Interest earners are one of a kind in crypto. You don’t find many of them, and many traders don’t even know they exist. So what if you could earn more than all of them by lending money the right way?
It happens all the time.
“Cryptocurrency will survive regardless of any one country. Most countries that try to ban bitcoin cause their citizens to want cryptocurrency more.” — Chanpeng Zhao, Binance Founder
Interest earning refers to yield farmers, stakeholders, and liquidity providers. These are different names given to crypto lenders based on the method used. They lend money to trading platforms (AKA liquidity) in exchange for interest and rewards.
What makes interest earners effective is their unpopular approach to investing. They’re both systematic and intuitive. Cautious and risk-tolerant.
They can profit in almost any environment, whether they’re active or passive.
Selling Shovels In The Gold Rush
Interest earners are no fools. Why chase crypto gains when you can make just as much (if not more) by helping other traders? If you see the crypto bull run like a gold rush, interest earners are the entrepreneurs selling the shovels.
Think of all the coins that can only launch on platforms like Uniswap, dYdX, or PancakeSwap. Traders can’t get them without decentralized exchanges. The liquidity providers who joined early must be swimming in money by now, yielding at times four-digit APRs.
Get Paid To Manage Risk
Whether it’s a 1% interest rate or 100%, interest earners know they will make money. They don’t need to worry about it. All they have to do is manage risk.
Because they don’t have to think about profits, they have more time to think of potential losses. So they can avoid them on time. And if they lose, they still get interest % to help break even.
If day traders make profits from price changes, interest earners make it from price stability. Either (a) the price has to move sideways or (b) both currencies move the same as a pair. The smaller the difference (and higher the volume), the higher the interest rates.
Stablecoin-crypto pairs make a conservative choice: Binance Coin, Cardano, ChainLink, LiteCoin, and Cosmos mainly.
For better gains, look for correlated pairs like ETH-BTC, LTC-ETH, ADA-NEO, ETH-EOS, or XRM-BCH. If you compare their price history, they’re at least 80% proportional.
Example: BTC costs $10 and ETH costs $1. If BTC goes up to $20, ETH may go between $1.60 and $2.40.
Warning: Correlation rates will change during project updates (e.g., Ethereum 2.0. launch). Only lend to these coins after prices stabilize.
Interest Earner Pros
Many Ways to Profit
Most traders only make money when their coin goes up. If you’re okay with risk, you might also short the coin and make money when it falls. Interest earners can earn when it moves sideways, down, or up.
In that order (from most to least), they make profits.
As soon as interest earners identify the market direction, they can adapt their strategy to keep earning. Unlike holders, their money is always working.
After you lock a crypto loan for a week or two, you can get it out, along with APY split into daily interest. Unlike traditional lenders, interest earners can get back their loans anytime. Unless they’re staking.
Also, the principal can’t go to zero. The lending platform cancels the order after the value falls below a critical threshold. With low-risk strategies, you’re guaranteed positive interest, which helps to avoid emotional investing.
Interest earning fits both investing styles.
Active traders can yield-farm on liquidity pools and collect interest every few days. You farm until you find a coin with enough trading volume and better APY. You then withdraw your loan and create a new one under the more profitable token.
Platforms like Yearn Finance do it automatically.
Passive investors earn the most from staking (from 30 days to 6 months). And when the coin devalues, interest goes up to adjust for inflation. Assuming the coin reverts up by the end of the term, you made easy passive income.
Interest Earner Cons
How to play on your strengths as a holder?
Especially in bull markets, interest rates change all the time. It’s not something you can set and forget (if you want to best return). The “best interest strategy” may only work for a few days before something else becomes the “new best”.
In traditional lending, variable either means go up or down to a limit. Here, it can go as low as 0% APR, even negative.
Interest earners profit by providing liquidity to platforms like Uniswap. As they become mainstream and get enough supply, lending rewards decrease.
The APR isn’t a good reference, as it’s guaranteed to fall within a year. If you also collect from transaction fees, however, things change.
Interest earning is optimal when prices move sideways. And while it can be adapted for other trends, it’s too complex and ineffective in comparison. It’s easier to profit from holding a good project than using a correlation farming strategy.
This complexity can lead to mistakes and slow decisions, which doesn’t help active traders.
How to play on your strengths as an interest earner?
Every day in Uniswap, traders happily pay $50 per transaction to get exclusive coins. Over $100 per trade on the busiest hours. These fees don’t just go to the platform, but mostly to interest earners.
When offering liquidity, the platform also rewards you with liquidity (LP) tokens (UNI token pairs in Uniswap, COMP in Compound Finance…). The money you earn on fees is proportional to the LP tokens you hold.
If interest earners put in the research to find the next Uniswap, that would be enough to fulfill their crypto dream.
Interest earners seek price stability. They don’t buy into momentum spikes, so if they were to buy coins, they’d make better decisions.
Now, traders and holders can get greedy about the profits they could make. But interest earners have guaranteed profits (no matter how small), so they’re not as affected by these emotions.
Like day traders, interest earners (yield farmers) watch prices closely. They look for correlations to know what to lend. Maybe also predict coin prices based on interest rates.
Unlike traders, active interest earners analyze both the coin price and interest data. So they recognize patterns that other traders wouldn’t see.
What blind spots to watch out for as an interest earner?
Unless there’s some DeFi breakthrough, the safest coins to farm rarely offer 5% APY or above (unlike 100%+ in early stages). To make decent money, you’ll need to lend coins to platforms that aren’t that established yet.
New projects always seem to offer four, even five-digit APYs. The hidden risk is, those new tokens may be worth nothing a year later. Small projects are volatile, and without enough liquidity, you can almost guarantee impermanent loss.
Interest earners don’t follow on the market the same way day traders do. They may falsely believe that coins are more stable than they are. And if they’re wrong, they might hope for trends to revert (like holders).
They may not know, for example, that hundreds of traders place stop-loss orders at specific prices. Due to momentum, prices keep falling and it could take months to come back up. A day trader would easily prevent this with technical analysis.
Any beginner can profit from interest. Now, the difference between 2% and 100% APY is complexity. Interest earners have to decide if lending it’s worth the gains (when they might hold the coin instead).
Platforms like Aave and Uniswap promise the best returns, at least for a few hours before competitors saturate the pools. You either need to outsmart other lenders or get to liquidity pools early. To get in early, it may mean watching the markets for weeks.
Independent research isn’t less complex. You could find new platforms with high-APY, assuming they’re not rug pulls (scams).
Doesn’t sound beginner-friendly.
With so many choices, how do you find the best crypto strategy? Whatever it is, it only works if you apply it. To do so, it has to match with how you think:
Interest earners should take advantage of their skills (decision making and pattern recognition) when looking for lending choices. As long as they keep a simple strategy and don’t lose sight of the market trends, it’s a matter of time they profit.
When you play on your strengths and plan for weaknesses, you give yourself the best possible chance for success.