There are numerous ways to generate a solid passive income in the cryptocurrency market. As years go by, blockchain developers discover new ways to offer users possibilities for passive income where they can use their current funds to acquire more crypto assets.

The two major ways crypto owners can generate extra revenue are yield farming and crypto staking. Here, we will compare yield farming and staking to better understand how they operate, the risks and rewards that come with each, and which approach can be more effective for your objectives.

Yield farming

Yield farming is a method of earning cryptocurrencies by temporarily lending crypto assets to DeFi platforms for interest.

The primary product of the DeFi market is decentralized exchanges, which rely on interested investors to help them facilitate trades. A yield farmer receives a percentage of the fees from platforms when they supply liquidity.

The funds locked in the liquidity pool provide liquidity to a DeFi protocol, where they are utilized to facilitate trading, lending, and borrowing. By providing liquidity, the platform earns fees that are paid out to investors according to their share of the liquidity pool.

For instance, platforms like AQRU allow you to lend your coins for up to 8% percent. The coins are collected into a “liquidity pool” and utilized for lending, borrowing, and trading.

Staking

Staking is a way of using your crypto assets to work and earn rewards on it. It is the way many cryptocurrencies verify their transactions and allows participants to earn rewards on their holdings.

Staking is the process used by cryptocurrencies that employ the proof-of-stake concept to add new transactions to the blockchain. This is the way to guarantee that all transactions are secure and confirmed without the involvement of a bank or payment processor.

For investors with a shorter time horizon who are unsure which strategy to choose, both yield farming and staking each has specific advantages.

Yield farming offers a better yield than staking, but is often practiced on newly created DeFi projects, which can be highly risky. On the other hand, staking is frequently the less risky method of generating passive income because investors only need to select a staking pool and then lock up their cryptocurrency. It is also the better choice for beginners as PoS networks do not require capital investments and are more difficult to hack.

Staking can be done with a minimal initial investment, which can make it an alluring option for users who are new to DeFi. Of course, currency devaluation might affect both yield farming and staking, but this is a regular occurrence in all crypto-related activities.

In a nutshell, to increase passive income, yield farming may call for some strategic manoeuvring, which is riskier but offers quick returns. Staking, however, is far more appropriate for beginners in the crypto domain.