So you bought some crypto, now what?
You finally decided to dip your toe in and buy some Bitcoin or Ether, and perhaps you even bought some Doge. It was fun, but now what? Markets aren’t as exciting nowadays and you don’t really know what to do with it.
Earn some passive income. We’ll show you how.
There are several options for earning income on your crypto if you know where to look. This article will just focus on the crypto lenders/custodians, those companies which look after or “custody” your crypto on your behalf.
Check the latest rates: Nexo; BlockFi; Celsius; Ledn; Hodlnaut; Crypto.com Earn; Yield App
Tip: Some lenders provide yield in their own crypto token, usually for extra yield, rather than the native asset such as BTC, ETH etc. Make sure to compare like with like.
Relative to your bank account which is likely earning 0%, or 0.1% if you’re lucky, these are certainly attractive yields but if you aren’t thinking about the next question, you should be.
That yield is attractive but what are the risks?
Risks
Crypto lenders usually take your crypto and use it elsewhere. They might either lend it to other institutions, allocated it to DeFi (decentralised finance) and could even take some leveraged bets. It’s how they pay for the yields. This introduces risk and if the lender manages this risk poorly you may not get your crypto back.
For example, crypto lender Cred went bankrupt as a result of bad loans and some bad bets.
Lenders are also exposed to potential hacks where criminals steal the crypto deposits if there is a flaw or mishap in their security practices. While seemingly unlikely this has happened many times in the past. In the worst cases this could result in the lender going insolvent and being unable to honour your deposit.
To offset this risk often the crypto lenders will have some form of insurance. However, this usually only covers a portion of the assets they hold, so there is generally quite a lot of residual exposure.
Yield without all the Risks
Nexus Mutual, as its name suggests, is a mutual where members share risk with each other. They offer protection against the inherent risks in crypto lenders, also called custodians, whereby you can get a claim payment if either:
- the lender gets hacked and you’re forced to take a loss, or
- withdrawals from the custodian are halted for 90 or more days.
The last clause is designed to be a catch all. If the custodian runs into serious issues for for whatever reason and can no longer repay its customers then you can make a claim.
High yields without all the risk.
Net yields after the cost of cover can be 2.5%-4% on BTC and ETH, with 6%–7.5% on stablecoins.
Note: Crypto.com and Yield.app have just been listed on Nexus Mutual. Costs will come down over the coming weeks as staking increases.
How to buy Cover
- You’ll need an Ethereum wallet, like Metamask with:
a) a small amount of Ether for network fees (gas), and
b) either some more ETH or DAI (a USD stablecoin) to pay for the cover. - Sign up as a member of the mutual here, by paying a small 0.002 ETH membership fee and completing KYC.
- Go to the buy cover page and select the custodian as appropriate.
- Get a quote, by choosing the cover currency and time period.
You’ll likely want to choose ETH if you are depositing BTC or some other non-stablecoin crypto. Otherwise choose DAI. It doesn’t matter that the currency is different to what you’ve actually deposited into the lender as you’ll get paid the claim in the cover currency based on what you actually lost.
- Approve DAI (if necessary), this is a one-off transaction.
- Approve the buy cover transaction.
Combining crypto lenders with Custody Cover from Nexus Mutual is one of the safest ways to earn yield on your crypto.
