A dividend is a share of profit paid by the company to its investors and shareholders.
Currently, the interest rate that you get from banks is negligible, and stocks usually pay between 4-6%. Some coins with a higher market cap pay up to 10% and crypto stable coins pay up to 20%, while on some cryptocurrencies some people have earned up to 100% per year.
Usually, when people think about dividends they think of those that traditionally come from stock market investments. Crypto dividends appeared in 2018, with the introduction of decentralised finance. This gave people the ability to do yield farming, staking, liquidity providing, lending, and earn interest on their investment.
Crypto dividends and different earning methods experienced a huge surge of demand and despite high volatility, they became the best way of earning interest.
Just a few days ago, a tech and infrastructure company called BTCS Inc. announced that they will be the first Nasdaq-listed company to pay dividends to their shareholders in Bitcoin. Right after the announcement, their stock price increased by 44%.
What are crypto dividends?
Crypto dividends are rewards that are earned for holding or performing a specific action with different assets. The amount of dividend granted is frequently based upon the amount of cryptocurrency the investor holds or, if they receive dividends for performing a specific action, this could be through staking or claiming a reward on their platform.
The interest rate is usually represented in annual percentage yield (or APY) and represents the returns over a period of a year.
How to earn crypto dividends
When it comes to the stock market, investors are paid from the profit that a company generates. In the cryptocurrency markets, there are many different principles of how and when dividends are paid. The most popular ways of earning dividends in the blockchain space are by staking, yield farming, lending, and airdrops.
- Staking is used in proof of stake protocols to verify transactions on the blockchain network. The number of coins you stake usually correlates with the number of transactions you verify and you receive rewards based on that.
- Yield farming is when you provide liquidity on a trading pair and you gain interest based on the usage of this trading pair. Usually, the returns on yield farming are higher but there is a risk of losing your investment if there is a drastic change in price. This is called impermanent loss.
- Crypto lending or borrowing is where you lend your cryptocurrency asset for a rate of interest that is repaid after a certain time. Usually, people offer their ETH or BTC as collateral to take stable coins or fiat which they can use to buy more crypto, gold, or even real estate.
- Crypto airdrops are distributions of specific coins or tokens to a community, usually in response to performing some action required by the company that offers the airdrop. The biggest airdrop was performed by Decred and the users that are still holding their tokens are estimated to have around $500,000.
Another way to earn a passive income is through investing in stable coins, for example, by earning a return – or yield. Most often, your return is paid in the currency that you invested in, as is the case on the Kinesis Money platform which pays out in physical gold and silver, for storing precious metals in its ecosystem.
As with investing, it is important to consider the extent of the risk posed, as well as things like safety or “lock-in” terms. With stablecoins like Kinesis’ KAU and KAG, there is the added benefit of securing value over time with the currencies backed by physical precious metals, in addition to no “lock-in” terms, that gives utility and liquidity to users’ investments.
Crypto dividends methods and coins
Depending on your preference, you should choose a combination of options that will combine high returns for the risk you are willing to take. Here are some of the best options for earning interest on your crypto.
Ethereum 2.0 is currently the asset that is staked the most with almost 160 billion. The largest platform for staking ETH 2.0 is Lido finance with an interest rate of 4.8%. Even though the risk and reward ratio is great, you won’t be able to use your Ethereum until ETH 2.0 is released — and the date for that is still unknown.
Curve finance or CRV is the largest liquidity pool built on the Ethereum chain. Currently, there are 23.3 billion assets locked on the platform. The curve became famous for its market-making algorithm which allows users to exchange stablecoins that are pegged to fiat. The interest rate for fiat is pretty high, around 20%, and since prices won’t change a lot, it decreases the chances of impermanent loss.
Maker DAO or MKR is a decentralised lending and borrowing platform. It is currently second (by size) with 19 billion assets locked. On Maker DAO, usually, people provide ETH or some other cryptocurrency as collateral and loan DAI as a stablecoin. If the price of collateral goes down, you either need to provide more of it or you need to accept a 13% loss.
There are many ways and platforms where you can earn dividends on your assets. Make sure to do your own research, especially if you are looking to earn interest on some smaller coins.
Trading vs dividends
Many people think that they need to do daily or swing trading to get earnings in the crypto markets but, as we’ve discussed, there are other ways of getting passive income.
Daily traders try to identify good entry and exit points and execute the trades from a few minutes to a few hours. Swing traders are doing the same thing, but usually, the trades last from a few days up to a few months. Since the frequency of the trades in swing trading is lower they are usually aiming for a bigger return per trade.
In today’s markets, crypto dividends can be high, and just by holding or staking assets, investors can outperform most traders. Also, volatility is decreasing over time which lowers the potential for traders to identify good entry and exit points and get the same returns as they were able to do in the past. Due to this, most people will fare better by staking and earning passive income than trading.
Future of crypto dividends
Decentralised finance is still a new and fast-evolving field in the blockchain space. We had many different tries and different approaches to earning interest on your crypto. Many of them failed, many of them are still in the experimental phase and evolving as well.
The most recent boom was Olympus DAO and its forks that are giving over 1000x per year if the price remains the same. We are still early and decentralised finance is one of the most bullish segments in the blockchain industry.
To find out more about cryptocurrency investment, see our blog
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
