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3 Ways to Earn Passive Crypto Income in 2022 – The Motley Fool

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by Emma Newbery | Published on March 15, 2022
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Are you earning interest on your crypto assets?
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The ability to earn passive income is one of many attractive features of the cryptocurrency market. Investors can earn rewards on their cryptocurrency holdings in several ways, with varying degrees of risk and technical knowledge. Here are three ways crypto investors can earn passive income in 2022.
Staking is my favorite way to earn interest on crypto because it carries less risk than other options and is relatively easy to do. If your crypto exchange offers staking, you can activate this option at the click of a button. You might need to commit to stake your coins for a set amount of time.
If you can’t stake coins with your crypto exchange, you might consider moving your assets to a wallet or platform that does offer this option. Staking can pay rewards of up to 15% APY or more, depending on various factors, such as the platform and the crypto. For example, I am earning around 10% APY on most of my stake-able assets.
Here’s how staking works and why you can’t stake every cryptocurrency.:
There are risks involved in staking. If you choose to stake your assets from a centralized exchange rather than a crypto wallet, there might be an increased risk of hacking. Plus, some networks punish validators who break the rules, so in the unlikely situation that you choose an unscrupulous validator, this could impact you.
But unlike many aspects of decentralized finance (DeFi) and crypto interest earning, you can see exactly how your rewards are generated. That means you can be more confident there’s nothing dodgy going on.

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We’ve found one company that’s positioned itself perfectly as a long-term picks-and-shovels solution for the broader crypto market — Bitcoin, Dogecoin, and all the others. In fact, you’ve probably used this company’s technology in the past few days, even if you’ve never had an account or even heard of the company before. That’s how prevalent it’s become.
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There are a number of crypto accounts that pay interest, and the rates are often much higher than what you’ll find with a traditional savings account. Unfortunately, those higher rates come with correspondingly high risks.
A lot of platforms that offer interest-bearing crypto accounts do so by lending out your assets and giving you some of the interest that’s paid on the loan. The level of risk depends on who the platform lends your money to and what collateral they require. A low-risk loan to a big financial institution presents a very different risk compared to an uncollateralized loan to someone that may not be able to pay it back.
Lend-earn accounts usually pay higher rates on stablecoins — cryptos that are pegged to traditional assets like the U.S. dollar — than ordinary cryptos. DeFi apps also offer other types of crypto lending. It’s worth watching out for the fees on these apps. If you’re using an Ethereum-based platform, you may find gas fees of more than $50 per transaction wipe out the extra interest you’ll earn.
The biggest risk with many crypto lending products is that your savings aren’t covered by FDIC insurance or other consumer protections. FDIC insurance means that your cash is covered for up to $250,000 in the event of bank failure.
The Securities and Exchange Commission (SEC) recently reached a $100 million settlement with BlockFi, a major crypto lender. The SEC said BlockFi’s interest-earning product constituted a security and should have been registered as such. It also said that BlockFi had made misleading statements “concerning the level of risk in its loan portfolio and lending activity.” We can expect to see similar actions against other crypto lenders in the near future.
Yield farming and adding liquidity to trading pairs on crypto exchanges are better suited to experienced investors. These are common options on decentralized exchanges, and essentially involve contributing your tokens to a trading pool. You’ll usually need an external crypto wallet to participate, and it’s important to pay attention to gas fees.
When you put a pair of tokens into a pool, it generates liquidity tokens that can be farmed to earn more rewards. Rewards are often paid in the platform’s utility token. You might find rewards of over 100% APY on certain crypto projects, especially new ones. That rate may sound tempting, but there are a lot of risks.
When you start to read about liquidity, the first risk you’ll learn about is impermanent loss. This stems from the way liquidity pools calculate the price of assets. It’s possible to reach a situation where the value of the tokens in the liquidity pool is different from the tokens outside the pool. If this happens, you might lose money when you trade your tokens.
Another significant risk is scams. Yield farms that promise sky-high returns may well turn out to be scams. In the recent Squid Game (SQUID) rug pull, the project’s developers drained over $3 million in funds from the liquidity pool, leaving investors with nothing.
Finally, be aware that DeFi tokens can devalue quickly. Let’s say you earn a 100% APY that gets paid in the platform’s utility token. If that platform is creating unlimited numbers of tokens to pay that high interest rate, the tokens you’ve earned may be losing value as fast as you earn them.
Generating passive income on your cryptocurrency assets can be a rewarding option. But as with many things in the cryptocurrency world, it is important to understand the risks before you jump in.
There are hundreds of platforms around the world that are waiting to give you access to thousands of cryptocurrencies. And to find the one that's right for you, you'll need to decide what features that matter most to you.

To help you get started, our independent experts have sifted through the options to bring you some of our best cryptocurrency exchanges for 2022. Check out the list here and get started on your crypto journey, today.
Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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