Updated date:

How to Compound your Cryptocurrency Investments

I have been fascinated by crypto for a long time now, and I enjoy sharing what I have learned about it on ToughNickel.

If you're going to hold crypto, you may as well earn on it.

If you're going to hold crypto, you may as well earn on it.

Some people like to trade cryptocurrencies, but true crypto investors hold their investments forever. The crypto world even has its own meme word for holding, which is "HODLing." But simply holding your crypto in your wallet doesn't make it grow. So here are some ways to invest your crypto. This article is only about ways to use your crypto investments to generate more crypto. Things like mining, where you get paid in crypto passively, are not included.

5 Ways to Earn Cryptocurrency With Your Cryptocurrency

  1. Stake Your Funds
  2. Open a Crypto Savings Account
  3. Choose Coins That Pay "Dividends"
  4. Lend Your Crypto
  5. Provide Liquidity for a Decentralized Exchange

1. Stake Your Funds

Staking is a process through which users lock up their funds to maintain the operations of a proof-of-stake blockchain. It is similar to mining because it processes transactions within the network while rewarding users who participate by giving them more crypto.

Mining is used on proof-of-work blockchains, like Bitcoin for example. It is a mechanism that makes it possible to collect transactions in blocks. These blocks are then linked together to form the blockchain. Miners try to solve a complex mathematical puzzle, and whoever solves it first gets the right to add the next block to the blockchain and gets some coins as a reward.

The problem with mining is that it wastes a lot of electricity. Proof-of-stake solves this problem by letting users lock up some of their funds to randomly get selected to have the right the add the next block. That way you don't have countless computers wasting energy while only one of them succeeds at being the first one.

Staking is an easy way to increase your cryptocurrency holdings. You can stake any currency that uses a proof-of-stake protocol, such as DOT, ADA, AVAX, and many more. You can earn an annual percentage yield (APY) between 4% and 25% depending on which crypto you use and how long you are willing to have it locked. You can stake your crypto directly on a wallet like Exodus or on some exchanges like Binance.

like regular savings accounts, crypto savings accounts pay interest over time.

like regular savings accounts, crypto savings accounts pay interest over time.

2. Open a Crypto Savings Account

Some exchanges and wallets offer a small interest rate on the crypto you hold there. That’s basically like a bank account. They use your holdings to give out loans, or they use them for liquidity on their exchange, so they pay you a small amount as an incentive to keep it there. You can easily earn between 5 and 12% per year while being able to withdraw at any moment. A few examples for such crypto savings accounts are Celsius Wallet, Binance, Nexo and Crypto.com.

3. Choose Coins That Pay "Dividends"

Some cryptocurrencies pay you a "dividend" for holding them. A dividend is the distribution of a company’s earnings to its shareholders, so I am not talking about traditional dividends here, because the reason for the payments is different. Here are a few examples.

VeChain

This is a platform for smart contracts like Ethereum. If you hold the native currency VET then you will receive VTHOR every few seconds, which is used to pay for transactions on the blockchain. You don't have to freeze your funds; you just have to hold them in a wallet that supports VTHOR.

NEO

Formerly known as Antshares, Neo is also a platform for smart contracts like VeChain. Similarly, you receive NeoGas for holding it.

Komondo

Komondo gives its users 5% "interest" per year as long as they hold more than 10 KMD in their wallet if they moved it at least once in the last year.

Waves

The Waves DEX is a decentralized crypto exchange where users can create and publish new cryptocurrencies. Each time a new one is added to the exchange, holders of the Wave coin receive a small amount of that new crypto. Most of that new crypto is near worthless and is often referred to as "spam," but it is free.

Note: As with dividend stocks, the yield of the dividend is only one part of the investment. If the stock itself goes down in value, then you lose money. It's the same with crypto "dividends"—if you invest in crypto, you need to be sure that its value also goes up.

DeFi platforms like Aave allow you to lend the crypto you are holding and be paid interest.

DeFi platforms like Aave allow you to lend the crypto you are holding and be paid interest.

4. Lend Your Crypto

With DeFi platforms like Aave, Compound, and Maker, users can pool their crypto together and give out loans to other people without needing a middleman. A smart contract collects the funds, hands them to borrowers, and distributes the interest to the providers.

In Aave's case, you get a second token for your investment, which works kind of like a bond. For example, if you invest 100 ETH in Aave, you will get 100 aETH. The interest is also paid in aETH, and the rate depends on how many aETH you hold. This way, you are compounding interest. The exchange rate for ETH and aETH is 1:1, and you can withdraw at any time.

5. Provide Liquidity for a Decentralized Exchange

This is quite like crypto lending because here, you are also adding your funds to a pool. Liquidity mining is the process of providing a decentralized exchange (DEX) with liquidity. Most DEXs handle trades with smart contracts that hold provided crypto and exchange it with traders. For every trade, the DEX collects fees, and those fees are given to the liquidity providers as a reward. One such decentralized exchange is the Uniswap platform.

Put Your Crypto to Work for You

The crypto world has changed a lot since the boom in 2017. We can now do more with our bags than just "HODL" them. Decentralized finance is on the rise, and with it, the world of finance and investing will change forever. For now, we already have many revolutionary new ways of growing our crypto investments further, and I am excited to see what the future will bring.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

Related Articles