What is DeFi?
Decentralized finance (DeFi) is a financial system that employs blockchain technology and cryptocurrencies to allow people, businesses, and other entities to transact directly with each other.
Defi allows users to:
- Lend or borrow funds
- Speculate on asset price movements
- Earn interest in savings-like accounts
- Trade cryptocurrencies
- Insure against risks
Types of DeFi Staking
There are different types of DeFi staking that offer unique opportunities for participants to earn passive income.
1. Staking
This form of DeFi staking that ensures locking a specific amount of crypto assets.
2. Yield farming
This strategy involves maximizing profits by strategically moving multiple crypto assets across different platforms. Passive income can be earned by lending assets.
3. Liquidity mining
This is a subcategory of yield farming, which revolves around depositing crypto assets and tokens into liquidity pools.
4. Governance staking
In this form of staking, users lock their tokens to actively participate in the governance of a decentralized protocol or platform.
5. DAO staking
Decentralized Autonomous Organization (DAO) staking involves users locking their tokens in a DAO to participate in decision-making processes and earn rewards.
How does DeFi staking work?
Do you know how DeFi staking works? To make everything simpler, the process can be broken down into a few actionable steps, and they are listed below:
Step 1
As a first step, the participants have to choose a type of staking platform that meets their preferences.
Liquidity platforms: Deposit crypto into liquidity pools to boost activities such as lending and borrowing. Some of the popular choices are Uniswap, Curve, and Aave.
Staking platforms: To validate transactions and secure the network, move the tokens to a specific blockchain. Platforms such as Rocket Pool, and Anchor Protocol are some of the familiar options.
DeFi protocols: If you need to participate in governance and earn protocol-specific rewards, stake tokens directly within specific DeFi protocols.
Step 2
The second step includes the selection of preferred staking methods.
Different types of staking methods are as follows:
Fixed staking: Tokens are locked for a predetermined period and earn fixed interest rates.
Dynamic staking: Tokens are moved automatically across different staking pools.
Step 3
Link the crypto wallet to the selected platform and transfer the desired amount of crypto from the wallet to the staking pool.
Step 4
Start the staking process by confirming the staking selections.
Top DeFi strategies for generating passive income
Now that you have acquired basic knowledge about DeFi, let’s delve into the strategies for generating passive income.
1. Delegated staking
This is the simplest way to earn passive income. The strategy involves locking users cryptocurrency in a blockchain network and tokens are delegated to a validator.
2. Yield farming
Yield farming is also termed as providing liquidity or liquidity mining. The process involves depositing user crypto assets into a DeFi protocol.
3. DeFi lending
This strategy works by lending crypto assets to borrowers through decentralized lending platforms.
Popular DeFi platforms for passive income
Choosing the best DeFi platform is crucial for generative passive income in DeFi. Now let’s see some of the popular DeFi platforms.
1. Uniswap
This leading platform allows users to trade tokens directly from their wallets. Incomes can be earned by providing liquidity to different pools.
2. Compound
Lend your assets or borrow against your crypto holdings and earned interests.
3. Aave
This decentralized lending platform allows participants to lend and borrow a wide range of cryptocurrencies.
4. SushiSwap
This is similar to Uniswap, but SushiSwap has a few more features such as staking and yield farming. This focuses on rewarding users who actively participate on the platform.
Risks associated with DeFi passive income
You know that DeFi is the best option for maximizing earnings. Even with so many advantages, there are several risks too. The associated risks are as follows:
- Market risks: Market risks mean that the crypto market is highly volatile so the value of tokens is affected by user stakes, lending, or liquidity.
- Technical risks: DeFi platforms operate on smart contracts that automatically execute transactions. Even though they are designed to be secure, they are not able to resist bugs or vulnerabilities.
- Regulatory risks: Since the regulatory environment for DeFi is still evolving, substantial changes may affect participation and profitability.
Top 10 DeFi staking platforms
The top 10 platforms that offer exciting opportunities to earn rewards by staking digital assets are shown in the table below.
| Platforms | Number of available coins | APY | Fees |
| Aqru | BTC, ETH, USDC, USDT, DAI | 10% | 0.35% commission |
| Cake DeFi | MATIC, ETH, DFI, DASH | 20% | 0.1-0.2% |
| DeFi Swap | DEFC | 75% | 0.3% |
| Nexo | 20+ | 10% | 0-0.4% |
| Uphold | 250+ | 0.5% | 1.5% |
| Binance | 120+ | 1.2% | 102% axie infinity |
| Crypto.com | 250+ | 8% | 0-0.075% |
| Nebeus | 20+ | 12% | 0.2% |
| OKX | 20+ | 35% | 0-0.1% |
| YouHolder | 50+ | 12% | 0% |
Conclusion
By exploring DeFi staking, it is clear that there are positives along with some drawbacks. DeFi staking is an alternative to conventional finance that requires the utmost attention. To succeed in this ever-evolving field, understanding the associated risks and results of its growth is essential. With any investment, thorough research is required. Keep abreast of and start small as you learn about the decentralized finance ecosystem. In just one sentence, we can conclude that earning passive income via DeFi can be a rewarding and automated process.