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Bybit Learn
Intermediate
Aug 15, 2022

Top 10 Crypto Passive Income Strategies of 2022

As the cryptocurrency market is grappling with one of the most profound bear markets in its history, earning passive crypto income has never been higher on the agenda of many traders and investors.

Crypto passive income opportunities can help you offset losses during market downturns and crashes. They also represent a more proactive way to grow your crypto capital than using the increasingly outdated HODL strategy.

While holding promising coins for a long-term perspective worked great in the earlier years of the crypto market, it’s no longer the optimal way to earn passive crypto income in the current market. Read on to find out all about the 10 best crypto passive income strategies relevant in 2022 and beyond.

1. PoS Staking

Staking is a term that usually refers to locking your funds on a proof of stake (PoS) blockchain platform to help validate transaction blocks. In exchange for staking your funds, PoS blockchains pay you rewards in their native cryptocurrency.

Staking is one of the most basic and popular ways to earn passive crypto income. By staking your funds, you not only earn passive income but also help secure the network against spam and malicious threats.

On many PoS chains, you don’t have to run a full validator node to participate in staking. On chains which use the delegated proof of stake (DPoS) consensus mechanism, any node may use their crypto coins to delegate their staking rights to a full validator of their choice through transparent voting and stake allocation.

Your delegated full validator node will process transaction blocks and share the staking rewards with you based on the proportion of your contribution. The delegated mode is a very affordable way for just about any crypto user to derive passive income from staking. Some chains that use DPoS are Tron (TRX) and EOSIO (EOS).

On some blockchains, delegated staking isn’t supported. Direct staking on these platforms is only possible by setting up a full validator node, with the minimum amount you have to stake often substantial. For example, Ethereum 2.0, the new PoS version of the Ethereum (ETH) blockchain, requires a minimum commitment of 32 ETH (over $50,000 as of August 12, 2022) to set up a full validator node. You also have to keep the staked amount locked on the platform until the merger of Ethereum’s two versions currently running in parallel — Ethereum 2.0 and the proof of work (PoW)-based main chain.

However, depending on the specific chain, there might be service providers who can help you participate in staking even on platforms without the delegation option. Decentralized apps (DApps) like Lido (LDO) and StakeWise (SWISE) offer Ethereum 2.0 staking services without the onerous requirements of running a full validator node on the chain. These providers let you participate in Ethereum 2.0 staking starting with minimal amounts.

2. Yield Farming

Yield farming is the practice of depositing your crypto funds into yield-generating pools on decentralized finance (DeFi) platforms to earn interest. These pools are usually of two main types: Pools on lending and borrowing protocols, and pools on a variety of yield management apps.

Yield farming is a popular way to earn passive crypto income. However, given the wild variety of DeFi protocols and pools around, it might require more research and active management of funds as compared to staking.

The most common type of pool used for yield farming is the liquidity pool found on lending and borrowing protocols. You can deposit your funds into these pools, as a lender to the protocol, and earn interest from your investment. The leading protocols in this niche include Aave (AAVE), JustLend (JST) and Compound (COMP).

Top 10 lending and borrowing platforms by total value locked (TVL) as of August 9, 2022:

Top 10 lending and borrowing platforms by total value locked (TVL)

Source: DeFiLlama.com

There are also liquidity pools run by various yield protocols. Some of these platforms use your funds to optimally invest them across a variety of income-generating DeFi sources. Their goal is to automatically optimize your investment, without you having to sift through all the different varieties of pools and protocols on the market. Other protocols in this area simply pay you interest for allocating your funds to one or a few DeFi platforms for yield.

The leading protocols in this category of yield farming include Yearn Finance (YFI), Convex Finance (CVX) and Arrakis Finance.

3. Liquidity Mining

Liquidity mining is another term frequently used when discussing crypto passive income. It’s quite similar to yield farming, but focuses more on providing liquidity to coin swap pools on decentralized exchanges (DEXs). Also, instead of being paid interest on your investment, you’re usually issued liquidity pool tokens for providing your funds. These tokens are a type of synthetic asset that, in many instances, may be reinvested on the same or other platforms.

The coin swap pools which are the main target of liquidity mining are run by DEXs to maintain adequate levels of liquidity for automated market maker (AMM) exchange operations.

Each pool represents a pair of cryptocurrencies (e.g., ETH/DAI), that are available for swapping on the platform. In most cases, you have to deposit an equal value of both coins to qualify as a liquidity provider (LP). As an LP, you normally earn crypto rewards from your deposit based on the trading activity within the pool. A proportion of the swap fees from the pool is distributed to LPs proportional to their share of funds in the pool.

The largest (as well as being one of the oldest) DEX that has helped to popularize the liquidity pool model is Uniswap (UNI). Other prominent platforms where you can earn passive income from swap pools include Curve (CRV), PancakeSwap (CAKE), Balancer (BAL) and SushiSwap (SUSHI).

The top 10 DEXs by total value locked (TVL) as of August 9, 2022:

Total 10 DEXs by total value locked (TVL).

Source: DeFiLlama.com

4. Crypto Lending

Crypto lending is an umbrella term that includes passive income opportunities generated by lending your funds to protocols, trading platforms, exchanges or other crypto users. By lending your crypto funds to these parties, you can earn passive income in the form of interest.

Common forms of crypto lending include decentralized lending, centralized lending, peer-to-peer (P2P) lending and margin lending.

Decentralized Lending

In the section on yield farming above, we covered the practice of lending your crypto funds to pools on lending and borrowing protocols. These protocols are the primary way in which you may benefit from lending your funds to a decentralized platform.

Most of the well-known decentralized lending platforms algorithmically maintain enough liquidity on their platforms, based on the amounts lent and borrowed and collateral provided for the borrowed funds. This should, hopefully, ensure that the funds you’ve lent to the protocol are safe, and that your decentralized lender always has enough liquidity to meet its loan obligations.

Centralized Lending

Centralized lending covers private companies with whom you can lend your crypto funds to earn interest. It’s a useful alternative to decentralized lending for people who may not feel comfortable or proficient enough to use decentralized lending protocols.

Centralized lenders come in two primary varieties: Large centralized exchanges (CEXs) that offer the lending option among their suite of products, and other private companies offering crypto lending. Examples of companies specializing in crypto lending are YouHodler and Nexo. The latter is a dominant player within the niche, with more than 4 million users worldwide.

Nexo is one of the largest centralized crypto lenders in the world

Nexo statistics.

Source: Nexo.io

Peer-to-Peer (P2P) Lending

P2P crypto lending platforms allow you to directly lend funds to other individuals, rather than to a decentralized protocol or private company. These platforms often maintain some form of creditworthiness score for their users, based on their borrowing history, to help you reduce the risk of lending to an insolvent party.

Similar to centralized lenders, P2P crypto lending providers come in two main varieties: Exchanges which offer P2P lending as one of their products, such as Crypto.com, and other platforms specializing in this form of lending, such as Lendoit.

Margin Lending

Margin lending involves making your crypto funds available to margin traders in exchange for interest. Margin trading is the practice of using significant leverage to execute trades by borrowing the majority of the amount required for the transaction. It’s considered a form of high-risk/high-reward trading strategy.

The big majority of margin lending opportunities exist on CEXs specializing in derivatives. Some platforms also market themselves as specialized crypto margin lenders. However, in most cases, they’re utilizing a connection to some derivative CEX in order to offer the service. For instance, CryptoLend, a platform that offers margin lending services, uses the Bitfinex exchange for its lending operations.

5. Crypto Savings Accounts

Several CEXs and other platforms specializing in financial crypto services offer interest-bearing crypto accounts. These accounts are quite similar to standard interest-bearing fiat accounts at banks. Basically, the crypto funds that you deposit will be used to lend, stake, or invest by the platform, with the profits earned paid to you as interest.

Some examples of the leading providers for these types of accounts are the aforementioned Swiss-based YouHodler and US-based BlockFi. Bybit also offers a crypto interest account, Bybit Savings, which provides great staking rewards as well as seasonal exclusive offers.

6. Bybit Earn

Bybit Savings is just one of the many crypto investment products under Bybit Earn, which is a great resource for earning passive crypto income. This platform is an integrated crypto asset management product from Bybit. It allows you to access a variety of passive income generation opportunities.

Bybit Earn offers a wide array of crypto investment services: Depositing your funds for flexible periods to earn interest (Bybit Savings), liquidity mining, principal-protected short-term investment with a potential for high yields (Shark Fin), earning higher returns in low-volatility markets (Dual Asset), and staking (Launchpool).

Bybit Earn Overview tab listing its Products: Bybit Savings, Liquidity Mining, Dual Asset, Shark Fin, Launchpool

Source: Bybit.com

Bybit Earn helps you access these crypto income generation opportunities all in one place. The services within Bybit Earn are tailored to the needs of all types of investors, from beginners to hardened yield farmers sporting calluses from years of crypto harvests.

7. Cloud Mining

Mining cryptocurrency on blockchain platforms is a great way to earn crypto income. However, the typical mining operation requires you to purchase expensive hardware to mine crypto profitably. Cloud mining allows you to participate in crypto mining without the need for such equipment.

With cloud mining, you pay a regular monthly or yearly fee to a service provider for the opportunity to “rent” their mining resources. In exchange for the fee, the service provider mines crypto using the resources you’re renting and pays you a proportion of the mining rewards. One of the most popular cloud mining service providers is Genesis Mining.

8. Dividend-Earning Tokens

Dividend-earning tokens are cryptocurrencies that have some regular dividend rewards for their holders built into the token’s functional mechanism. For example, the largest dividend-earning crypto by market cap, VeChain (VET), generates dividends in the form of another token on a related platform, Thor (VTHO). The more VET you hold, the more VTHO rewards you earn.

Besides VET, other dividend-earning tokens among the top 100 cryptos by market cap include KuCoin Token (KCS) and Neo (NEO).

9. Crypto Affiliate Programs

Affiliate programs have been an important part of companies’ marketing strategies for decades, and have received a significant boost with the arrival of the internet. Now, a variety of websites and crypto platforms have adopted the affiliate marketing model based on crypto. Whenever you refer a user to these websites and platforms, you can earn some crypto income.

If you run a blog with a good number of regular visitors, or if you’re a social media influencer in your niche, crypto affiliate programs might be a great way to earn passive income. Some of the most popular crypto affiliate programs in the industry are offered by Bybit, Paxful and CoinLedger.

Bybit Affiliate sign up page

Source: Bybit.com

10. Forks and Airdrops

Forking is the launch of a new blockchain that’s based on an existing chain, but which has its own modified set of rules and functionality. Launches of new forked chains are sometimes accompanied by free distribution of tokens. Recipients of the new chain’s native tokens are often users of the parent blockchain on which the fork was based. The free token distribution is used as a marketing tool to attract the parent chain’s user base to the new platform.

Another marketing freebie used by new crypto projects is the airdrop, which is the distribution of a project’s native crypto to its user community. Strictly speaking, airdrops may be employed by existing and established projects, as well as by new platforms.

The intent is the same as with the initial distributions — namely, to foster a closer and more active user community for the crypto’s operation. Both blockchain platforms and DApps which are based on them might carry out airdrops. To track upcoming airdrops, you may use resources such as Airdrops.io and Airdrop Alert.

Advantages of Earning Crypto Passive Income

The opportunities covered above can be a great way for a crypto investor to generate passive income. Their main advantages include:

  • Hands-off approach to wealth generation. These opportunities, when used in the right way, can help you grow your crypto wealth mostly in an autopilot mode, with minimum time commitment required. At the very least, they should take considerably less time than any form of active trading.
  • Risk mitigation during bear markets. Earning passive crypto income is a great way to offset losses many investors incur during market downturns.
  • An opportunity to invest in future stars of the crypto world. As you research and allocate your funds to a variety of passive income streams, you have a great chance of spotting promising new projects. Unlike established coins, these future star cryptos have the potential for massive returns on investment.
  • Income stream diversification. As you may have already deduced, there are a great variety of passive crypto income opportunities. Most prudent investors would allocate their funds to multiple streams among these opportunities. This will (at least indirectly) lead to portfolio diversification, a useful strategy so often overlooked by many investors.

Disadvantages of Earning Crypto Passive Income

In addition to its advantages, earning passive crypto income comes with some risks and disadvantages. These include:

  • The risk of scams and rug pulls. As with anything related to the crypto world, investors looking for passive income in this field have to watch out for unscrupulous operators involved in scams and rug pulls.
  • The risk of project failures and liquidations. The current market downturn has already claimed many crypto scalps, with projects going insolvent and unable to pay back their customers’ funds. Two prominent recent examples are crypto lending operator Celsius Network and crypto hedge fund Three Arrows Capital (3AC). Both had to fold their operations without meeting their loan obligations to their customers.
  • The fast pace of change in the industry. The investment landscape in the crypto world changes frequently. New coins emerge, interest rates fluctuate wildly, and existing coins’ performance might take wild U-turns. Keeping up with the pace of change might be challenging for some investors. Accordingly, in the world of crypto even passive opportunities aren’t as passive as in traditional finance.

Final Thoughts

The advantages of crypto passive income are clear, especially in the current bear market. In fact, even those who prefer to be actively involved in crypto trading would do well to try and allocate some of their capital to passive income streams.

However, when considering any potential opportunity carefully research the market and the specific platforms you might be considering. The nontrivial number of scams and project liquidations make this due diligence an important aspect of your overall passive crypto investment strategy.