Ok, so you’re a winner at online poker. Congrats. Now it’s time to earn a return on those winnings. If you’re playing with crypto or cashing out in crypto, you’re in luck, as there are many ways to earn passive income on your winnings. Some of these methods have minimal risk, while others have substantially more, but hey, that’s true of all investment opportunities. Depending on your risk tolerance, you’ll be able to choose from standard staking options to more risky liquidity pool plays. This guide will cover decentralized finance (DeFi) options and more standard, regulated cryptocurrency exchange options. Let’s kick things off with DeFi.
Decentralized Finance Earning Options
Decentralized finance, or DeFi, is one of the biggest attractions of the cryptocurrency sector, and provides many ways for you to earn passive income on your poker winnings or even just your regular crypto investments. With traditional finance, the bank, lender, exchange, etc., is the one who reaps the rewards of the platform in the form of interest, commissions, or trading fees. With DeFi this is passed to the users, because in DeFi users provide the platform with the tokens available for trading, lending, and borrowing. Since it’s you as a user who provides the liquidity, you’re the one who receives the reward at a proportional rate to your provided assets. Everything within DeFi is run by smart contracts, which users interact with.
DeFi Lending Platforms
There are DeFi lending platforms on just about every blockchain. Some of them are combinations of lending platforms and decentralized exchanges (DEXs). Regardless, the lending platform or lending section works similarly. Lending platforms will have a list of markets for lenders and borrowers, each of which will have interest rates. Rates vary depending on the amount of each asset provided and borrowed, with the lending platform’s protocol automatically rebalancing the interest rates based on what assets are needed and not needed. Lending and borrowing can be done nearly instantaneously, and with no ID checks or account registration, you simply need to connect your crypto wallet.
Suppose there is a ton of WBTC (Wrapped Bitcoin/Bitcoin that’s on Ethereum) on Aave (a DeFi lending platform), and no one is borrowing it (meaning there’s no demand). In that case, the interest rate will drop. But conversely, if there isn’t enough WBTC for the demand to borrow it, then the interest rate increases. There are even cases where you’re incentivized to borrow an asset by there being a positive APR on borrowing. However, those can obviously swing the other way if a lot of people start to borrow that asset.
Lending Platform Risks
There is minimal risk to lending your crypto assets and earning a return; however, borrowing against your loaned digital assets can create liquidation risks. If you’re looking to simply earn on your holdings, simply supply assets and don’t borrow anything against them.
Popular DeFi Lending Platforms and Their Supported Blockchains
- Aave (Ethereum, Polygon, Avalanche, Fantom, Harmony, Optimism, Arbitrum)
- Venus (Binance Smart Chain)
- Compound Finance (Ethereum)
- Benqi (Avalanche)
- Frax Finance (Ethereum, Fantom, Avalanche, Polygon, Arbitrum, Moonbeam, Dogechain, and Binance Smart Chain)
DeFi Liquidity Pools
DeFi liquidity pools are found on DEXs. They’re the pools that users provide liquidity to in exchange for trading fees in the assets provided and rewards in the form of the DEXs token (in most cases). The pools contain two assets so that when a user goes to swap one asset for another, there is a market (pool) that can make it possible. Ideally, a variety of pools make swapping one asset for any other on the platform possible by routing the trade through multiple pools. Liquid pools work because you have to provide both assets in equivalent dollar amounts. This means if you see that the pool for Ethereum and Tether USD has the highest APR and you want to earn that rate, you need to provide both ETH and USDT.
For example, if ETH’s price is $1,000, then you also need to provide $1,000 in USDT, making it $2,000 total, or alternatively, swap half the ETH for USDT for a $1,000 total. Once you provide liquidity, you start accumulating rewards in the form of trading fees (which comes in the assets you provide) and the DEXs token, which will have varying values depending on the DEX. DEXs try to incentivize users to provide liquidity by giving them a high enough return, but this can sometimes tank the value of that token as it floods the market.
Liquidity Pool Risks
The most significant risk with liquidity pools is impermanent loss. Impermanent loss occurs when the value of one of the tokens in the pair goes up in value compared to the other. Because the dollar amounts have to stay equivalent, the amount of the asset going up has to decrease compared to the other asset in the pair.
For example, suppose you’re providing the aforementioned ETH/USDT pair and ETH doubles in value (extreme example). In that case, you’ll have 0.5 ETH ($1,000 USDT value, since 1 ETH is then $2,000) and $1,000 USDT if you go to withdraw your liquidity from the pool, as that maintains your $2,000 balance. It should be noted that impermanent loss only becomes permanent once you withdraw your liquidity. This is because the values constantly fluctuate, making impermanent loss worse at certain times and negligent at others.
If you’re wondering why anyone would provide liquidity to a pool with this risk, the answer is that the rewards often outweigh the potential loss. If you’re getting some crazy 200% APR, then the rewards will mitigate any loss, but this isn’t usually the case. So you should certainly do some due diligence and calculations before providing assets to a DeFi liquidity pool.
Popular DEXs and Their Respective Blockchains
- Uniswap (Ethereum, Arbitrum, Polygon, Optimism, Celo)
- Curve (Ethereum, Arbitrum, Polygon, Optimism, Avalanche, Fantom, Harmony, Kava, Moonbeam, Gnosis, Aurora)
- PancakeSwap (Binance Smart Chain)
- Balancer (Ethereum, Polygon, Arbitrum)
- VVS Finance (Cronos)
Staking is probably the most stable way to earn a return on your crypto. Staking can be done with any asset that works with a proof of stake consensus algorithm. This means assets like Ethereum, Cardano, Polkadot, Binance Coin, and Polygon can be staked. When you stake, you either delegate your holdings to a validator (stake pool), which is the easier option, or become a validator yourself (run a node).
To be a validator, you often need an exorbitant amount of the asset (for example, you need 32 ETH to be an Ethereum validator), along with technical know-how to run the node. Conversely, being a delegator often has a very low barrier to entry (for example, you only need 8 ADA to delegate to a validator on Cardano) and only takes a few clicks from your crypto wallet.
When you stake, you’re helping to secure the blockchain network, so in return, you’re rewarded with the asset you’re staking in proportion to the amount you staked. For example, if you stake ADA on Cardano, you get ADA as the reward, ETH gets you ETH, and so on. If you hold 10% of the amount being staked in the pool, and the overall pool reward was 100 of Asset X, you’d get 10 of Asset X as that’s your share. This will vary depending on the commission set by the validator/stake pool operator. You can check their commissions before choosing where to delegate.
Risks of Staking
Staking is by far the least risky option discussed here. However, with some protocols, your rewards can be slashed if the validator performs bad actions, such as being offline when they’re chosen to produce a block. Still, your principal is never at risk, just your rewards. Typically, staking rewards range from 3%-15% APR depending on the asset.
Crypto Assets You Can Stake
- Cardano (ADA)
- Ethereum (ETH)
- Polkadot (DOT)
- Solana (SOL)
- Fantom (FTM)
- Cosmos (ATOM)
- Cronos (CRO)
- Stellar (XLM)
- Avalanche (AVAX)
- Near Protocol (NEAR)
- Terra (LUNA)
Crypto Exchange Earning Options
Centralized crypto exchanges also provide earning opportunities as DeFi does, but with more regulation and restrictions. If you’re a frequent crypto poker player, you already know to avoid using crypto exchanges for sending and receiving funds from your poker account, as this creates red flags for regulatory bodies to look at. But that doesn’t mean you can’t put aside and invest some of your winnings into a cryptocurrency exchange’s earning programs. There are various ways to earn through centralized exchanges, with many being similar to DeFi, if not an actual DeFi tie-in created by the exchange.
Let’s look at how you can earn passive income on a cryptocurrency exchange.
Crypto Exchange Staking
Crypto exchange staking is no different than staking directly to the blockchain. Depending on the platform, it can have the exact same return rate (assuming the platform isn’t charging you a commission or fee for the service). You simply head over to the exchange’s staking/earning section, choose the asset you want to stake, then follow the steps. Rewards will be paid out to your exchange account, often daily, depending on how the exchange sets it up.
List of Exchanges with Staking Options
- Huobi Global
Crypto Exchange Lending
Again, not much different than DeFi lending, just through a centralized exchange. They are sometimes referred to as savings, vaults, or simply as “Earn.” Depending on the platform, you simply lend your assets to other users of the exchange or the exchange’s partners. In return, you’re paid a varying interest rate with a variable term, with most borrowers competing with each other, meaning you can pick the rate and terms you like best. Like staking, rewards are often paid out daily but are sometimes paid out in a lump sum at the end of the term. The assets available for lending are wide-ranging, with more obscure assets providing higher rates in many cases.
List of Exchanges with Lending
- com Exchange and App
- Huobi Global
DeFi Through a Crypto Exchange
Some exchanges have made it so their customers can access DeFi opportunities directly through the centralized exchange. This is an easier option for those that don’t want to create an external crypto wallet, send their assets from the exchange to said wallet, and then access DeFi. Of course, you’re likely to pay some sort of fee for the service that you wouldn’t if you did the whole process yourself, but that is a trade-off many are willing to make for the convenience. Exchanges can provide anything from DeFi through their exchange; they just have to be willing to set up the infrastructure. Due to the latter, not nearly as many exchanges offer DeFi services as staking and lending, and no US-regulated ones do.
List of Exchanges with DeFi Services Built-In