This Is Undoubtly The Best Way to Earn Passive Income Through Cryptocurrency
I know of several passive income opportunities in cryptocurrrency space, I will teach you one of them today.
Something like, press few buttons and watch your money grow like stubborn grass. But before I go into the main thing, you need to understand the fundamentals first.
Don’t skip any of the paragraphs. In case you are doing something else, kindly abandon it for now, and pay undivided attention to what I am going to share with. It is what most crypto lords will never share with you even when you pay for their masterclass.
So let’s get started.
Liquidity pool is like something as wide as a basket where anyone can go to, for exchange of fruits. Without liquidity providers, trading is impossible. Some times, we call them market makers. On New York Stock Exchange, there are liquidity providers, even in Forex market.
The term is more popular now, thanks to Uniswap Protocol. They created a near perfect system that reward people massively for providing liquidity on exchange with their money. It is called AMM (Automated market makers).
To provide liquidity, you must commit a pair of cryptocurrencies in to the pool. And you get reward based on proportion of the cryptocurrrency pair you added.
For instance, John will get more share from the pool because his pool shared is 64%, and Mike will get lesser reward because his pool share is 0.4% of the total money in the pool. The AMM platform like Uniswap, Curve, Bakeryswap and so on will enforce 0.3% trading fee on all traders, and this fee is collected and shared among liquidity providers. Your focus is to cut a piece of this cake for yourself.
As at time of putting this article together, Uniswap alone shared a total of $3,693,089 among the liquidity providers on the platform, so if you have invested $10,000,000 into Uniswap LP, you would be making average of $4,500 every 24 hours.
To be honest with you, liquidity pool attract traders, nobody wants to trade on platform that will not allow them to easily liquidate thier assets. It makes no sense. The larger the liquidity pool, the more traders are attracted to the decentralized exchange platform.
Let me fast forward a bit to key information that you need. It is the reason why you are following this conversation. And I promise to avoid any technical term that may serve as barrier.
Everything wey sweet get side effect oo (meaning that everything that have advantages also have downsides). The biggest fear of liquidity providers is impermanent lose. Don’t be scared yet, you will not fall victim of this, I will provide a guide for you.
Examples of Liquidity pairs are BTC/USDT, ETH/BTC, ETH/BNB, XRP/USDT and so on. In fact, any trading pair that exist have its liquidity providers, whether they get rewarded or not is another topic. But on decentralized platforms, reward is certain.
What Is Impermanent Loss?
When you provide liquidity, you will likely earn reward in both coins, except there is impermanent loss.
Let me give example of impermanent loss. X/Y pair are trading on Uniswap, and for certain reason, traders begin to buy more X coin, and they start dumping Y coin. At the end of the day, the liquidity providers will end up having more Y coin than X.
If it now happens that dollar value of Y has dropped massively in the market. Then there is impermanent loss. The best way to avoid this scenario is to provide liquidity with pairs with established coin like BTC, ETH and so on.
What you loss in BTC, you will gain it in ETH and vice versa. Do you understand it?
When you want to provide $50 liquidity on BTC/ETH, you need $25 worth of BTC and $25 worth of Eth. If you started with 1BTC/1ETH, you could end with 0.8BTC and 1.6ETH, meaning that overall number of your coins have increased. When dollars value of the assets increase accordingly, you have earned passive income for yourself. For instance, the value of 1 Etheruem was $800 when you provided liquidity, and it increased to $2,000 at the time you removed it. By implication, dollar value of your digital assets have increased.
Now, some pools are less profitable than others becuase of low trading volume, and some liquidity pairs gives lesser reward too due to the fact that liquidity pool is high and trading volume is low.
You need to do some researches, there are more than 27 platforms that I am aware of, but only and 4–5 of them are most rewarding. I have provided a research template for you since 3 weeks ago. But I uploaded it recently.
With this you can be sure that even when you are busy with other projects, you coins are increasing every day.
You can provide liquidity for as long as you want, and remove at any time. Keep earning passively, this is tip that some experienced traders may not be talking about yet.
If you have any question, I am your plug, ask me.
About the author
Ojeniyi Ayobami Abimbola has been trading cryptocurrency since 2015, and he is a blockchain content creator, and a crypto coach at Cryptoniche. You can connect with him on:
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