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…
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