As the ecosystem around cryptocurrencies matures, an increasing number of ways to put your crypto holdings to work are emerging. These include everything from deeply embedded protocols unique to particular blockchains, right through to fully-managed Yield as a Service (YaaS) products from financial service providers specialized in cryptocurrencies like AQRU.
Of course, much like anything from the world of traditional finance, what works best for you hinges on a number of factors. Some might feel comfortable with complex financial instruments and the need to actively manage their portfolio. Others simply don’t have the time, energy, or know-how to deal with the learning and management burden.
Indeed, for most of us, a hands-free managed approach is the ideal solution. Especially in the fast-moving world of cryptocurrency where the pace of change is enough of a headache alone. With complex protocols, volatile liquidity, and difficult-to-understand risk profiles, what starts out as a fun exercise can quickly turn into a nightmare experience. But that’s not to say having a high-level overview of what’s out there isn’t beneficial.
Thus, here we’re going to take a look at a couple of interesting ways cryptocurrency can be put to work for you, working from hardest to easiest.
Method One: Staking your Crypto
The idea of ‘staking’ as it applies to crypto is, to the great majority of us, a relatively foreign concept since it simply doesn’t exist in traditional currencies that rely on centralized banks. However, while this might seem weird and incomprehensible at first, rest assured that it’s not too hard to understand once you master a few basic concepts.
The first of these is to understand how Ethereum blockchains arrive at a consensus about validating transactions. This is achieved through a concept called Proof of Stake (PoS), and it literally requires validators to stake their own currency in order to become a ‘validator’ on the blockchain. The idea here is that, if you attempt to cheat the system, you stand to lose the stake that you put up.
This stands in contrast to blockchains like Bitcoin’s, which famously rely on ‘miners’ brute-forcing their way through cryptographic puzzles in competition with each other. Instead, PoS works by stakeholders locking up their funds for a defined period of time which then earns them the right to participate in the consensus process as a validator, during which validators are selected at random, and rewarded for their participation.
Admittedly, this does seem a little complex to understand, and that’s because it is, and a full understanding requires a deep dive into the underlying protocols. However, the high-level understanding to take away here is that people who participate in securing the blockchain are rewarded for doing so.
The one other complicating factor here is that calculating how much you can earn by staking is a constantly moving target. This is especially so if you use a staking service (essential, unless you have a spare 32 ETH, or around $50,000, you’re willing to stake) where an endless array of fee structures and minimums complicates things even further.
Method Two: Lending your Crypto
Moving back into more familiar territory now, one somewhat familiar way to put your crypto holdings to work is to lend them out in return for interest. However, while this might sound simple enough on the surface, actually doing it is a whole other matter.
For starters, the first thing you have to grapple with is the difference between DeFi and CeFi (Decentralized Finance and Centralized Finance, respectively). What particular model you choose not only affects your risk profile (for example, it’s easier to verify non-crypto collateral using a centralized service, similar to a bank), but also what types of loans are available to you.
Again, here we start to find esoteric instruments that resemble something cooked up by investment banking lawyers. As an example, within the sphere of DeFi there’s a loan category known as ‘flash loans.’ These are loans that are, almost literally, repaid at the same time that they’re taken out.
Of course, the reasons for their existence aren’t that important here (for the curious, one common use case is for executing large arbitrage trades). However, the main point to understand here is that if you’re going to get into lending out your crypto, loans might not be the simplest way, even if they have that comforting familiarity. Not only are there a myriad of loan structures around, but each comes with peculiarities when it comes to risk vs reward, liquidity, and a range of other factors.
Method Three: The Easy Way with AQRU
Moving on to something better suited to most of us, another popular method for putting your crypto to work is through a managed service from AQRU. This managed service is fast catching on as one of the more reasonable approaches for the everyday investor to gain exposure to the types of instruments we’ve covered here.
The way it works is not dissimilar to a traditional bank account. You deposit funds, and AQRU then lends against your deposit. However, unlike the traditional bank account, the interest rates available are far more attractive, ranging from 7% on the most popular coins like Ethereum and Bitcoin, going right up to 12% on stablecoins like USD Coin (USDC) and Tether (USDT).
Additionally, AQRU also participates in other activities, like supporting decentralized exchanges through staking. And this is all done in a managed way to optimize yields while keeping the risk under control. This gives it the ability to not just pay out high yields, but also retain insurance policies on deposits lent out to decentralized exchanges.
As for how complicated it is to get started, it isn’t, and this is the key differentiator. Aside from a mandatory KYC process, the rest is as simple as signing up for any other service, setting it a world apart from DIY crypto lending and staking, both in risk, and ease of use.
Sign up, risk-free today at AQRU.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
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