How to make money in crypto

Inflation has been the talk of the town ever since, but it just got hotter for a few months now. Rising inflation impacts all of us either on a macro or micro level. People now become paranoid about where they should save and invest their money without the risk of value depreciation. Saving in traditional banks now easily gets eaten by inflation.

Much recently comes a new cult hero, called decentralized finance (DeFi) who try to be creative using cryptocurrency and blockchain technology offering a transformation of old traditional financial products. Crypto enthusiasts have been flocking into DeFi to generate a passive revenue stream, which pays a handsome yield return compared with traditional finance in view for some to curb inflation issues.

DeFi is still young and the industry is rapidly evolving. There are a lot of gems (projects/protocols) out there that are worth your time to look into. Period where the DeFi platform is able to achieve a crazy rate of yield may come to an end soon, but the technology and the convenience of the DeFi platform is here to stay for a long time.

Yields are usually split into APR and APY. We often get confused by their similar names, but these values are calculated quite differently when used for interest.

Annual Percentage Rate (APR) : The simple interest earned per year on investment or loans.
Annual Percentage Yield (APY) : The compounded interest earned per year usually on investments. The more frequently it is compounded, the higher the yield will be.

Let’s deep dive into a few main categories of yield generating platforms.
The list is non-exhausted, and every single day, new DeFi protocols come out and challenge to be the leader in the blockchain money markets.

LP Farming Yield

Liquidity Provider (LP) Farming Yield a.k.a Yield Farming is an analogy of letting your crypto assets work for you. UniSwap, SushiSwap, and PancakeSwap are among the leading decentralized cryptocurrency exchanges (DEX) that offer rewards in the form of LP tokens when trading is carried out. In order to start earning, users need to add liquidity by staking a pair of assets (eg. ETH-USDC) in the liquidity pool to get LP tokens. The staked assets generate liquidity for the traders in the DEX platforms and liquidity providers earn a portion of the fees. The LP tokens can stake it into a farm or yield aggregator to make higher returns by receiving the platforms’ native tokens (eg. CAKE, SUSHI). The combined figure from these two components will be the total APR from LP farming.

While regular exchanges use an order book with buyer and seller models, DEXs on the other hand use Automated Market Makers (AMMs) through liquidity pools. AMMs are permissionless and you will not trade against another person. Smart contracts behind AMMs will always aim to buy and sell at the stated price and slippage. DEXs that follow centralized exchange models having order books like Etherdelta were unable to break through to a large user base due to its inefficiency and high fees.

All DEXs have their own unique features that may come appealing for different types of target users. Token chain, Trading fee structure, governance token usability, UI/UX and APR may be one of key deciding factors for individuals to select their own best DEX.

Lending Yield

Lending and borrowing is another popular branch of DeFi. Aave and Compound is the dominant lending protocol in the DeFi space that offers various lending products with relatively competitive yield returns. Users can borrow/deposit their passive crypto assets such as stablecoins or even BTC and ETH to receive annual percentage yield (APY). In return, the lender will get minted tokens that represent principal and interest that can be redeemed for.

The APY may vary according to the amount or ratio that has been borrowed out. If the amount of funds that have been supplied has been borrowed over 80%, the APY surges but only temporarily as borrowers will repay their loans due to high interest rates they must pay. Though the innovation of lending protocols also brings more competition between top protocols. Aave for example provides stable and variable interest rates. Stable interest rates will stay the same for the duration of loans, while variable APY will fluctuate based on market conditions.

How is DeFi lending different from traditional lending? As usual it is permissionless and does not require any identification (KYC). The power of smart contracts automates the process once all the borrow and lend criteria are met. There is no need for you to visit a financial institution such as a bank to finalized your loan.

However, this would also come with a risk. On any investment tool, user due diligence is a very important thing that needs to be set before putting in your money. Recent collapse of Anchor on the Terra blockchain and Celsius have raised a serious eye brow to investors in this space. Anchor offered an attractive rate around 20% on UST (algorithmic TerraUSD stablecoin) for lenders looking to earn stable yields on their stablecoins. When UST lost its $1 peg, users panicked and crashed the whole Terra-Luna ecosystem. Celsius (a Crypto centralised lending platform) halted withdrawals from their platform and resulted in bankruptcy.

Option Strategy Yield

Option strategies are a popular way of generating yield in TradFi with related ETFs above $15 Billion in value. These strategies are mainly weekly covered calls where traders sell a call option of an asset they own to earn the premium as return each week. Now in the crypto world, the option premiums earn up to 1% on average and when this is compounded, it can even reach a sustainable APY of up to 50%.

Due to the complex nature of options trading and the tediousness of having to check trades each week at a specified time, Flynt offers an easy to use portfolio management platform where users can just deposit their assets and the strategy will run for them. This allows long-term HODLers to increase their asset holdings through verified and backtested option strategies. The most important part is that Flynt clients clearly understand where the returns are coming from and that it is a sustainable way of generating interest.

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