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Passive Income And The Fabulous World Of Crypto Finance

Passive Income And The Fabulous World Of Crypto Finance

18 Jun 2020

Let's say you have some savings just lying on your bank account and doing nothing.

Since interests are historically low (almost 0%), you don't earn anything with this extra cash.

And with the central banks printing money as crazy, your money is actually being devaluated.

What to do? Enter crypto finance.

🤔 But wait - isn't crypto too volatile? And I've heard that it's easy to go into crypto, but hard to go out, or at least be able to spend it... Is that true? 🤔

Not anymore. Let's address this step-by-step.

Solving volatility

Sure most cryptos are still quite volatile, but there's a new breed of crypto: stablecoins.

Stablecoins are pegged to some currency, usually to a U.S. Dollar. This means that the value of a stablecoin is always 1 USD.

🤔 But I've heard that the biggest stablecoin (Tether) is being investigated by the government and could be shut down... 🤔

Yes, but this is not because Tether is a stablecoin, but because of some shady practices that the company behind Tether has been doing.

Other stablecoins don't have these problems.

Centralized stablecoins

In general, there are two types of stable coins: centralized and decentralized.

Centralized stablecoins are:

  • Tether (USDT), operated by the BitFinex exchange
  • USD Coin (USDC), operated by Coinbase
  • Gemini USD (GUSD), operated by the crypto exchange owned by the Winklevoss twins
  • Paxos Standard (PAX), operated by Paxos which has a Money Services Business license in New York
  • Binance USD (BUSD), a stablecoin created by Paxos for the Binance exchange

There are some other centralized stablecoins too, but we decided to mention the ones that are currently the biggest.

We don't advise using Tether, because there is a risk of it being shut down. But others don't have this issue, especially USDC, GUSD, PAX, and BUSD which are working closely with regulators.

Decentralized stablecoins

An even better type of stablecoins is decentralized ones, like DAI and sUSD (Synthetix USD).

🤔 Why are they better than centralized ones? 🤔

Because there is no company behind them and they don't hold real dollars in some bank account that could be frozen.

Instead, they are (over)collateralized with Ether or some other cryptocurrency, and run via a smart contract which makes them decentralized and resistant to government attacks (governments cannot shut down smart contracts).

Bottom line: Stablecoins solve the volatility problem and you have plenty to choose from.

How to spend crypto?

In the past, some people had issues with their banks when they wanted to cash out their crypto.

Since then, banks have grown more accustomed to crypto and most of them don't cause problems to their users if they want to cash out.

In addition, new financial services have come up that allow you to spend crypto easily.

Crypto.com

The biggest player in this field is Crypto.com, which gives you a free Visa debit card that you can use in any shop that accepts Visa (which is most of the stores in the Western world).

Simply top up your Crypto.com account with some cryptocurrency or stablecoin of your choice and you can start using your Visa card right away (the crypto will be automatically converted into a local fiat currency).

Important: Please note that Crypto.com cards are currently not working because their card issuance partner Wirecard went into administration (due to accounting/legal issues). Crypto.com will probably need to find another partner to issue their Visa card.

Monolith Visa Card

Another very interesting Visa card is Monolith (it used to be called TokenCard).

What's great about Monolith is that your funds are stored in a smart contract wallet that you control (non-custodial wallet).

This means that even if Monolith would cease to exist, you would still be able to access and transfer your funds. So you can feel more safe about using it, even though it's less known than Crypto.com.

Monolith uses a different Visa card provider than Crypto.com (Contis), so their cards don't have any issues due to the Wirecard insolvency.

How to make money with crypto?

Ok, we've talked about how to spend money with crypto. That's easy, any fool can do it. 🙂

🤔 But is there a way to make money with crypto? 🤔

Sure, there's trading, but an inexperienced trader can easily lose money in trading. You can also hodl Bitcoin or Ethereum long-term and wait for gains to come.

🤔 What about getting some passive income short-term? 🤔

In fact, you can.

There are many crypto services that act like a bank. You can deposit your money with them and earn interest. These services make money by lending it to borrowers, the same way as banks do.

You can see these services and their interest rates here: https://defirate.com/lend/. Most of them have dynamic interest rates, which means they change frequently during a day.

There are two types of this kind of services, centralized and decentralized.

The most reputable centralized services are Binance, Crypto.com, and BlockFi. Binance is a very well known crypto exchange. We've already mentioned Crypto.com. But BlockFi is a much lesser-known player.

So why BlockFi?

It is a Silicon Valley startup that received $100 million in funding and it is backed by some prominent investors, the most well-known being Peter Thiel (who co-founded PayPal together with Elon Musk and later invested early in Facebook).

BlockFi currently offers 8.6% yearly interest on stablecoins (USDC, PAX, GUSD), 6% on Bitcoin and 4.5% on Ethereum.

So instead of keeping the extra cash you might have just laying on your bank account, you could transfer it to BlockFi and earn pretty high interests. This is a passive income that you can then spend using your Crypto.com card. Money making money. 😎

DeFi

If you'd rather use a decentralized service similar to BlockFi, there are plenty of solutions in the so-called, DeFi world.

DeFi means Decentralized Finance, and it's an umbrella term for many projects that live as smart contracts on the Ethereum blockchain.

We've already mentioned two of these projects: DAI and sUSD stablecoins. But there are also DeFi projects similar to BlockFi, except decentralized.

The most well known such projects are Aave and Compound. Both of them offer interest on various cryptocurrencies and stablecoins. You can see their interest rates on DEFIrate.com as well.

Argent

The easiest way to use Aave and Compound is via a mobile wallet called Argent.

Argent is a decentralized crypto wallet that's open to anyone to use. No matter where in the world you live or how old you are, anyone can use it and there's no verification needed.

Why?

Your Argent wallet is basically a smart contract on the Ethereum blockchain (similar to the Monolith wallet). There's no company behind it to give you a hard time with KYC/AML. It's completely permission-less.

Funds on Argent are controlled by you. No government, bank, or company can freeze your funds. This is the world of decentralized finance.

Full circle

So here you have a full circle.

You can make money with crypto by earning interest via services like BlockFi, Aave, or Compound.

You can protect yourself against volatility by using stablecoins such as sUSD or PAX.

And you can spend your money by using a payment card provider such as Monolith or Crypto.com so that you don't need a traditional bank that may ask annoying questions.

Basically, you can ditch the banks and the old financial system. 🙂

If you're interested in creating yourself an account on some of the services mentioned in this article, please consider using our referral codes:

  • Crypto.com (both you and we will get 50 USD worth of crypto): 7zjhem9a5v
  • Binance (you will get a 10% discount on trading fees): Z27CVXNG
  • BlockFi (both you and we will get a 10 USD worth of Bitcoin): bede7aae

Thank you!


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