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Yield App CEO Reveals Secrets of Cryptocurrency-Related Passive Income
Seeking passive income through cryptocurrency investing requires a nuanced understanding of the market, customized strategies, and a cautious approach to high-yield promises.
It is important to understand the importance of aligning investment approaches with individual goals and risk tolerance as you navigate decentralized finance (DeFi) sector.
One DeFi protocol is not right for everyone
In a recent interview with BeInCrypto, Lucas Kiely, CIO of Yield App, shared his insights on effective strategies for earning passive income through cryptocurrency. He stressed the importance of aligning investment strategies with individual goals and risk tolerance.
“What constitutes an ‘effective strategy’ depends largely on individual investors’ goals and risk tolerance,” Kiely noted.
He highlighted the appeal of high short-term interest rates, such as a one-month lock-in that promises 20% interest on the Bitcoin. However, he warned that the events of 2022 have demonstrated the substantial risks associated with such promises of astronomical passive returns.
Kiely advised those looking for guaranteed passive income to compare rates, benefits and safety functionality across different platforms while avoiding outliers. He suggested that sophisticated investors with moderate to high risk tolerance explore return-enhancing cryptostructured products.
To know more: Top 4 Crypto Passive Income Ideas That Really Work in 2024
He also highlighted the importance of evaluating several factors before entrusting funds to any crypto platform. These include security, tokenomicshistorical performance, personal goals and risk tolerance.
“While cryptocurrencies are home to many high-risk investors who may be happy to place an all-or-nothing bet, the current environment requires caution and well-informed, balanced strategies that can absorb market fluctuations caused by external factors, such as regulatory and geopolitical uncertainty,” Kiely explained.
Loans, research and diversification
Lending platforms Pleases Aave AND Composed have become an integral part of DeFi. These platforms eliminate intermediaries such as banks or cryptocurrency custodians from lending and borrowing transactions, allowing for direct, trustless interactions.
Lenders provide liquidity by depositing cryptocurrencies into a pool, which borrowers can access for a fee. Smart contracts automatically execute these transactions based on predefined rules.
The advantages of lending include the absence of a central authority controlling rates, potentially higher profits, immediacy and privacy. However, Kiely noted that the benefits come with greater risks.
“An estimated $3.7 billion was lost to DeFi hacks in 2022, and while this figure dropped to $1.3 billion last year, security remains one of DeFi’s biggest issues. Smart contract failures can also result in the loss of funds, as can uncollateralized loans when markets go south,” Kiley told BeInCrypto.
He advised thorough research before investing DeFi Lending Protocols, underlining the importance of technical and commercial skills. “DYOR” (Do Your Own Research) is a fundamental principle in the cryptocurrency market, reflecting its high-risk nature and susceptibility to hacker attacks and rip-offs.
To know more: 7 Ways to Earn Passive Income with Cryptocurrencies in 2024
As well as thorough research, Kiely advises diversification to minimize risk. Investing in various projects or cryptocurrencies can help mitigate the impact of any single underperforming investment. He also highlighted the importance of using reliable and secure exchanges with a proven track record of protecting user funds.
Learn from previous mistakes
Understanding your limitations is crucial in the cryptocurrency market. Kiely advises investors to consider their experience level and how much they can afford to lose. Newcomers with a moderate appetite for risk may find traditional financial platforms and earning strategies more suitable for entering the world of cryptocurrencies.
Kiely concluded with key advice for newcomers: understand how passive income is generated by the platforms they’re exploring.
“Are the returns promised by a platform sustainable, regardless of market conditions? How transparent is the platform about the assets they invest in and the investment strategies they use to deliver returns? Could they invest in particularly volatile assets, tokens with poor basis, or offer un- or under-collateralized loans to generate above-market returns?” asked Kiely.
The 2022 cryptocurrency market crash, which saw billions wiped out of the market, highlighted the importance of informed investing. As the industry recovers, it is the responsibility of all investors – new, old, institutional or retail – to be well informed and avoid repeating the mistakes of the past.
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