One of the next bigs steps for the crypto industry is passive income, allowing investors to earn interest or income from their tokens. While traditional mining is now unprofitable for casual users, you can still increase your holdings through a variety of cryptocurrencies, including Bitcoin, Ethereum, EOS, ERC20 tokens, and more.
In traditional finance, most investors and savers put their money into high interest savings accounts, mutual funds, or other interest- or dividend-yielding assets. As the crypto ecosystem evolves, it is also introducing new ways to make passive income that were not available 12-18 months ago.
Crypto-focused funds typically categorize these investment opportunities as “generalized mining,” because they require investors to take an active role in building the respective networks.
Here are 5 of the most popular ways to earn while you HODL:
Running a Lighting Node
If you’re a Bitcoin maximalist, this is one of the best ways to support adoption while setting yourself up for future income. The second-layer scaling solution has grown from 4400 nodes to 7800 in the first quarter of 2019, a 77% increase in a matter of 3 months.
Lightning nodes provide liquidity to the network, allowing payments to travel smoothly from origin to destination. Node operators need to lock Bitcoin into payment channels for long periods of time to increase network capacity and they are rewarded with fees from the payments going through their channels.
BitMEX Research recently published an analysis of the Network from an investment standpoint. Ultimately, the report concluded that BTC holders could make up to 2.75% returns from routing fees in a bull market, but noted that automating the process for non-technically oriented holders will require a lot of development.
If you hold your crypto on exchanges, you can lend it out for margin trading. These coins are lent to leveraged traders through simple interfaces on exchanges such as Bitfinex and Poloniex.
CryptoLend can automate this process if you give them your API keys, or you can do it manually and look for profitable opportunities. Some traders make up to 2% a day lending their coins, but opportunities like that are few and far between. Typically, high lending rates occur during airdrops or forks, when an abnormal number of people want to short an asset.
On Bitfinex alone there are 24 different assets you can lend, including BTC, EOS, LTC, ETH, USDT, NEO and DASH. At present, the best rates are about 0.02% per day, which works out to about 7% a year! The catch is that these opportunities are often for short periods of time, because few traders will lock in a short position for more than 30 days.
Participating in EOS dApps
The EOS ecosystem is growing faster than any other smart contract platform, creating opportunities for investors to get involved.
Staking on EOS dApps requires CPU and RAM computational power, which comes from owning EOS tokens. By staking your tokens you are providing resources to game players and dApp users, in exchange for interest. The two most popular dApp tokens right now are PKE and DICE, which are games for poker and gambling.
For the last two months I’ve been able to make between 0.2% and 1% per day in EOS by staking my tokens, but there’s a catch. Many of these dApps have launched their own tokens, which you need to purchase and stake on their network for payouts in EOS. This creates currency risk, but more reputable dApps have been able to maintain their token prices over time.
This website shows the different dApps where you can earn EOS dividends.
Participating in Ethereum dApps
Ethereum dApps have fewer active users, but that may change moving forward. Fewer users means the returns are smaller, but dApps such as Golem, MakerDao and Augur each allow investors to earn tokens by supporting the network.
Golem allows you to rent out your computing power, MakerDao lets participants to act as “Keepers” to maintain the peg of the Dai token, and Augur requires reporters to stake their REP tokens on the outcome of disputed events. While demand for these services is currently low, it’s a good way to earn a small passive income if you’re already investing in the token, while also providing critical services to help the network succeed.
Acting as a Keeper in the MakerDao ecosystem could be the most attractive opportunity right now, especially since the team has shipped code to automate a bot for you. These bots scan for arbitrage opportunities to maintain the peg of the Dai or facilitate liquidations when the price of ETH falls. During a liquidation, Keepers can byte on the position (letting the network know that there has been a liquidation) and then purchase the collateral at 4% below market rate.
There are few case studies on how profitable this is, since there are only twelve months of data. But just last week a $5 million CDP position was liquidated, making a profitable day for a few lucky Keepers. By some estimates, Keepers have collectively made about $25 million USD since MakerDao was launched.
Staking and Masternodes
The ability to stake coins and run Masternodes has been available for some time, but it’s now becoming easier than ever. Coinbase announced last week that they’ll be adding custody, staking and governance support for many of their assets including Tezos and MakerDao. Institutional clients, and hopefully retail investors in the future, will be able to stake their XTZ to start baking right inside their Coinbase account, but Coinbase will take a percentage of the earnings.
Running a masternode or staking can still yield approximately 10% interest per year, but there’s another catch. By having to hold those coins, you’re subject to currency risk, and the requirements for some masternodes are so high that owning such a large percentage of the total supply makes your holdings somewhat illiquid.
The author is invested in digital assets, including EOS, Bitcoin and Ethereum, which are mentioned in this article.