency, lower costs as well as potentially minimise the risk of default by debtors. By challenging regular fiat currencies, experts believe that DeFi will open a new world of financial opportunities available to everyone.

How Does DeFi Passive Income Work

DeFi has quickly become one of the most appealing applications of blockchain technology. These platforms allow anyone interested in the world of cryptocurrencies but aren’t ready to make a high investment – especially during this situation on the market – DeFi’s opportunities for passive income can be an excellent choice. In addition, there are many applications and software tools, like valktech, helping users monitor their assets and increase their income online.

Even though there are many ways of allowing users to earn passive money through DeFi, we will show only the most effective, safe and affordable ones below.

Deposit Crypto For An APY

One of the easiest methods to get passive income with DeFi is to earn an interest in return for depositing your crypto or other digital assets into an account. It works in a similar way to having a fiat money saving account which also offers interest. Since interest rates in the fiat market are low in today’s situation, DeFi can become a great choice. Using these decentralised platforms, you get a much higher chance for higher returns compared to a high street bank.

DeFi Lending

Lending is also a well-known method of earning a passive income with decentralised finances. This is why users can find a variety of platforms specially designed for this type of crypto lending protocol.

Working in a similar way to staking, users are able to earn passive income through DeFi lending by depositing their assets and crypto into an account for some period of time. This works by lending your assets to a platform which allows you to lease them out to other crypto borrowers. This concept also provides you interest in return. Ideally, smart contracts will distribute your assets in proportion to the number of assets you hold.

Yield Farming

Yield is a great way for anyone to hold assets and not use them. This method works by parking assets in exchange for interest or other types of rewards. In other words, DeFi platform users can place their funds in a liquidity pool. When these assets are locked via a smart contract in a decentralised application (Dapp), users get a fee or interest, which allows their assets to be freely used within this platform by borrowing and selling.

Become A Liquidity Provider

The final way of getting a passive income through DeFi is by becoming a Liquidity Provider (LP). In contrast to staking and yield farming, which involves the use of your assets to confirm transactions or fund crypto loans, liquidity providers work by another principle. They should ensure that token swaps happen in a more efficient and rapid way on a decentralised exchange (DEX).

Final Thoughts

As you can see, DeFi is going to become a great alternative to regular finance platforms boosting efficiency, speed, safety and transparency. In addition, DeFi platforms also allow users from all across the world to get a stable passive income with higher interest rates than with fiat savings. Given the current state of the crypto market, investing in DeFi is the best way to keep your digital assets valuable in the long term. 

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