An Extensive Menu Of Yield Generation
Crypto is well-known among insiders for its abundance of passive income opportunities. Sadly, newcomers and speculators are still locked onto price like a Staffordshire Bull Terrier. However, the Crypto economy has endless passive income opportunities, and those who discover and utilize them can secure ongoing profits. In a prolonged bear market, Crypto assets can be sold for stablecoins.
DeFi investors must view their portfolios as collateral, not as coins or tokens. This can be difficult for those who form a love relationship with their bags. Holding on to an altcoin portfolio throughout a bear market is unwise. This dynamic will soften as Bitcoin and altcoins gain additional acceptance from TradFi.
As institutions get behind the Crypto space, stability increases. Along with this dynamic comes a taming in price, promoting the idea of staking and liquidity mining. Both of these ideas have their benefits. However, any opportunity to earn yield simultaneously introduces risk. This has to be understood and appreciated before any investments are made. Many investors only consider the risks involved once they have been affected by them.
For The More Risk-Averse
Staking is one of the best passive income opportunities with minimal risk. Let me clarify: I am speaking of authentic Proof-of-Stake protocols, not “staking” opportunities provided via a mobile app or other investment product. Authentic Proof-of-Stake means the coins or tokens are delegated and locked on-chain. Furthermore, the investor controls the private keys and maintains control of his assets.
This is an excellent strategy for investors with significant capital, as they can earn a healthy income by utilizing it. The risks are minimal, and the returns are lucrative, depending on your asset of choice. Projects such as Polkadot, Injective Protocol, and others offer healthy staking rewards. I always like to mix it up by leveraging blue chips and micro-caps. Risk management needs to be a priority, though.
Depending on the asset and the protocol, assets are readily available. Some options require a more extended unlocking period. Investors who view their portfolio as collateral can swap assets for alternative assets when more favorable opportunities arise on alternative blockchains. As I said, you have to cut the emotional connection. It’s an imperative aspect of DeFi.
Staking remains an exceptional option for investors with significant capital. It’s effortless and moderately risk-averse. DeFi, on the other hand, requires some oversight and management.
Greater Gains
The world of liquidity mining can offer some fantastic returns, which are enticing, especially to newcomers. TradFi investors are familiar with a 10% APR at best. The idea of hundreds of percent can appear like a dream come true. However, these returns are not guaranteed and do fluctuate. The concept of impermanent loss also needs to be factored in. Providing liquidity in the form of LP tokens is a lot more risky than Proof-of-Stake opportunities.
Once again, it’s better to mix it up regarding your exposure. Depending on your risk profile, you can allocate accordingly. For example, a more risk-averse investor can allocate 70% to blue chip Proof-of-Stake projects, 15% to micro-caps, and 15% to liquidity mining. Risk can be further mitigated regarding the exposure to liquidity mining. Providing liquidity in the form of a single asset is a lot less risky.
Single-asset vaults with significant yields are much more challenging to come by. However, a good opportunity can provide a relatively more passive user experience than traditional DeFi pairings. An investor must always factor in divergence loss with liquidity pairs, as it is part of the process and unavoidable. Being selective regarding pairing strategies will, of course, help reduce the effects.
Final Thoughts
Crypto investment strategies must be planned by incorporating risk management and capital deployment. This is especially true of DeFi investment strategies. Liquidity pools can also be hacked, another essential element to consider. If there’s money to be made, risk is present. There’s no escaping it. Liquidity mining is significantly more risky than staking. However, the gains are available and provide an acceptable risk/reward ratio.
Every investor needs to analyze their risk appetite and make investment decisions accordingly. Once again, diversifying between the two opportunities based on your risk profile is a good idea. Please conduct private research and due diligence. This is by no means investment advice but purely my viewpoint. See you next time!
Sapphire Crypto 