How to make passive income using decentralized lending platforms

How to make passive income using decentralized lending platforms

Quite recently, we shared information on “How to monetize crypto using centralized lending platforms”. This time, we would like to illustrate how the process works in the DeFi world. We will also consider whether it is worth using DeFi.

What are decentralized lending platforms?

Decentralized lending platforms are nothing but a rejection of the idea of exercising control over the financial system, which in traditional finance is done by third parties. Instead, we get the ability to operate in a system based on blockchain technology, using smart contracts. The initiator of the movement is none other than the creator of Bitcoin – Satoshi Nakamoto. It was him who, by creating the first cryptocurrency, eliminated transaction middlemen and allowed anyone who was willing to do so to join the new generation of finance.

After a few years, Satoshi Nakamoto’s idea evolved and developers separated an independent crypto sector called DeFi. This is where crypto-based borrowing is possible, as well as lending funds to other marketplace users and making extra profits from it.

Decentralized platform monitors

To make a choice of the platform on which you would like to make money, it is worth visiting one of the DeFi monitors. The most popular of them is DeFi Pulse. There you will find a lot of information about the whole ecosystem, starting from the amount of funds invested in the sector to the data on individual projects. Each individual lending platform is thoroughly screened here. This allows for information about the possible profits to be made on each one.

Lending by example of Compound Finance

Among the platforms listed in the DeFi Pulse monitor, we can see that Compound protocol is very popular and trusted. At the time of writing this article, it is the largest platform with the highest rating. It provides the possibility to lend money and earn interest from it. Since Compound is part of the Ethereum ecosystem, this interest can be accrued with each subsequent Ether block mined. Using decentralized platforms, there is no need to go through the KYC process, so Compound relieves us of the problem of often quite burdensome verification. Using the platform is very simple. All we need to do is connect our wallet to it and upload the cryptocurrency we would like to use. The interest rates for different coins are quite diverse, so we will not cite them. In exchange for sharing cryptocurrencies with other users, we will earn in the Compound Protocol currency, which is COMP.

Opportunities and risks

The opportunities offered by earning from decentralized finance are quite similar to those found in centralized finance. However, it is worth considering this kind of solution, especially if we want to store our cryptocurrencies long-term. In addition, earning passive income on both types of platforms at the same time, is a diversification of our portfolio and its possible risks. It is important to remember that DeFi sector is still young. Although it allows you to make very lucrative profits, it also has its share of hacking problems. Hence, we again urge you to do proper research before using it.

DisclaimerBlockbulletin does not take accountability of investments based on the information of the website. We highly advice readers to make extensive research prior to any invest

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