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One concept new crypto investors have a hard time wrapping their heads around is the idea that you can earn passive income in crypto.
Thanks to the blockchain, crypto is home to some of the world’s fastest-growing, most innovative tech businesses… and it’s only getting started.
But let’s use stocks as an analogy for a second…
In the stock market, you can either invest in tiny, speculative, high-upside stocks. OR you can invest in dividend-paying stocks to earn income. You can’t do both in the same investment.
That combination simply doesn’t exist in the stock market.
But in crypto, it does…
Today, I brought in Chief Analyst Stephen McBride to share the details… including one method crypto businesses use to reward early users…
Chris Reilly: Stephen, you’re saying anyone can earn passive income from crypto today?
Stephen McBride: Correct. It’s hard to fathom because it’s so different from what has ever existed in regular finance. Certain small cryptos can give you a chance at venture capitalist-like returns of 100‒1 or 1,000‒1. And some of these very same cryptos can pay you to own them—effectively giving you a stream of yield.
Today, though, let’s talk about some of the basics.
First, do you know what the current national average APY on savings accounts is?
Chris: It’s got to be lower than 0.5%...
Stephen: Yeah, try 0.07%, according to the FDIC.
Right now, there are a handful of cryptos you can buy on Coinbase that pay more than 70X that…
Coinbase is the largest crypto brokerage in the US. You can buy and sell over 100 cryptos on Coinbase, similar to how you’d buy and sell stocks on Fidelity or TD Ameritrade.
And as I said, a handful are paying out 4%... 5%... and more. You can earn 5% APY on Cosmos (ATOM) and 5.75% APY on Algorand (ALGO) right now:
Source: Coinbase
Now, I’m not recommending these coins. And to be absolutely crystal clear, owning them is not comparable to a bank account by any stretch of the imagination. Unlike dollars, the value of these cryptos moves around—a lot.
Chris: I see. So they’re more like dividend-paying stocks.
Stephen: Right. Take SushiSwap for example…
Sushi is an online exchange that allows you to buy and sell thousands of different cryptos. Over $4 billion worth of trades happened on its platform in the past month. It makes money by charging a 0.3% fee on each trade.
Investors who own one of SushiSwap’s tokens, called xSUSHI, get 0.05% of this fee. In the past month, Sushi has paid out $2,000,000 to token holders.
Chris: How is the dividend paid out?
Stephen: The company takes some of the cash generated from transaction fees and uses it to buy Sushi tokens in the open market. Then it gives these tokens to the holders.
So the dividend isn’t paid in cash, it’s paid in Sushi tokens. And the dividend is paid daily. When you own xSUSHI, your balance will rise every day.
It’s important to understand that all cryptos are different.
For example, Maker (MKR) rewards token holders by buying MKR tokens off the market and “burning” them. In other words, they get deleted from existence—thereby reducing the supply.
Chris: Sounds similar to buybacks in the stock market…
Stephen: Exactly. By “buying back” tokens, the supply is reduced, and the remaining tokens should increase in value.
Chris: Are there any other passive income strategies in crypto?
Stephen: There are plenty…
But let me share one more idea. Remember how awful dial-up internet was?
Chris: I do, and I’m glad it’s history. I remember when people had to pay by the hour to use the internet.
Stephen: That’s right. Then broadband came along and gave us the gift of high-speed internet. Now we can video call our friends in HD… stream movies… and do virtual tours… for $60 a month.
A similar “broadband moment” is happening in cryptocurrency.
Specifically, it’s happening with Ethereum (ETH), the second-largest crypto. On Ethereum’s blockchain, other cryptos are being built. Today, using Ethereum’s blockchain is slow and expensive. Yet, it’s still the largest blockchain in the world. Most crypto activity still happens on top of Ethereum.
Chris: And Ethereum is going to get better?
Stephen: Exactly. You see, something called rollups or layer 2s are going to make transactions much simpler and cheaper to process. I don’t want to get too into the weeds on those, but as Ethereum starts using more rollups, it’ll only get better.
There are multiple rollups live right now, and there’ll be more coming in the future. Currently there’s about $4.9 billion locked in these rollups.
Chris: That’s interesting… but what does it mean for our readers?
Stephen: Well, today, none of the major rollups or layer 2s have released tokens yet. But they’ve all indicated or explicitly stated that tokens are coming.
You can think of it like a private company hinting that it’s going to IPO soon. And, in crypto, one of the most popular methods of distributing tokens is to “airdrop” them to early users.
An airdrop is when a crypto business rewards users with tokens. Uniswap (UNI) famously did this back in 2020. It basically airdropped 400 UNI tokens into the crypto wallets of early users, which at the time was worth about $2,000. Essentially, free money.
Ethereum Name Service (ENS) is a popular protocol that lets you personalize your Ethereum wallet addresses and web domains. It made headlines in November when it airdropped 25 million tokens to domain holders.
Chris: So these rollups are likely to airdrop tokens to early users. Is it possible for readers to benefit from them?
Stephen: Having looked at all the options, I think the simplest way is to use the Argent wallet. It's an easy-to-use mobile wallet that you download as an app on the Apple App Store or the Google Play Store.
And the great thing about Argent is you can do many things with it. At the click of a button, you can lend crypto, stake Ethereum, farm crypto yields, or buy crypto tokens.
Argent recently integrated with one of the most exciting rollups called zkSync. Basically, everything you do on Argent runs on zkSync. Anytime you make a transaction, it goes through zkSync's rollup. So, by doing anything on the Argent wallet, you potentially put yourself in line for one of these airdrops.
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