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The decentralized finance (DeFi) ecosystem on Ethereum became so popular because of how profitable it can be. You can make money on most of these platforms by staking your cryptocurrencies for interest. Users deposit cryptos into liquidity pools where the funds are either lent out to other investors or used for swapping between assets.
Both of these strategies can earn the user a large amount of interest, although the possibility of losing the funds is always present. When it’s done safely, it can be a fantastic source of passive income for cryptocurrency investors looking to put their tokens to work. Ethereum often earns relatively little interest in pools by itself, but innovative platforms like Yearn Finance are breaking the mold and consistently raising the bar.
How Does Earning Interest on Crypto Work?
You can use a few different ways to earn interest on your cryptocurrencies, but most are quite similar. You can think of it like earning interest on your fiat money (like USD) in a savings account. The bank lends out your cash to other people or institutions and pays you a small return for your trouble. Crypto staking, or yield farming, is often exponentially more profitable than the interest you earn on a savings account. Some traditional banks will pay you 0.1% a year for holding fiat currency whereas staking certain cryptos on some decentralized applications (DApps) can earn you tens or even hundreds of percent per year.
In the last few years, thousands of yield farming platforms have sprung up on Ethereum and rival networks like Binance Smart Chain. It might seem easy to start earning lots of interest on your cryptos immediately, but you have to be careful. When you invest, you should either be completely sure of the safety of a platform (which is impossible for most) or be willing to lose your entire deposit. It can be an incredibly time-consuming and arduous task to sort through them all to find safe platforms with high APYs.
yearn.finance Overview
Yearn.finance is one of the largest DeFi platforms on Ethereum and has more than $4.3 billion worth of crypto assets deposited in its pools. Yearn found its way to the top by offering more than most other yield farming applications. It hires brilliant software developers to actively manage the strategies used to earn its users’ yields. Yearn has 64 different pools that it calls vaults. Most of these vaults are significantly less risky than many DeFi platforms because they only have 1 crypto in them. Single asset pools don’t suffer from impermanent loss, which is common in pools with 2 or 3 volatile assets in them.
yearn.finance: 14% APY on Ethereum with the Curve aEthc Pool
Yearn has multiple great stablecoin pools earning between 10% to 35% interest, depending on the token. If you have extra DAI, USDT, USDC etc., you should consider depositing some into one of these vaults to earn passive income. However, the stablecoin pools aren’t the only pieces of brilliant technology on the yearn.finance platform. It has more than 30 vaults tightly integrated with Curve Finance, one of the other kings of DeFi.
A popular example is the Curve Anker-Ethereum pool (Curve aEthc). Anker is a staking platform where you send Ethereum to stake on the Ethereum 2.0 testnet for 5% to 6% APY. When you deposit your crypto into this pool, Yearn swaps your asset to Ethereum and Anker Ethereum (aEthc, the placeholder asset Anker gives you when you deposit Ether) and deposits it into Curve. The pool uses 2 different strategies that Yearn DeFi experts actively manage to ensure the highest profit. At the time of writing, the pool is earning an incredible 14% APY, which is astounding for Ethereum and much higher than the application’s top competitors.
You might be wondering why depositing into the Yearn Curve AnkerEth vault is better than the regular Curve Anker-Eth pool. Yearn’s vaults bring a few major benefits, mostly from sheer size. The first is simple; Yearn vaults compound the interest you earn by depositing it into the pool regularly without you having to pay transaction fees. Ethereum fees can be so high that compounding often isn’t profitable.
The second main benefit is more complex. Curve has another pool for the Curve token (CRV) called the Locker where you can stake CRV and lock it for up to 4 years at a time for large benefits. Stakers get a boost to the rewards on their other liquidity pools depending on how long they lock and how much CRV they deposit. Using another of Yearn’s vaults, the “Backscratcher,” they deposit a large amount of CRV to the Locker and lock it indefinitely, distributing the boost to various vaults.
How to Earn Interest on Ethereum
Looking for the easiest way to get started earning interest on your Ethereum or other tokens? Check out this quick and easy guide.
Step 1: Open an online account.
Before you can use any of these platforms, you need cryptos to stake. You also need Ether to pay for transaction fees on the network. Some of the best trading platforms to purchase cryptos include Coinbase (NASDAQ: COIN), eToro, Robinhood (NASDAQ: HOOD), Webull, Crypto.com and Voyager. Before you can start trading on any of these platforms, you need to verify your identity. Generally, this process requires you to provide your address, Social Security number and a picture of your driver’s license.
Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs.
You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.
Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.
Best For
- New cryptocurrency traders
- Cryptocurrency traders interested in major pairs
- Cryptocurrency traders interested in a simple platform
- Simple platform is easy to operate
- Comprehensive mobile app mirrors desktop functionality
- Coinbase Earn feature rewards you with crypto for learning about available coins
- Higher fees than competitors
Voyager is a leading name in the sphere of cryptocurrency investing, giving you access to over 50 tokens and coins. Buy, sell and swap assets using Voyager Crypto’s simple mobile platform available as a free download for iOS and Android users.
When you invest through Voyager, you’ll pay nothing in commissions, which is a major benefit when compared to other cryptocurrency brokers. Voyager is also one of the only brokers we’ve seen that allows users to earn interest on their crypto investments.
Though the broker could do more to improve its customer service, it’s an excellent option for beginner investors and seasoned professionals alike.
Best For
- Cryptocurrency investors looking for a wide selection of supported projects.
- Investors who prefer mobile trading.
- Anyone interested in earning interest on their crypto investments.
- Simple, straightforward and intuitive mobile platform
- Wealth of investment opportunities
- Allows users to earn interest on select crypto investments
- Only available for mobile users — no desktop platform
- Limited routes to contact customer service team
Crypto.com strives to make cryptocurrency a part of everyday life by offering a full suite of services for crypto users. The company offers a Crypto.com App, Exchange, Visa Card, DeFi swap, DeFi Wallet, DeFi Earn, Crypto.com Price, staking, crypto lending, and many other services. What really sets them apart, however, is the combination of super low fees and incredibly generous rewards programs for their users.
Best For
- Traders who want access to a secure, low-cost cryptocurrency exchange
- Passive investors who want to earn interest on their balance without frequent trading
- Mobile investors who prefer to handle all their crypto needs via their phone or tablet
- Low fees
- High security
- One-stop shop for all your crypto needs (wallet, trading, spending, and more)
- Lots of ways to earn interest, rewards, and rebates
- Low privacy
- Customer service response time could be improved
Step 2: Purchase cryptocurrency.
As soon as your account is verified, you can deposit your funds and purchase cryptos. All the platforms recommended above have instant deposits so you can start trading immediately. You may have to wait until the deposit clears before you can transfer the cryptos off the platform. Now, look for the trading pair with the crypto you want to buy, set your price and make your purchase.
If you don’t already have a personal wallet, either hardware or software, you need to get one to use DeFi platforms like Yearn. Hardware wallets are safer than software wallets, but they can be a bit clunky, especially for day-to-day use. Ledger and Trezor rank as 2 of the best and most secure hardware wallet brands. Software wallets are usually free and incredibly easy to use. A great software wallet is Coinbase Wallet because it has more functionality than nearly all of its competitors. When you are ready to deposit your funds in a DeFi protocol, you have to send the crypto (and some Ether to pay for transaction fees) to your personal wallet.
Step 3: Earn interest on your crypto.
Now that you have the crypto in your wallet, navigate to the DeFi platform and click Connect Wallet. Click the type of wallet you want to use and accept the connection in your wallet when it pops up. Once your wallet is connected, find the pool you want to deposit into. If you are using Yearn, you don’t need the exact crypto in the vault. You can deposit ETH, WBTC, USDC, DAI, or USDT, and it will automatically swap it for the vault token. Yearn has no lock-up times, so you can withdraw whenever you want, although beware that Ethereum transaction fees will probably be expensive.
Other Platforms to Earn Interest on Ethereum
The DeFi ecosystem on Ethereum doesn’t have a monopoly on crypto staking. Centralized companies can offer decent interest rates while being generally safer than many unproven DeFi platforms. Celsius and BlockFi are great examples, and both offer interest-bearing crypto accounts. You can deposit a long list of different cryptos in the platforms to earn up to 17% on Celsius and 8.25% on BlockFi. Some cryptocurrency exchanges also have interest-earning programs like Coinbase and Gemini where you can earn up to 5% and 8.05% respectively. If you are worried about the security of decentralized platforms on Ethereum, one of these centralized options may be the best for you.
Risks of Earning Interest on Crypto
The hazards of earning interest on cryptos are nearly completely platform-dependent. However, you risk losing direct control of your funds with all of them. Many investors have been caught in the trap of chasing the highest APYs while losing sight of the risks that come with crypto staking. For example, liquidity pools with volatile altcoins can be extremely risky due to impermanent loss. Simply, impermanent loss is the difference in value you would have if you just held the cryptos instead of staking them in a liquidity pool. The code behind the DApps can also be faulty, allowing for cyberattacks and other ways to lose your deposit. This type of loss is usually called smart contract failure, and, even though it’s rare for well-audited applications, it’s always possible.
A DeFi platform provides some services similar to legacy financial institutions, but it should be noted that it lacks consumer protections commonly associated with bank accounts. Cryptocurrency, a form of digital currency, is innately volatile and thus possesses a risk that prices could fluctuate wildly. Unlike fiat money in a bank, digital currency is not legal tender in most countries and is not backed by any government.
Two types of governmental protection exist for bank- or brokerage-held consumer funds: the Federal Deposit Insurance Corporation (FDIC) protects against loss of your insured deposits if the bank fails; the Securities Investor Protection Corporation (SIPC) protects against the loss of cash and securities held at a financially-troubled brokerage firm but not against the decline in value of your securities. Cryptocurrency funds don’t fall under FDIC or SIPC protection.
Crypto interest is not a risk-free product, and, unlike money in a bank account or Certificate of Deposit, loss of principal is possible. If cryptocurrency prices fall or a security breach occurs, profits made from earning interest could be wiped out. Therefore, don’t invest more in cryptocurrency interest accounts than you can afford to lose.
Is Earning Interest on Cryptocurrency Worth It?
Earning interest on safe platforms can be an incredible move because it’s basically “free money.” Of course, risks are involved in depositing your money into any crypto-interest-earning platform, especially those with mediocre security. However, risks can be minimized with applications like Yearn that have been audited multiple times. If the platform is safe, you might as well try to earn 5% to 30% interest on your tokens.