More investors are holding cryptocurrencies for potential long-term gains. But few know it can be a source of passive income. Proof of stake (PoS) is a standard mechanism used in Blockchain channels such as Tezos to validate transactions. Proof of stake (Pos) is the advanced version of Proof of work, the original agreement algorithm used in Blockchain technology to authenticate transactions and add new units. Proof of work (PoW) required a mammoth amount of energy and time to transact cryptocurrency, while PoS provides ownership based on the percentage of miner`s holding of the coins.
Proof of stake (PoS)
As the cryptocurrencies are protected in validator nodes, PoS are required to facilitate a transaction. This allows you to earn rewards from the Blockchain and share a transaction charge. PoS is more protected from third-party intervention, but surprisingly Bitcoin, the most used cryptocurrency, uses Proof of Work (PoW) to validate transactions. Staking is another feature in Blockchain that facilitates liquidity, lending, and yield farming in centralized or decentralized crypto exchanges. If you use your cryptocurrency in trading pair trading that deeps the liquidity of the instrument, you can earn a commission from the trade. Cryptocurrency news provides information about passive income from holding cryptocurrencies.
You can earn interest if you lend cryptocurrency to a borrower. From the yield farming option, you can earn rewards for providing liquidity and extra tokens generated from DeFi applications. Yield farming is an intricate process assimilating various strategies to lend, stake, and hold cryptocurrencies across multiple exchanges or DeFi protocols. Yield farming or liquidity mining is becoming a more popular source of passive income from digital assets for miners. You can improve the exchange liquidity by lending or staking cryptocurrencies and thus earning rewards from the process.
Apart from the reward, many DeFi protocols issue tokens denominating your share in the liquidity pool. These tokens can be used in other platforms for potential gains. Based on the DeFi protocols, the number of coins involved in liquidity mining can vary from one to seven to eight Altcoin. Nevertheless, as a rule of thumb, the more unstable Altcoin and protocols you use yield farming, the potential danger increases significantly. To make an optimal plan about yield farming, you need to have a basic understanding of cryptocurrencies and pair trading.
The potential return of 50% annually
Yield farming plays a pivotal role in decentralized DeFi platforms providing the necessary liquidity. Through smart contracts, you can earn passive income by pledging your cryptocurrency holding. Usually, passive income from cryptocurrency ranges from 5 to a maximum of 10%, but yield farming can provide a return of 50% annually if a proper strategy is implemented. Moreover, as the return is passive, you are not threatened by unpredictable volatility and liquidity crunch in the crypto market.
From Cryptocurrency news, you will get information about Polkadot, the trending Blockchain platform operating on proof of stake instrument. The current market capitalization of the project stands at $15.6 billion and trading at $16.28 billion. So owning a validator node requires a considerable amount, something around $40 million fetching an annual return of 14%. But fortunately, you can take advantage of a delegation to lend your cryptocurrencies to a validator node with twenty-eight days locking periods.