Passive Crypto Income: 4 Tips for New Investors

Summary

It's time to familiarize yourself with four profitable strategies that new investors can employ to master the impact of passive crypto income, including liquidity yield farming, AI crypto trading, staking, and profit sharing tokens. It may just be the tip of the iceberg, but once you find your footing in the digital asset investment realm, you'll probably find yourself among good company, part of a community of millions of crypto holders and traders who recognize the incredible prospects waiting in tokens and Web3 wallets.

Table of Contents

Digital Asset Yield Farming
Automated AI Crypto Trading
Crypto Staking Platforms
Tokens That Pay Dividends

For those with a keen eye and an open mind, passive crypto income is like a secret weapon that opens doors to prosperity with little to no effort. Putting your financial resources to work for shared good is a noble cause. Your spare capital can be deployed into anything in the world, so putting it in a vehicle you trust, understand, and are rewarded for are important.

Why settle for meager returns from traditional savings accounts or stock dividends when you can leverage the power of digital assets to accumulate riches by barely lifting a finger?

When you pool your money, you're essentially providing liquidity for other traders who need access to capital. For instance, if you supply Wrapped Bitcoin (WBTC) to a liquidity pool, other traders can use that WBTC to make transactions while depositing USDT in return. In exchange for your contribution, you earn fees and additional USDT. The cherry on top? There are no middlemen involved; every transaction is handled directly through a smart contract, making the process efficient and transparent.

If you’re not sure where to start, consider the following four suggestions to maximize earnings, and mitigate risks.

Digital Asset Yield Farming

Tip 1

Use Layer 2 scaling solutions like Polygon or Solana, which often have lower fees compared to Ethereum's mainnet in combination with tools to time your transactions during periods of lower gas fees to save money and improve your overall yield.

What to know

Gas fee reduction strategies are particularly effective on platforms like Polygon and Solana, both of which are designed to facilitate low-cost transactions, significantly enhancing the yield farming experience.

Gwei is a unit of measurement used to express gas prices on the Ethereum network. 1 Gwei is equal to 0.000000001 ETH. Think of it as a way to quantify the cost of making transactions. Just like you might pay for gas at a gas station to fuel your car, you pay Gwei to fuel your transactions on digital asset networks.

High gas fees can erode earnings, especially when farmers frequently buy, sell, or move assets to optimize their strategies. Lower gas fees allow for more transactions without diminishing returns, enabling farmers to compound their yields more effectively.

Polygon, at the time of writing this article, boasts an average gas fee in the last 7 days of US$0.013 per transaction, compared to Ethereum's typical costs of US$4.452 or more during peak times. Similarly, Solana has gained attention for its low fees, often under US$0.141 per transaction, coupled with high throughput capabilities.

Timing transactions during periods of lower gas fees is also a critical strategy in yield farming, and several tools can help optimize this process. Popular sites such as the Etherscan Gastracker or the Blocknative Gas Estimator, which provide real-time data on current gas prices, historical trends, and forward looking predictions.

Of course, real passive crypto income implies traders don’t need to constantly monitor data patterns, which is where automation tools that integrate gas fee tracking functions come into play. Take time to research tools that like GasHawk can automatically execute trades when gas prices drop below a predefined threshold. Some advanced DeFi platforms offer built-in features that optimize gas usage during transactions, further enhancing efficiency.

Automated AI Crypto Trading

Tip 2

Explore tools governed by DAOs that harness AI and reinforcement learning (RL) to adapt and optimize crypto trading strategies based on real-time market interactions. Well-regarded AI passive income platforms with community-driven initiatives offer greater transparency and confidence in their reliability and performance.

What to know

Tackling analysis on the intersection of AI and crypto, a recent report by Messari reflected on how “discovery and diligence of these new deployments can be a massive undertaking for an onchain participant.”

A fresh DAO-backed project in the closed alpha phase, Wayfinder, uses AI agents to combine application discovery with the execution of user intent into a single protocol. Anyone interested in AI crypto trading could reduce the amount of time and effort needed to make trades by finding the most profitable swaps, and then following through to make the swap within the same platform, almost the same way you interact with an AI system like ChatGPT. AI agents can analyze data, make decisions, and learn from experiences, often mimicking human cognitive functions.

Another way to uncover the right vehicles for earning AI passive income that goes a step further towards virtually hands-off trading, would be giving AeguraDEX a try, which is also governed by a DAO.

The platform’s two cornerstone crypto products are ideal for new investors who want to benefit from Aeugra’s proprietary AI-powered system, TradingX, that runs on routinely optimized algorithms carefully monitored by a team of leading quants and developers. Choose the Aegura Managed Trading product for an express gateway to profit sharing from the firm’s gains as a successful Binance Market Maker. Or, if you want a good option for your long-term investment strategy, their Aegura Index Fund provides the simplicity of instant exposure to a curated basket of leading digital assets.

Crypto Staking Platforms

Tip 3

Consider joining crypto staking pools - collaborative ventures that allow multiple digital asset holders to combine their resources in order to stake collectively.

What to know

When you stake your coins, you lock them up in a digital wallet to support the operations of a blockchain network. In return, you earn rewards, typically in the form of additional coins. Unlike traditional mining, which is known as Proof of Work, Proof of Stake allows you to generate passive crypto income based on the number of coins you hold and stake.

Crypto staking platforms are services or exchanges that facilitate the staking process for users. They provide the infrastructure needed for individuals to stake digital assets without needing to run their own nodes.

When a crypto staking pool successfully validates a block, the rewards are distributed among all contributors based on the amount staked. This creates a more stable and predictable income stream compared to solo staking, which can be subject to the whims of network activity and block validation luck.

For new investors looking to find and join staking pools, the process is relatively straightforward. Start by researching reputable digital assets that support staking, such as Ethereum, Cardano or Polkadot. Once you’ve selected a cryptocurrency, look for established staking platforms or exchanges that offer staking pool services. Popular platforms include Binance, Kraken and Coinbase, which provide user-friendly interfaces and detailed information on their staking pools.

Some pools may provide unique incentives, such as bonus rewards for long-term stakers or loyalty programs. Always pay attention to the pool’s reputation within the community, as these factors can influence the consistency of your earnings. Advanced options like liquid staking pools, which allow you to stake while retaining liquidity through derivative tokens, can also enhance profitability.

Tokens That Pay Dividends

Tip 4

Not all tokenized assets are created equal. When exploring dividend-paying tokens and real-world asset (RWA) tokenization, thoroughly vet the underlying asset's performance and management. Understanding the quality and potential of the underlying asset is essential to assess the sustainability of dividends.

What to know

Dividend-paying tokens allow investors to earn passive crypto income similar to traditional equities. These tokens distribute a portion of their earnings, transaction fees, or other revenue streams directly to holders, creating a compelling incentive for long-term investment.

One of the most well-known examples is KuCoin Shares (KCS), a profit-sharing token which enables holders to earn a share of the platform's trading fees. As users trade on the KuCoin exchange, a portion of the fees collected is distributed to KCS holders, proportional to their holdings, incentivizing users to hold onto their tokens rather than sell them immediately.

There have been several traditional businesses (both financial and non-financial) venturing into the crypto space, offering dividends through tokenized assets. Tokens can be linked to real-world assets or revenue-generating activities, allowing holders to receive dividends based on the entity’s actual profits. This model can enhance the appeal of dividend-paying tokens for investors new to the DeFi space as it ties value to tangible outcomes.

Launched in March 2024, BlackRock's BUIDL initiative is significant for several reasons, especially in the context of developing infrastructure and investment strategies centered around tokenization of real-world assets (RWA). BUIDL tokenizes securities for institutional investors, and CoinDesk attributes BUILD to be “the largest blockchain-based money market fund, backed by short-term U.S. Treasuries and has $520 million of assets.”

Choose Your Passive Crypto Income Path Wisely

A typical savings account may produce one to three percent annual percentage yield (APY), and the bank will use your money to fund their various investments. This is an extremely opaque process and frequently leads to dismal returns. The upside - your money may be guaranteed by the bank, and in most cases is recoverable even if the bank runs into trouble. Low risk, low return.

Yields are higher in the digital asset ecosystem for many reasons. Smart traders take advantage of fewer (and often no) middlemen, extremely transparent allocation processes, higher volatility, and greater need for capital.

There are hundreds of popular trading pairs, and thousands of lesser known ones. Research and tools guide traders on the best pools to deploy capital to and which assets to deploy.

Another option is working with a firm who actively manages the trading of your funds. This is more direct and understandable. You entrust them with the management of your funds, and they return the profits to you.

Crypto market makers are firms who manage funds for trading purposes, similar to providing liquidity in pools. Market makers provide liquidity on order books, ensuring other traders can buy and sell assets they want around the clock. These market makers are rewarded by setting the price of the assets bought and sold. The more assets under management (AUM) they have, the more effective they can be at providing liquidity in these markets. Exchanges also reward large market makers by distributing rewards and lower commissions, and investors like you are who cash in on their success.