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 stable coins 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.