Whether you're new to crypto or a long-term HODLer, it's likely you're always on the lookout for new ways to optimize your portfolio. In our opinion, two of the best ways of doing this are through cryptocurrency staking and lending. Offering fantastic passive income returns that surpass traditional investment instruments by far, these relatively new crypto-financial tools can supercharge your gains through the power of compound interest.

Bitcoin and cryptocurrency have from the very beginning set out to provide alternatives to traditional financial institutions. Indeed, one of the driving forces behind Bitcoin's initial release in 2009 was a frustration with recession-era monetary policy, which included the introduction of inflation-inducing, ultra-low central bank interest rates. Bitcoin's immutable ledger and limited supply were envisaged to create an inflation-proof electronic money, in stark contrast to fiat currencies.

Given a return to record-low interest rates in today's post-Covid era, little has changed in terms of governments' approach to money over the last decade and a half. As a result, institutional and retail investors alike are moving their capital en masse out of what were previously considered to be reliable income-generating sources, like bank deposits and bonds, and into the stock market. Following the same tendency, mainstream interest in crypto investment has reached an all-time high.

Now, the next big fintech trends are the crypto equivalents of cash deposits (CDs) and lending. The first, called 'staking,' and the second, generally referred to simply as 'crypto lending,' offer fantastic opportunities for investors to reliably receive extremely high annual percent yields (APYs).

What is staking?
Staking can be most simply defined as a way for holders of cryptocurrencies to receive rewards in exchange for locking their coins in a wallet. These token rewards can be thought of as the crypto equivalent of the dividends that are paid out to shareholders in certain companies. While stock dividends represent a share in the profits earned by companies, staking rewards from cryptocurrencies are the coin holder's share in transaction fees or in some rewards scheme on the network.

To give a more technical explanation, cryptocurrency staking serves a central role in Proof-of-Stake (PoS) blockchains by securing the network against attacks. By choosing to stake you coins, you essentially become a miner, directly (if you hold enough coins) or indirectly (via a pool) helping to verify network transactions.

With APYs in the double digits, income that can be generated from staking often exceeds that offered by financial instruments like CDs by more than a factor of ten. This is an excellent way for all kinds of investors to increase their capital.

Cardano (ADA)
Cardano is currently the largest proof-of-stake blockchain network in terms of market cap. With its academic approach to development, enthusiastic community, and unofficial leadership by one of Ethereum's founders, Cardano is expected by many crypto users to dominate the decentralization of certain segments of the world economy. Typical APY for Cardano staking is in the 4-6% range.

Polkadot (DOT)
Also led by one of the founders of Ethereum, Polkadot aims to achieve blockchain interoperability in order to facilitate the cross-network transfer of data and value. This is one of the most profitable staking opportunities for crypto investors, with yields hovering around 12%.

Ethereum 2.0 (ETH)
While the Ethereum blockchain is still not expected to shift to PoS until at least 2022, it is already possible to begin staking tokens there. Indeed, even despite the fact that investors will not be able to withdraw rewards or staked tokens until that time, more than 13 billion dollars in Ether have already been locked in the network. Yearly rewards are in the 5-7% range.

Binance Coin (BNB)
A utility token that serves various roles within the Binance exchange ecosystem, BNB is one of the most actively traded coins across crypto markets and is frequently staked as a part of a highly profitable rewards program.

NEO
The "Chinese Ethereum," while not one of the largest networks out there, offers investors a solid means by which to diversify their staking portfolios. Rewards are in the single digits, but still reliably surpass those of bank deposits.

How to stake crypto
The way that you should begin generating a passive income through cryptocurrency staking largely depends on the size of your portfolio. Basically, depending on the underlying network of the cryptocurrency in question, you may be required to hold a certain number of coins or tokens in order to stake independently. For example, staking participants on the Ethereum network are required to hold 32 tokens, valued currently at nearly 70 thousand dollars.

If you do have enough tokens to stake on your own, you will need to hold them in a specific wallet. There may be other technical requirements and complexities involved. Feel free to contact us if you have any questions regarding this process.

Smaller portfolios are by no means excluded from receiving staking rewards. All that's required is to take advantage of services that have been specifically created to allow even small-scale investors to deposit and stake their coins. These platforms, run by popular exchanges (like Kraken or Binance), and specialized services (Staked and Stake Capital), enable users to begin staking — and to withdraw rewards — with just a few clicks by pooling resources in common wallets.

Before getting started with staking, we highly encourage you to compare platforms and to pay special attention to fees and withdrawal wait times. Our crypto consultants are on hand if you require any specific advice.

One of the major ways that crypto-financial service providers earn money is by offering crypto loans and margin trading to cryptocurrency traders and institutional investors. Much like how banks fund their lending using money deposited by account holders, these cryptocurrency lenders depend on coins and tokens deposited by the public in order to provide financial services. Unlike traditional lenders, though, crypto fintech offers anyone who deposits cryptocurrency really quite significant annual yields.

Crypto lending is an extremely lucrative business and the APYs paid out to investors, like staking, reaches the low double digits. Depending on personal preferences, investors can choose to deposit their funds in either a decentralized lending platform or into a centralized one.

In practice, depositing funds in a DeFi or CeFi platform may seem even simpler than staking to many crypto users. The process really is as easy as creating an account on the platform, going through KYC/AML verification, and transferring funds.

Popular DeFi lending platforms include Compound, AAVE, and dYdX. The advantage of the decentralized option for investors is, of course, security. When you deposit funds into one of these applications, smart contracts - and not humans - ensure that your money will be returned to you. However, it's worth noting that demand for these decentralized services from borrowers can at times be limited, which leads to lending yields being sometimes volatile. The centralized alternatives may in the long term offer better APYs.

Some of these Centralized Finance (CeFi) solutions include NEXO, Celsius, and Blockfi. What is lost with these platforms in terms of decentralization is usually gotten back by investors in terms of higher interest rates. Security should not be too big of a concern, as these platforms are all professionally managed and no hack of financial data has yet to occur in the industry (knock on wood).

In our opinion, one of the most exciting yield generation strategies is stablecoin lending. A stablecoin is a cryptocurrency that holds a value at all times equal to that of some other asset. Most popular stablecoins hold 1:1 value equivalency with the USD. By purchasing stablecoins (perhaps through our crypto broker partner Alterxe) then depositing them on a lending platform, investors can hold their money in a non-volatile currency and receive APYs of as high as 9%. Nothing in the traditional financial system promises gains anywhere near this number.