Decentralised Finance - The Live Life Project

Investing in cryptocurrency – how much we made in one week with Celsius Wallet

Tara Decentralised Finance, Passive income ideas June 1, 2021May 9, 2022best cryptocurrency, Celsius crypto review, DeFi

We’re going to share how we go and get ourselves some free money each week using the DeFi crypto app called Celsius. We’ll review the app – it’s features and safety and what we learned (and how much moolah we made) in the past week using the Celsius Wallet to earn passive income from cryptocurrency.

This is part 4 in our series DeFi: the new financial frontier where we explore DeFi crypto and the new rules of making passive money online. We’ll post links to Part 1 to 3 of our DeFi series at the bottom of this post.

What is Celsius wallet?

Celsius is a DeFi crypto platform that provides personal financial services – like banks do – but instead for investing in cryptocurrency. The company, headquartered in London, focuses on the financial services they say the big banks have forgotten about – fair interest rates, zero fees and fast transactions. Celsius have existed since 2017 but their service offerings have exploded over the last 12 months as more people enter the decentralised finance market to find banking alternatives to earn interest on their hard earned savings. The Celsius platform is now available to users in more than 100 countries around the world includ.ing Australia, UK, Canada – all the usual suspects

Celsius operates mainly through Celsius app, which is available for iOS and Android and is where you can access their financial services. Although it’s not strictly a crypto wallet, the app acts like a crypto wallet is some of its functions and features. We downloaded the Celsius app a week ago and started to use their services.

What can you use Celsius wallet for?

Earn interest on DeFi crypto and Stablecoins

This is the main reason we decided to give Celsius wallet a go. Frankly, we’re tired of earning zero percent interest on money in the bank. Low interest and growing inflation are a feature of the new money game in a post pandemic era. They’re also a big part of why financial freedom seekers need to get educated about the new rules of money and pivot with their financial independence strategies.

We transferred some crypto into the Celsius Wallet from other cryptocurrency exchanges a week ago. Here’s what we learned about earning interest on our crypto using Celsius Wallet:

Interest rates. Over the week we earned interest rates of between 5% and 13% across a number of different coins. Celsius calculates your interest earned every Friday and total interest earnings are updated each Monday. Every Monday, they also send you an email with the new rates that they are offering that week. That is another thing to know about DeFi lending products like the Celsius one; the interest you earn changes with the forces of supply and demand for that particular coin in the market (as well as some other factors). A free market for money lending not controlled by central bank dictated interest rates! What a novel idea.

Crypto coins and tokens – higher interest higher risk. At present Celsius wallet supports over 40 coins and tokens in their lending (interest) service. We earned rates as high as 14% during the week. We only lent crypto that we own with zero dollars in – which means that we bought the crypto previously, the price went up and then we sold a portion and took our initial investment out. This is part of our strategy to manage the risks of crypto price volatility. It effectively means we are earning interest of between 5% and 14% with zero risk.

Stablecoins – high interest, lower risk. The other thing that we lend on Celsius is stablecoins. We received an 8.8% APY on two different stablecoins – USDT and USDC. Earning interest on stablecoins is the lowest risk product on Celsius. This is because the price is not subject to the large fluctuations that other crypto can experience. You can learn more about stablecoin earnings here. There are no minimum deposits for Celsius, which is also a great feature if you want to test it out or teach your kids about crypto and financial freedom. We diversify our stablecoin lending across a few different stablecoins as another a risk management strategy.

Celsius price — CEL is the ticker for Celsius token. Hold CEL in your Celsius account to boost the interest rate you receive on Celsius app.

Flexible terms – get your coins out at any time. Now unlike DeFi crypto staking products that require you to lock your cryptocurrency into smart contracts or lending protocols for a nominated period, you can lend on Celsius with flexible terms. You simply follow the withdrawal process in the app, go through all of the in-built security features like 2FA and PIN code confirmation and enter the blockchain public key for the address you want to send your crypto to.

Like with any cryptocurrency transaction, you have to make sure the address is correct and you’re using the right blockchain network for the coin you want to transfer but this is pretty easy. For example, if we wanted to withdraw some ETH, we would log in to a crypto exchange like Binance or Coinspot, grab the correct deposit address generated from within that platform and copy and paste that address into the Celsius wallet withdrawal screen. Voila!

CEL token – The other thing to know about Celsius interest rates is how Celsius token works. Celsius has a token that they use to provide interest rate ‘boosts’ for ‘Celcians’ that use their service. The ticker is CEL and the token is traded on decentralised exchanges like UniSwap or on FTX. You can also buy CEL directly in the app but we don’t recommend this due to the fees charged by third party providers. You can opt to earn your interest in either CEL or in the currency you deposited. If you hold and earn in CEL you will receive a higher interest rate on your coins. The more CEL your hold as a percentage of your total holdings, the higher your earnings rate.

Celsius interest calculator. One of the best features of the app is their in-app interest calculator. You simply scroll to the coin you want to lend and put in how much of that coin you have. It then calculates your earnings over a week and a year.

Features

One thing about Celsius Wallet is that it currently offers one of the best rewards around for ETH or Ethereum. It’s not easy to find good flexible interest rates for ETH (where you can take your ETH out at any time) because staking ETH carries the condition that your coins are locked in the protocol until ETH version 2.0 is released. This could be in 2H 2021 but it might be also be later. If you have ETH, and don’t want to lock your coins in for an undefined timeframe, you can get 5-6% interest on Celsius.

If you want to get yourself on Celsius and would love some free Bitcoin, you can use our link and put in our referral code 1910143eb7 once you login in and set up your account. You can enter the code by going into your profile in the menu.

You get $40 worth of BTC for your first transfer of $400 in more. T&Cs apply but you basically just need to leave the $400 in there for 40 days.

How does Celsius crypto interest work?

We find that people are automatically suspicious of the higher interest rates that you can achieve in DeFi crypto. A lot of folks think that all DeFi is just Ponzi schemes. It’s always good when it comes to your finances to approach new products with a good deal of caution and scepticism. And crypto is a literal minefield of scams and fraud. That’s why we’re here to report back!

So let us explain how Celsius offers the interest rates they do. Under the Celsius business model their rewards (interest) are funded by their lending business. They lend the coins that users transfer into the app onto hedge funds, institutional traders and exchanges, as well as other corporate partners. These partners deposit up to 150% collateral (in crypto) to secure the Celsius loan and they pay Celsius interest on that loans. Celsius also lends US dollars directly to app users – with digital assets as collateral – and earns interest from those loans.

One risk in this model is very large movement (50% plus) in the underlying value of the coins used as collateral for Celsius on-lending. A large swing in the traded price of coins loaned by Celsius may initiate a margin call on the loan. If this happens, Celsius takes ownership of the collateral to secure its position (and yours!). The margin call process comes from traditional banking services but there is a different level of risk involved for borrowers because of price volatility in cryptocurrency.

A word of warning about borrowing crypto

Celsius also offers a borrowing product where you provide your own cryptocurrency as collateral to borrow either fiat currency (US dollars) or more crypto. You might ask – why you would borrow against your crypto? Well, its a form of leverage where you can continue to hold your crypto coins and have them move with market fluctuations but access value in them at the same time. You borrow coins to leverage your market return on those coins for example or put them to work somewhere in the DeFi system.

We don’t do this. We don’t use leverage when we’re investing in cryptocurrency because as we explained above we don’t want to be exposed to the risk of a margin call if there is a sharp drop in crypto markets while we sleep. This literally just happened in May 2021, and liquidated A LOT of leveraged positions across a number of large lending and borrowing protocols.

DeFi borrowing — Source: theblockcrypo.com

None of this is financial advice dear readers – we’re just sharing our experiences. If you’re going to borrow or use leverage, that is up to you in the true ethos of crypto which is about managing your finances the way you want. It all depends on your risk appetite.

Is the Celsius Wallet secure?

The Celsius app has some great security features to protect your crypto. When you set up Celsius wallet you are required to set up an App Pin Code (like with your banking app) and provide your KYC or ‘Know Your Customer’ details. This includes name, address and ID document. Verification occurs within minutes and then you’re all ready to start earning, and borrowing.

BUT, before you do anything make sure you head into the menu and set up the additional security features for the App. This includes turning on their biometric security access if you use that feature on your mobile phone, setting up 2 factor authentication, and also setting up “Hodl mode’. Hodl in crypto language means ‘hold’ or stash your coins rather than trade or sell them. Hodl mode is an extra layer of security on withdrawals only. It prevents any withdrawals from your account without a separate PIN code. Remember to write everything down in a safe place peeps!

Celsius crypto interest — Our week 1 Celsius earnings

The final word

In our first week on Celsius Wallet we earned $19.90. That’s US dollars so around $25 Australian. Now it’s not enough to break the bank and make us rich, but all we did was download the app, set up the wallet and its security, and transfer some cryptocurrency and stablecoins in that we already had and was sitting around doing nothing. We also did it in a way that sought to manage risk.

It literally took about 10 minutes to set up a little low risk cryptocurrency passive income stream of $100 per month. And Celsius wallet isn’t the only crypto wallet we use while investing in cryptocurrency. Across our different accounts, the passive income that we earn adds up.

We diversify across coins and across cryptocurrency wallets to manage risk and find the best yields. It’s just like not having all your eggs in one basket. We also don’t go for any of the leverage cryptocurrency investing strategies and avoid strategies that might have a high exposure to impermanent loss.

Like we always say, the fat stacks are out there financial freedom seekers. You need to get educated. We hope we’ve helped you do that here today! If we have, please remember to use our links and codes – get yourself some free BTC and help out our blog too! 🙂

As always dear readers – this is not financial advice. Invest at your own risk and always do your due diligence.

DeFi series Part 1: The 2021 DeFi lowdown – time to pay attention peeps!

Part 2: The game of money is changing – so what is DeFi?

Part 3: How to invest in DeFi and earn double digit interest on your savings

Til next time, have fun, be happy, do good!

How to invest in DeFi and earn double digit interest on your savings

Tara Decentralised Finance, Passive income ideas May 14, 2021May 10, 2022Decentralised Finance, How to Invest in DeFi

Part 3 of our series DeFi: the new financial frontier

In part 2 of our DeFi: the new financial frontier series we talk about how Blockchain technology is causing tectonics shifts in money systems with something called DeFi. As bank interest rates tank to record lows, company dividends take a hit and inflation climbs (see our inflation post here), financial freedom seekers and FIRE investors are falling on hard times. If financial freedom starts with saving more of your income, but your savings are going backwards, how do you get ahead? In this post, we talk about new opportunities to invest in DeFi crypto.

Lending with Decentralised Finance

We’ve already mentioned in our DeFI series that using Blockchain, anyone can lend their own money directly into DeFi crypto lending protocols and earn far better interest rates than the bank. This can all be done basically with a little bit of set up leg work and a few clicks of your mouse button. If you missed that post its important background for this one – you can find it here.

In this post, we’ll run through an example of how to make better than bank or term deposit interest on your fiat currecny, with DeFi.

We’re going to use a combination of the following resources so if you haven’t set these up yet that is a good place to start:

An account somewhere you can buy Stablecoins and some Ethereum token – like a crypto exchange. We’ll use Binance.
A web wallet to transfer your coins between the exchange and the lending protocol. We’ll use a browser extension wallet called Metamask but another is MyEthWallet. Actually there are tonnes of different wallets you can use – if you want to find the safest kind use a Hardware Wallet.
A lending protocol. We’ll use Aave but others are Maker and Compound. You don’t need an account with them to lend money into their liquidity pool.

What interest rates can you get with DeFi?

The thing to know about DeFi crypto is interest rates fluctuate with market supply and demand. Shock horror I know. A world where banks don’t control interest rates, actual lending markets do!

We start on a DeFi crypto borrowing and lending platform called Aave. This example runs through a web based step by step, but there are a bunch of mobile based apps (wallets) that you can use pretty seamlessly to access an entire ecosystem of DeFi lending products. Its a whole new world of banking out there peeps! Here is a great resource if you want to earn interest on your crypto on the go with a list of the best mobile crypto wallets.

If you open Aave and click ‘deposit’ at the top of the screen you can find the lending and borrowing rates for different DeFi Stablecoins. If you’re not sure what Stablecoins are or how they are different to other crypto coins, take a look at part 1 of our DeFi series.

Now, not all of these are Stablecoins so the ones you are looking for are in red.

I currently have some Tether (USDT) which is a Stablecoin I bought with my Fiat money. It’s sitting in my Binance wallet. I’ve decided to lend that USDT on the Aave platform. Today’s interest rate is 5.22%. If you don’t own coins already, your first step will be to buy some on Binance and once you do it will appear in your Binance wallet.

The next step is to transfer the USDT from my Binance wallet to my MetaMask web wallet. Think of this step like taking fiat currency out of your bank account and putting it in your physical wallet so you can use that money.

If you’re using MetaMask for the first time, here’s a great article with some basic set up instructions for MetaMask wallet.

This is as easy as going into your Binance wallet, selecting the coin, then clicking transfer and entering in the amount you wish to transfer.

You then need to go into your web wallet and click and copy your MetaMask web wallet address for the Ethereum network. Once you have the address copied to clipboard, go back into the Binance transfer page and follow the prompts to paste in that address into the transfer screen. You then click transfer. Some verifications will happen and this all takes a few minutes.

I also need to transfer some Ethereum into my web wallet to pay the gas fees for using the Ethereum Blockchain. I use the same process to do this on Binance with same web wallet address from MetaMask but by selecting ETH instead of USDT as the coin I want to transfer.

Once you’ve completed the transfer you should see the coins in your Metamask wallet, but you may need to add the coin types to your MetaMask wallet first before they appear.

A word on ETH gas fees

As AAVE is built on the Ethereum blockchain, you need to use the Ethereum network and its token (ETH) to interact with AAVE. The ETH token acts as your ‘gas’ to use the Ethereum network. You’ll often see this referred to as ‘gas fees’.

One caveat in using DeFi crypto is that gas fees on the Ethereum network can be very, very high. The fees change with supply and demand and with transaction complexity. The fees work out to be exorbitant on small transactions, so economies of scale matter when you are moving Stablecoins around in order to lend them out or use them as collateral to borrow. If the gas fee is $225 (which it was when I went to use the Ethereum network this morning), then you need to move at least $7000 USD worth of USDT in order to recover the gas fees in your interest (transaction in and out of Aave) and stay ahead based on the lending rate for USDT in this example.

One way to get around the high Ethereum gas fees is to transact through the Matic network. This requires a slightly more advanced tech level. Matic acts as a sidechain to the Ethereum Bockchain. You will need to add the Matic network to your web wallet add funds to the Matic Layer 2 protocol to do this. Once you have the Matic sidechain set up and funded in your MetaMask web wallet, you then open the Matic Mainnet in your web wallet and connect your web wallet to Aave. The Aave integration should show that you’re in the Matic/Polygon sidechain.

There are a bunch of other ways and DeFi crypto products that help you to avoid ETH gas fees and we’ll go over these in other posts.

If you take a look on Aave using the Matic network you don’t have the same range of Stablecoins open for deposit or the same interest rates as you do using the Ethereum network. Fees are lower using Matic, but so are interest rates. So Matic is better if you’re lending smaller amounts but Ethereum pays off if your lending larger amounts.

DeFi crypto is still early days

Here we come across the catch with DeFi. Its nascent, so the actual use of the DeFi system isn’t quite living up the decentralised finance ethos because of the fees involved sometimes on the Ethereum network. Developers are working on computational ways of reducing fees and only once this happens will DeFi become practical for many smaller users. It can also be tricky to navigate at first and integrations between exchanges, wallets and protocols can be a bit buggy. The risks are also wildly larger than operating in the fiat money system. Be warned that this is speculative investment.

Depositing into Aave Liquidity Pool

After moving the USDT and ETH to my web wallet, I have to connect my web wallet to the Aave protocol. This is a simple click at the top right corner and a process of following their prompts.

Once connected I can transfer the USDT in my web wallet to the Aave lending pool by hitting ‘deposit’ at the top of the screen. This will take you to your web wallet interface so you can select the coin and transfer amount. Before I confirm the transaction, Aave shows me the gas fees involved.

The final word – higher interest is just a few clicks away

So now, my savings have gone from fiat, to USDT and have been deposited into the Aave lending pool. I’m now earning the market rate, which today you can see is 5.22%, but tomorrow could be different. You can still make money in your sleep if you’re prepared to risk more and lend larger amounts into these DeFi liquidity pools. Be sure to manage your risks as we mention here. Also, test the tech first with small amounts. Aave is a well known platform with over $18B USD equivalent in its Liquidity Protocol and the likes of Mark Cuban lending through it. But don’t put all your eggs in one basket because true to the Blockchain ethos, it’s a non-custodial protocol and that means if things go to custard, there is no protection for you.

Til next time – have fun, be happy, do good!

The game of money is changing – so what is DeFi?

Tara Achieving financial freedom, Decentralised Finance May 13, 2021September 14, 2021Decentralised Finance, What is DeFi

Part 2 in our series DeFi: the new financial frontier

A new financial architecture is being built by super smart computer technologists and even some economists. It’s called DeFi crypto and it’s about much more than just crypto. It’s going to be bigger than Bitcoin. Perhaps even bigger than the internet V2.0. In fact, it’s the single most important thing you as a financial freedom seeker can get your head around – now. But what is DeFi? What does in mean for your financial freedom in practical terms?

Our DeFi: the new financial frontier series is helping financial freedom seekers understand the monumental shifts in the tectonic plates of our global money system. If financial freedom is all about how well you play the game of money, then that game just got new rules so stay tuned to this series as we explain them.

Who controls the ledger controls the money game

Ledgers have historically recorded financial and commercial transactions between people – the ‘who owns what when’ – since, well, a long time. If you think about it, for any significant exchange of value, there’s a central record of the transaction kept by someone. Ledgers are more than just a record. They’re also about trust. An independent third-party bearing witness to the exchange of value between strangers and so on. Whoever controls the ledger has significant power in the game of money. Over the rules that is. How transactions must occur, between whom, and how much they cost.

So, who controls the ledgers? Middlemen such as banks, insurers, brokers, auditors and policy makers, and the institutions they have created do. And through this the centralised control of money has become the norm. But will it always be?

What is DeFi? The new rules of decentralised money

DeFi is the decentralisation of financial products using blockchain technology.

DeFi uses Blockchain technology to replace the role of middleman in financial and commercial transactions and decentralise the control of money.

Blockchain was created to act as a ledger that no one entity could control but that needs the participation of many to operate. It seems simple on the surface but in its very design, blockchain technology fundamentally ‘up-ends’ the money game as its currently played. That’s why there is a lot of scrambling going on in the halls of traditional financial institutions, about Bitcoin and cryptocurrency. But cryptocurrency and bitcoin are just white noise once you step back and take a look at the bigger picture of Blockchain meets Money.

Blockchain meets money

Blockchain technology’s decentralisation of money – Decentalised Finance (DeFi) – will profoundly change our money future. The changes have already started. The introduction of Blockchain technology to the world of finance is seeping into the money system under the cover of crypto and Bitcoin. Over the coming decade, DeFi crypto will likely impact the way you save, where you put your money, how you borrow, where and how you invest in assets, how you manage them, the stocks you buy, your retirement nest egg, your investment income and any trading you might do. Just about everything to with your money.

You see, Blockchain changes the money game in four critical ways:

It acts as an immutable public ledger through which participants can validate transactions automating the trust element between third parties,
Its design decentralises control over that ledger,
it allows the tokenisation of assets by fractionalising ownership of those assets, and
It transcends national borders, putting opportunity in the hands of the masses and millions of unbanked across the globe.

What does DeFi mean for your financial freedom?

The real-life impacts on your financial freedom due the structural changes being bought borne out through Blockchain and DeFi crypto are profound peeps! Here are just a few we can think of:

Faster financial and commercial transactions – blockchain now provides an easy way to send money quickly and cheaply across the globe
Fewer middlemen and rent takers = fewer fees and charges = you keep more of your hard earned assets
Lower barriers to entry – no minimum investment requirements for example that apply to some of the most profitable instruments in financial markets
Lower cost to buy in to financial opportunities so greater access to markets
Fairer ways to grow wealth
More transparency to replace the opaque rules that currently apply to the game of money – particularly gold investing, and
The biggest of them all: You get to control your money – no custodians, banks, no gatekeepers clipping the ticket or saying no to your financial future

The final word – may the odds be ever in your favour

I really want to focus on that last dot point because it is exactly what financial freedom is about. You taking control of your money. DeFi crypto can give you new tools to do exactly that – if you learn the rules of the game and get comfortable with the tech. Don’t be afraid, but do get educated. And do manage risk! The new game of money is here. It involves investing in cryptocurrency and decentralised finance. As they say in the movies, may the odds be ever in your favour!

Check out part 3 in our DeFi series to see how to earn double digit interest on your money with DeFi crypto.

Until next time – have fun, be happy, do good!

The 2021 DeFi lowdown – time to pay attention peeps!

Tara Decentralised Finance, Financial Independence Retire Early May 3, 2021May 10, 2022crypto, passive income from DeFi, What is DeFi

**Part one of our DeFi: the new financial frontier series**

Y’all know we’re passionate about financial independence, passive income and the FIRE movement. But not many of the leading FIRE blogs are talking about DeFi or decentralised finance. Well we at The Live Life Project think it’s time to pull back the covers on this new frontier of personal finance. Like all new frontiers, DeFI is a bit wild, wild west. So in this post we’ll explain what DeFi is, why financial freedom seekers should know about DeFi, and some passive income ideas from DeFi to get you started.

This is the first post on our DeFi: The new financial frontier series, where we will give you the lowdown on DeFi in 2021.

What is DeFi?

DeFi is a ‘peer to peer’ internet system of executing financial transactions. Transactions like lending or borrowing are performed directly between two parties using blockchain ledger technology. Transactions are executed by computer code, and secured by cryptography. Because it uses blockchain technology, DeFi is typically associated with cryptocurrency. Critically, DeFi is designed so it doesn’t require any middle men and gatekeepers like banks, exchanges and lenders. This means no more banks controlling our access to financial opportunities and earning a fat percentage profit of every financial and banking transaction we make.

To demonstrate just how DeFi has exploded, take a look at this graph of the total value of USD locked in DeFi. That number has skyrocketed from $914 million 12 months ago to more than $75 billion in 2021. And it’s still early days financial freedom seekers. You can also access a pretty reliable DeFi index here.

Traditional banking BS

I wanted to share an annoying bank anecdote that happened to us personally just this year to set the scene for ‘why’ DeFi. We have a couple of investment properties as I’ve mentioned and in March were in the process of selling our home. In addition to the owner mortgage against the home, we had a small equity loan of $60,000. Before we sold our home, we wanted to transfer the equity loan to one of our investment properties. We wanted to do this maximise the cash we have to buy our next home.The bank had valued the investment property as containing plenty of spare equity so easy peasy right?

When we went to the bank with this request, the answer was a flat ‘no’. But why, we asked? It’s just a matter of transferring the loan from one asset to another. The reason – there was no internal process to make this happen. Sigh. Because there was no process the bank required of us a completely new loan application on the investment property. This meant a total reassessment of our finances, tonnes of paperwork, another $500 in bank application fees, plus broker fees blah blah blah.

I bet most of y’all have a similar frustrating anecdote about unreasonable policies in getting financial services from traditional banks. We could all have a massive bank whinge-off into eternity. Yay us. But that’s the thing with decentralised finance, no more banks to deal with and more control over your equity and your money. Huzzah to that we say!

A new world of money?

DeFi is about more than just crypto. It’s an entirely new world of money. A new finance system built on trustless transactions that use blockchain and internet technology. Here’s a real world example of DeFI applied to lending. DeFi loan transactions are executed through what’s called ‘lending protocols’ like Aave, Maker or Compound. These protocols use ‘smart contracts’ – code on the blockchain – to execute a financial agreement between two parties when predetermined conditions are met. ‘What the hell….???’ I hear you say. Sounds like gobbledegook. But put simply, its computer code (program) to execute financial transactions on an immutable public accounting ledger (blockchain), so you no longer need a ‘trusted third party’ like a bank.

DeFi appears to be morphing into an alternate financial system with many of simple personal banking financial products offered by the traditional finance sector. Think borrowing, lending, term deposits and credit cards just to name a few. But this all happens without the middle man taking a big fat cut of the profits or adding fees on fees. You see, instead of the bank paying you 0.5% interest on your hard-earned savings only to lend that money on for 3.5% themselves, DeFI gives you the option to provide the liquidity directly and earn the higher interest rate. And that’s just one example of why people have started moving to DeFi. DeFi takes on the role of banks, exchanges and insurers today—like lending, borrowing and trading. It puts this role in the hands of regular people like us so we have the opportunity to earn more from our own assets.

If you are sick of earning 0% interest on your cash or bemoaning the lack of options in traditional finance to earn income from your savings, then it’s time to pay attention to DeFi people!

Making passive income from DeFi

There are two low-tech, beginner level ways to make passive income from DeFi with interest rates well above anything you can get in traditional finance. We’ll go into these in more detail in our next posts in this series. But here’s a summary to give you some simple passive income ideas from DeFi:

Stablecoin high interest savings accounts

You can earn interest on stablecoins you own by depositing them with different crypto currency liquidity providers. Stablecoins are cryptocurrencies that are pegged to and often backed by fiat currency – usually the US dollar. They’re called stablecoins because their prices don’t fluctuate as much as the prices of other crypto coins (they’re pegged to fiat that doesn’t fluctuate as much). Examples of popular stablecoins are USDT, DAI, USDC, TUSD.

Think of this product as a high interest savings account that you would ordinarily put your fiat dollars in, but with better rates than you can get from any traditional bank. Protocols or platforms like Aave, BlockFi, Gemini and Nexo offer stablecoin passive income products. Interest rates range from 2%, which is not really worth it, up to 10% or even more. You usually get paid in the same stablecoin you deposited.

To earn stablecoin passive income you buy the stablecoins with your fiat dollars on an exchange like Binance, Kucoin or Coinspot. You then set up an account with one of these liquidity providers and transfer or deposit stablecoins into that account and start earning. Some larger exchanges like Binance will pay you to hold your stablecoins in their wallet on flexible terms (unlocked).

Crypto staking

Crypto staking is more like a term deposit for your crypto currency. You deposit your crypto coins into a staking wallet. The coins are used to support the consensus process (validating blockchain transactions) needed to run a particular blockchain network. Stakers need to hold coins in order to validate blockchain transactions, for which they earn incentives. The more coins they hold, the better. When you stake your coins in a staker’s wallet they can either be locked or unlocked. In return for staking your coins you receive interest. If your coins are locked, then they must be held there for an agreed time period or the interest rate is foregone – similar to a term deposit.

You can stake your crypto directly on some of the larger crypto exchanges like Binance, in a hard wallet with providers such as CoolWallet, Trezor or Ledger, or via a staking platform such as Stake Fish. It’s easiest to stake on an exchange if you’re a beginner. Just like term deposits, rates depend on the type of coin and the term of your deposit as well as other native factors. Read the fine print! You can get terms from one to 12 months routinely. You get paid in kind (the same coin you deposited) or in what’s called a token. Tokens are a form of reward for partaking in an activity within a blockchain. They are blockchain network specific but are often tradeable on cryptocurrency exchanges like Binance or Kucoin. You can trade your tokens for other coins or exchange them into fiat currency via these exchanges.

Staking is higher risk than passive income from stablecoins because you are exposed to the fluctuating market price of your crypto while it’s staked. Crypto coin prices are extremely volatile and can and often do move either up or down more than 30% in a single day. You’re looking to stake crypto coins that are in a long-term uptrend. This way, you benefit from both the coin price and the passive income.

The final word – managing risk

Like traditional bank savings accounts and term deposits, DeFi staking and savings products differ. But unlike traditional bank products the risks are much higher. It’s your responsibility to understand the product and the risks. Remember, decentralised finance is about you controlling your money. There isn’t the same government protection and regulation in place if things go awry. DeFi coin prices are more volatile and returns can fluctuate. You must be comfortable with this to invest. You must manage your risk, such as by only using well established platforms with cold storage security, diversifying across platforms, and sticking to core Stablecoins. If riskier investments are for you , you could allocate a nominal portion of your investment portfolio/assets that you don’t rely on for weekly income or retirement. Start small!

We’ll review which platforms and DeFi passive income products are best in 2021 in an upcoming post in this series so stay tuned financial freedom seekers!