How to make passive income: crypto lending on Arbitrum blockchain.
Unlock the Power of Cryptocurrency: Discover How Ordinary Investors Can Safeguard Savings and Generate Passive Income! Learn how retail investors like you can thrive in the dynamic world of cryptocurrencies while protecting against inflation and earning steady returns. Don’t miss out this opportunity to learn about advanced yet resilient financial instruments in decentralized finance (DeFi) ecosystem.
Introduction
This item continues a series of articles “cryptocurrencies for beginners”. Or it’s better to say, “cryptocurrencies for regular people, not crypto geeks”. You can recall content of previous articles here:
So, we now have an idea of what cryptocurrencies are, what cryptocurrencies generally exist, and what are the ways to use them in everyday life at the moment.
And it turns out there are quite a lot of people who are already involved in the world of cryptocurrencies. That is, those who have the listed knowledge. According to the most conservative estimates, there are more than 100 million active users of cryptocurrencies over the world. What is important for us here is not the number, but the fact that the open world of cryptocurrencies has generated a huge number of retail investors in cryptocurrencies. To enter this cryptocurrency ecosystem and begin to actively interact with it, you do not need to present documents, go through KYC procedures, sign agreements with banks or a broker, pay regular commissions to the broker, etc. The entry level turned out to be lower than ever, both in terms of bureaucratic delays and in terms of financial resources with which ordinaries can start investing in cryptocurrencies. And the trend suggests that the number of retail investors from all over the world will only grow.
But not all of these crypto investors can and want to be active traders or actively manage a portfolio of cryptocurrencies (although I will assume that now the majority are active participants).
Below in the text, I will try to tell you how an ordinary person can solve the following trending issues using cryptocurrency financial instruments:
- protect yourself from inflation,
- keep savings and
- make passive income.
Let’s get started…
The portrait of a retail investor
So, I’m addressing you as the retail investor. As you can see, there are many of us, and there will be even more. What unites us all?
1. We don’t want to spend a lot of time on crypto.
Oh, my Lord, this is not a hobby or a job. It’s just savings. He/She deposited and forgot about it. Well, maybe once a month He/She takes a look at how much interest had accrued and switched to another product where more interest accrues at a moment… It’s just that there is no enthusiasm to comprehend in details what Yield farming, Staking, Liquid pools, Liquid staking, Leverage lending, Synthetics, Yield aggregators are … I don’t want to study technical indicators of blockchains, know what consensus mechanisms exist, analyze on-chain metrics and spend a lot of time analyzing literally thousands of DeFi proposals. Why do I need to know all this? I am not going to be an active cryptocurrency portfolio manager.
2. We operate with small amounts.
Firstly, we understand that cryptocurrencies carry a fairly high degree of risk. And these risks are primarily due to unclear counties governments policies towards the crypto industry and the lack of legislative and legal practice in this sector around the world. Therefore, no one will definitely invest their last savings in cryptocurrency.
Secondly, we simply do not possess significant financial resources. Our cryptocurrency investment budget is limited to amounts ranging from several hundred to several thousand US dollars.
3. We want a stable level of passive income that exceeds the inflation rate
My initial issue is that I want to deposit my several hundred to several thousand US dollars in some financial product and then forget about it for a while. The purpose of this step is at least to keep my savings and protect myself from inflation, at most to earn extra money passively. An ordinary person simply needs a stable level of income that exceeds the level of inflation, without significant volatility of the financial instrument used, and so that at any time he can withdraw his funds as if from a bank and convert them back into fiat currency.
These are the simple requirements from us, ordinary retail investors.
How to meet these requirements with cryptocurrencies?
Before we start investing, we need to choose the blockchain on which we will operate. We need a stable blockchain platform with a developed ecosystem of decentralized applications.
You can use the following resources to analyze and select the appropriate blockchain platform.
https://blockchainmetrics.online
Next is some fun arithmetic.
It is known that for every transaction you carry out (be it a transfer of funds between wallets, exchange of cryptocurrencies, deposit funds in a financial product, etc.), the blockchain takes a certain fee from you, the size of which varies dynamically. And we said above that we would like to be able to move funds between different financial products once a month. Since the average retail investor operates with small amounts (say, from $300), transaction costs should at least not exceed the income received per month.
If we are talking about the 9% APR of a financial product, then per month at this rate the investor will receive income to $2.25. Let’s assume that losing up to 10% of this amount of income on transactions is acceptable. Those, we are talking about the fact that the cost of the operation “deposit funds — withdraw funds” should not exceed $0.22.
Thus, we should consider blockchains with an average transaction fee of no more than $0.1
If we consider the leading smart-contract blockchain platforms that provide users with DeFi application services, then over the last week the rating looks like this:
As can be seen from this rating, the most attractive blockchain platform for retail investors in terms of the size of transaction fees today are Arbitrum, Fantom and Polygon.
Let’s start research of investments options with Arbitrum blockchain.
Our requirements regarding the absence of volatility and APR, which is significantly higher than the inflation rate expressed in US dollars, are met by a financial instrument “stablecoin lending”.
Now we need DeFi applications that provide such an instrument.
Leading DeFi applications that provide stablecoin lendings on the Arbitrum platform can be viewed here:
https://defillama.com/protocols/Lending/Arbitrum
It is better to choose those protocols that operate on various blockchain platforms. These today include the following:
AAVE (https://app.aave.com)
COMPOUND (https://app.compound.finance)
RADIANT (https://app.radiant.capital)
UNITUS (https://app.unitus.finance)
Thus, today a retail investor on the Arbitrum platform will be able to place his conditional $300 on the following conditions, which meet his base needs (these rates were relevant at the time of writing this article and may change significantly at the time of reading):
Another cryptocurrency instrument that meets the initial requirements of an ordinary retail investor who is looking for ways to protect their savings from inflation is stablecoins liquidity pools.
However, the level of knowledge required to start investing in this product is already significantly higher than the knowledge required to invest in stablecoin lendings. Firstly, you need to understand how liquidity pools work and what conversion range to set for specific cryptocurrencies for a specific period of time. If the settings for the liquidity pool are set incorrectly, you simply will not earn anything, you will only lose on transactions fees. However, in a case of stablecoins liquidity pools, you definitely won’t lose due to significant fluctuations in the cryptocurrency rates. I present this information here solely to compare the possible profitability of this instrument and the stablecoin lendings instrument. Today, the leading protocol on the Arbitrum blockchain that provides the service for placing funds in stablecoins liquidity pools is the decentralized application UNISWAP (https://app.uniswap.org). At the time of writing this article, the estimated yield on stablecoins liquidity pools is as follows (these yield rates were relevant at the time of writing this article and may change significantly at the time of reading):
Somehow like this….
Conclusion
As we conclude, it’s evident that the landscape of stable passive income with cryptocurrencies is evolving rapidly, providing accessible avenues for individuals to safeguard their savings, beat inflation, and potentially generate passive income. In essence, cryptocurrencies have democratized finance, empowering ordinary individuals to take control of their financial resilience.
For the retail investor, the opportunity of cryptocurrencies lies not in the complexities of blockchain technologies or the intricacies of trading strategies, but rather in the ease of access and the potential for steady returns. In these terms, for the retail investor with small amount is crucial to leverage stable blockchains with inconsiderable fees, not exceeding $0.1 for a transaction. And today by leveraging such platforms like Arbitrum retail investors already are able to navigate through various leading DeFi protocols such as AAVE, COMPOUND, RADIANT, and UNITUS to secure favorable terms for their investments.
Retail investors should prioritize exploring financial instruments like stablecoin lending and providing liquidity to decentralized exchanges due to their potential to offer stable returns and mitigate risks associated with volatility in traditional cryptocurrency markets.
HOWEVER, please keep in mind that the content of this article is meant purely for entertainment and informational purposes only, and should not be relied upon as financial, investment or any other professional or other advice. Please, mind that the content and information herein is given not to induce or to attempt to induce anyone to buy, sell or hold any cryptocurrency or carry out any other transactions with cryptocurrencies.
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