How to Earn Interest on Crypto in 2023
Learn how to earn passive income on your crypto by earning interest.
- Writer Eric Huffman
- andEditor Shannon Ullman
- May 31, 2023
- •5 Min Read
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Key Takeaways
- Exchanges like Coinbase and Nexo offer the easiest ways to earn interest on crypto from staking or lending.
- You can often find higher yields through DeFi protocols, such as decentralized exchanges that let you earn swap fees for providing tokens to liquidity pools.
- A growing number of protocols share user fees with those who stake the protocol token. This strategy provides passive income similar to dividend stocks.
Decentralized finance (DeFi) borrows some ideas from traditional finance, like lending and borrowing, and then adds a few crypto-specific ways to earn, like staking and liquidity pools (more on those later). Best of all, there’s no middleman. Instead, decentralized apps help you maximize your earnings on crypto interest rates.
How much interest can you earn with your crypto? Yields of 1% up to 20% are possible, but some yields might be safer (and easier) than others. Ready to learn more? Let’s explore the various ways to earn passive income with crypto.
What Does It Mean To Earn Interest On Your Crypto?
Earning interest on crypto means the same thing in the crypto world as it does in the traditional finance world. If you buy a bank CD or a treasury, you earn a yield, which is the interest paid on your money. Crypto APYs are similar. You can earn a percentage of your principal — or crypto in this case — as interest or rewards. Over time, those extra earnings add up in your crypto interest account.
Pros & Cons Of Using Crypto To Earn
Pros
- Earn a return on cryptos you’re already holding for the long term
- Increase returns even in down or flat markets
- Easy to get started with simpler methods like exchange lending or exchange staking
Cons
- Some yield strategies can be complicated
- Higher yields might come from token inflation
- More research is required compared to buy and hold
How To Earn Interest On Your Crypto In 6 Steps
There are several ways to earn a yield on crypto, so we’ll have to choose one for this example. Let’s do lending because it's one of the easiest ways to earn a yield. Just like in the traditional finance world, there are people who have money and people who need to borrow money.
Let’s lend those people some crypto in DeFi.
Step 1: Choose A Lending Platform.
It may seem out of order to choose a crypto lending platform first, but it’s better to look at lending platforms before you choose a crypto to lend, especially if you’re just getting started. Specifically, you’ll want to check to see which cryptos are supported on major DeFi lending platforms like Aave or Compound.
Step 2: Choose a crypto to lend.
Think about this part carefully. You’ll have to hold whatever crypto you choose while the market does its up-and-down thing. If the price goes down by 15% and you earn a 3% yield, you lost money, at least on paper.
If you’re okay with holding the crypto you choose, lending offers a way to get paid while you wait. Many people choose to lend stablecoins which are designed to track the value of another asset, like the USD.
Step 3: Transfer crypto to your crypto wallet.
If you don’t have any ETH yet, you’ll have to buy ETH to lend. After you have some ETH, you’ll want to transfer it to a crypto wallet you control. MetaMask is a popular, battle-tested crypto wallet.
When you withdraw from an exchange, be sure to withdraw on a network supported by the lending platform you chose. To keep things simple, let’s withdraw ETH on the Ethereum network.
Step 4: Deposit your crypto.
Connect your wallet to the lending app you want to use and look for your crypto (ETH) in the “supply” list. Let’s use Aave in this case.
You’ll be supplying so others can borrow. It's a big lending pool, much like a money market. Deposit the amount you want to lend. Most platforms will give you a receipt token that represents your interest-bearing lending position.
Step 5: Earn interest.
Your ETH is now part of the lending pool. As others borrow from the pool, you’ll earn a proportional share of the interest earnings. Most lending platforms pay interest in the same crypto you’re lending. So, if you lend 1 ETH for a year at 3% annual interest, you’ll have 1.03 ETH you can withdraw at the end of the year.
Step 6: Withdraw your crypto and earnings.
When you’re done lending, you can withdraw your ETH along with the interest you’ve earned. Your receipt tokens will be exchanged automatically for ETH.
Strategies For Earning Interest On Crypto
If you want to learn how to earn interest on crypto, try one of these methods. Generally, they fall into the following categories:
- Exchange lending: You lend crypto to other people (through a centralized exchange) and earn interest.
- DeFi lending: Instead of lending through an exchange, you can lend on decentralized applications (dApps) like Aave or Compound.
- Exchange staking: You commit some crypto to help validate transactions on the network. In exchange, you receive staking rewards. Exchanges like Coinbase and Binance offer staking right from your trading account. However, staking can take other forms as well.
- Delegated staking and staking pools: Exchange staking makes staking easier, but you can help decentralize crypto networks while earning a yield through delegated staking or staking pools. You’ll still earn staking rewards, but you’re staking to an independent validator or a pool.
- Providing liquidity: Decentralized exchanges let people swap one token for another through liquidity pools, and these liquidity pools are provided by other traders who earn fees for making swaps available.
- Real yield: Several projects share platform fees or other earnings with token holders. GMX on the Abitrum chain is a good example. Another would be Curve Finance. Usually, real yield also requires staking.
- Yield farming: With yield farming, the idea is to move your funds to wherever you can get the best yield — much like a farmer rotates crops. Yield farming might include any of the above earning methods, and there are even a few apps, like Beefy Finance and Yearn Finance, that can automate some of the processes.
1. Exchange Lending
Difficulty level: Beginner
Pros
- Beginner-friendly process
- Buy and lend on the same platform
- Earn a yield on assets like Bitcoin that can’t be staked
Cons
- Risk that the exchange might pause withdrawals or disappear altogether
- Not available through US exchanges
- Often long lockups
- Lenders can lose money if borrower liquidations don’t happen fast enough
If you live outside the US, you can lend crypto through a centralized crypto exchange like Binance or KuCoin to earn interest on your crypto. (The US views lending contracts as securities).
The lending process is pretty simple.
- Deposit your crypto in the lending portal and choose a lock duration (if needed). Some platforms let you withdraw at will, while others require you to lock your crypto for a certain amount of time — although typically with a higher yield for longer locks.
- Withdraw your deposit and earnings. Whenever your lock period ends, you can withdraw and sell, or HODL, or move on to the next opportunity.
Typically, yields from crypto lending range from 3% up to 15%, depending on the cryptocurrency you lend and the lock length.
Exchange lending works a lot like a money market fund, matching borrowers with lenders. You deposit your crypto into a lending pool, and borrowers can take collateralized loans from the pool. But while exchange lending is one of the easiest ways to earn passive income with crypto, it’s not foolproof.
Risks for this type of earning include the chance that the exchange itself might pause withdrawals or go out of business, as happened with FTX. Be sure to research the exchange before depositing your crypto. There are no guarantees.
2. DeFi Lending
Difficulty level: Beginner/Intermediate
Pros
- Typically no locking is required
- Swap assets to capture a higher yield
- More private lending
Cons
- Smart contracts may have flaws that can put your funds at risk
- Requires knowledge of crypto wallets
- Lenders can lose money if borrower liquidations don’t happen fast enough
Decentralized lending works similarly to exchange lending. You still provide crypto for others to borrow, and you still earn interest on your crypto. But there are some key differences.
- Wallet-based lending: Instead of depositing your crypto on an exchange, you deposit your crypto into a smart contract on the blockchain by connecting your crypto wallet. Smart contracts are just computer programs — in this case, lending and borrowing programs.
- Interest-rate algorithms: On decentralized lending platforms like Aave, the interest rate you earn depends on borrowing demand for a given crypto — and it can change in a blink. In many cases, you can swap lending assets right on the platform to capture a higher interest rate on another crypto on the platform.
DeFi lending isn’t difficult, but it requires being comfortable with a self-custody crypto wallet, such as MetaMask or Coinbase wallet.
3. Staking on an Exchange
Difficulty level: Beginner
Pros
- Beginner-friendly process
- Buy and stake on the same platform
- Earn passive yield with minimal risk
Cons
- Risk that the exchange might pause withdrawals or disappear altogether
- Limited to select cryptocurrencies
- Delays to unstake
Blockchains like Ethereum use proof of stake to validate transactions on the network. Basically, people commit crypto to a validator (a computer running specialized software), and if the validator breaks the network rules, some of that staked crypto is at risk. In exchange for this risk — albeit small in most cases — you’ll earn staking rewards paid in the same crypto you’re staking.
Exchanges usually provide the easiest way to stake crypto, allowing you to buy ETH, for example, and then stake your ETH to earn crypto interest as passive income in just a few clicks. Many times, exchanges run their own validators and take a cut from staking rewards.
Pay attention to staking lock periods and cooldown periods. You might not be able to withdraw from staking right away, so consider staking for cryptos you don’t mind holding through market ups and downs.
4. Delegated Staking and Staking Pools
Difficulty level: Beginner/Intermediate
Pros
- Possibly lower fees
- You keep custody of your crypto
- Earn passive yield with minimal risk
Cons
- Misbehaving validators can lead to “slashing,” in which you lose some crypto
- Requires knowledge of crypto wallets
- Requires the willingness to research validator stats, including uptime and average rewards
- May require a minimum staking amount
You can stake crypto on an exchange, which is the most beginner-friendly option. But if you’re comfortable with using crypto wallets, you can stake to a validator directly — or you can use a staking pool.
- Staking to a validator: When staking to a validator, you choose which independent validator to entrust with your crypto. You keep custody of your staked crypto, but it’s locked in a smart contract until you unstake. The validator uses your delegated tokens to increase its chances of being chosen to validate a new block on the chain. Once the validator receives rewards for validating a new block, the staking rewards are shared with the people who staked their tokens. (The validator takes a cut in most cases.)
- Staking pools: In the end, all staking leads to a validator, but rather than staking directly, you can join a staking pool, like those used by the Cardano network. Staking pools allow users with smaller amounts of crypto to participate and earn passive income through staking.
Liquid staking is another kind of staking pool. In liquid staking, you deposit your crypto into a smart contract that gives you an equivalent token that earns staking rewards but which you can sell or use in other DeFi activities, like providing liquidity on decentralized exchanges. We’ll cover that in a bit. Liquid staking pools, such as Lido and Rocket Pool, are extremely popular in Ethereum staking.
You can also run your own validator (or use a provider like Stakefish to run it for you). However, running your own validator typically requires advanced hardware, specialized software, business-class data speeds, and a knack for working with computers.
5. Providing liquidity
Difficulty level: Intermediate
Pros
- Higher APRs compared to lending or staking
- You can pull your liquidity at will in most cases
- Earn passive yield with minimal risk
Cons
- Risk of impermanent loss
- Some platforms require locking periods, during which you can’t withdraw your liquidity
- Requires knowledge of crypto wallets
Most people are familiar with centralized exchanges like Coinbase or Binance. Another kind of exchange, called a decentralized exchange or DEX, lets people swap tokens from liquidity pools. Liquidity just refers to the ability to trade or sell your assets.
For example, you can swap ETH for AAVE — all without moving your crypto to Coinbase or a similar exchange.
The inventory for these liquidity pools comes from other traders who earn a fee every time a swap takes place in the pool. For example, the top pool by volume on Uniswap (the largest DEX) currently earns almost 10% APR from swap fees when using the most common fee level (0.05%). At 0.3% fees, the yield jumps to 32.54%.
Providing liquidity comes with some risks as well, however. The biggest concern is called impermanent loss, which can happen when the values of the tokens in a pair don’t move at the same rate. In some cases, you might have done better by holding the tokens rather than providing liquidity.
Some protocols, like Curve, give users platform tokens as well. Generating additional yield like this is called liquidity mining. But be careful. If most of the yield is in platform tokens, you might not be earning as much as you think. Sometimes the value of liquidity mining tokens can fall dramatically.
6. Real Yield
Difficulty level: Intermediate/Advanced
Pros
- Possibly very high APRs
- You keep custody of your crypto (staking often required)
- Divert yields into other projects to diversify
Cons
- Yields can vary dramatically depending on platform earnings
- Research intensive
- Some real-yield projects also make stakers take real losses when the platform loses money
Real yield in crypto is a bit like owning a dividend stock. You get a cut of the earnings from the platform.
For example, by staking CRV tokens, you can earn fees generated by Curve Finance, one of the leading DeFi protocols. Curve Finance pays out 50% of platform fees to CRV stakers.
You’ll be using your own crypto wallet rather than an exchange, so this one is better for intermediate or even advanced crypto users. Often you’ll have to stake your tokens in a smart contract on the platform itself.
The advanced label comes from the crypto research part of the job. Lots of projects show a massive yield, but many of these projects are simply minting a massive supply of tokens. Without real earnings, the ultimate value of these tokens will likely trend toward zero. Be sure you understand where the yield comes from, and then decide for yourself if the yield is sustainable.
To find projects with real yield, you might have to stray off the beaten path as well. You’ll find opportunities on Ethereum, like Curve or LooksRare, or on the Abitrum network, like GMX — or elsewhere in the crypto world.
The downside: real yield returns usually return to earth as more people discover the yield and platform earnings are split between more staked tokens. On some platforms, like GMX, you’ll also be on the hook for real losses, which can affect the token value or yield. Study the docs before you click any buttons.
4. Yield Farming
Difficulty level: Intermediate/Advanced
Pros
- Outstanding returns in many cases
- Using additional protocols may qualify you for airdrops
Cons
- Research & time intensive
- Costly fees from frequent trades
Farmers plant seeds that grow into much larger plants. They also rotate their crops every few years to get a better yield. Many crypto investors do the same thing, although they rotate much more frequently.
The idea behind yield farming is to move your capital to wherever you can get the best yield, plant some seeds and watch them grow — and then rotate. This week that might be Aave. Next week, it might be GMX. Yields change, and yield farming is all about finding that yield wherever it might be.
You might move your capital to a different project. You might even move your capital to a different blockchain. And you might even move hourly, daily, or weekly. It’s like the day trading of crypto for many, but if you choose carefully, you can stay put for a bit longer.
You might also have several yield farming strategies going at the same time. Maybe you’re earning real yield on GMX and then providing liquidity on Curve and doing some liquidity mining of CRV tokens while you’re there.
Yield farming can produce high crypto interest returns, but you have to stay attentive, especially if you have a lot of plates spinning at once. Fortunately, there are a few platforms, like Yearn Finance and Beefy Finance, that can automate some of the yield-farming processes.
Common Interest-Earning Crypto
The most popular cryptocurrencies to buy are also typically the most popular with which to earn passive income.
- Bitcoin (BTC) and Wrapped Bitcoin (WBTC): Lending
- Ethereum (ETH): Lending and staking
- Solana: Lending and staking
- Cardano (ADA): Staking
- Curve (CRV): Lending and staking (real yield)
- Aave: Staking
Stablecoins are also typically a solid lending investment because they’re generally tied to a government-backed currency. Some stablecoins you can lend out and earn yields include:
Where You Can Earn Interest on Your Crypto
You don’t have to venture into the crypto wilderness to earn APY on crypto. There are some great options with proven exchanges and platforms.
1. Lending Platforms
Crypto lending platforms range from centralized exchanges like Nexo to decentralized apps like Aave.
Visiting Nexo's site
Nexo is much more than an exchange. This Swiss-based crypto platform also is well known for lending yields for cryptos like BTC and ETH. Earn higher yields if you take your interest payments in NEXO tokens.
Read our Review
Exchange Type
Supports
Allows
Visiting Aave's site
Aave is the leading Defi lending app and focuses on major cryptos, like ETH, WBTC, and stablecoins. Yields vary based on demand. You can also stake the AAVE token to earn a yield by providing “insurance” against shortfall events on the lending platform.
Read our Review
Platform Type
Supports
Allows
Compound Finance is regarded as a blue-chip protocol in the DeFi space. Lending yields vary based on demand and the platform supports lending in ETH, WBTC, USDC, and several other major cryptocurrencies.
YouHodler is a Swiss-based company that offers high weekly APYs on major cryptos like BTC, ETH, and more. YouHodler carries $150 million in insurance for deposits, helping to ensure the safety of your crypto while earning interest on loans.
Read our Review
Platform Type
Supports
Allows
2. Staking with Exchanges
Many exchanges offer staking from your trading dashboard or just a click away. Look for menu labels like “staking” or “earn.”
Coinbase offers staking for select cryptos, including ETH, ADA, SOL, ATOM, and more. During promotional periods, you can also earn a yield on USDC.
In addition to lending yields, Nexo also offers staking for Ethereum (ETH). The company runs its own validator and exchanges staked ETH for NETH, which receives daily compounding interest with 4-12% APY.
Read our review
Platform Type
Supports
Allows
As one of the oldest crypto exchanges, Kraken has earned a solid reputation in the community. Staking for major cryptos like ETH is available outside the US.
Read our Review
Platform Type
Supports
Allows
Crypto.com provides yields on top cryptos like BTC, USDT, USDC, and its own CRO token, among others. Rewards come from staking or lending, depending on the asset. You’ll earn the highest yields on other cryptocurrencies when also staking CRO.
Read our Review
Platform Type
Supports
Allows
Binance offers a wider selection of coins for staking on their platform and pays solid staking rewards on cryptos like ETH, MATIC, SOL, and dozens more. And if you buy ETH with USD, you pay no trading fees. Buy for lower costs and stake with higher returns.
3. Yield Farming Platforms
Yield farming can be a full-time job. A few well-established platforms make the job easier.
Yearn Finance helps you increase your APY on top DeFi assets like Curve (CRV). Yearn’s vaults also pay a solid yield on tokens like USDC and DAI. There’s even a way to earn bribes for votes on governance tokens. You’ll find most of the action on the Ethereum network.
Read our Review
Platform Type
Supports
Allows
Harvest gathers some of the top yields in DeFi in one place and then pays additional yield in iFarm rewards in many cases. You can also stake FARM tokens to earn rewards.
Platform Type
Supports
Allows
Beefy adds a safety layer to DeFi by rating vaults and liquidity pools with a 10-point system (10 is safest). Choose from 19 blockchains where you can deploy capital to earn the highest yields while keeping safety a priority.
Platform Type
Supports
Allows
What To Consider Before Trying to Earn Interest with Your Crypto
No risk, no reward, right? True. But think about that carefully before using your crypto to earn interest. Lots of things can go wrong. Are they likely? Probably not, but still things to consider.
- Insolvency risk: If you’re using exchanges to earn interest or for staking, the exchange has custody of your crypto. Over the years, several centralized crypto platforms have failed, including Celsius Network, BlockFi, and FTX. It may be very difficult or even impossible to get your crypto back.
- Smart contract risk: Smart contracts are just computer programs, and they might have bugs or security issues. Look for projects that have been audited by a reputable crypto audit company to reduce your risk.
- Rug pulls: One or more members of a project team may be able to pull the tokens out of the project, leaving an empty shell behind. In other cases, team members may be able to pull the liquidity out of the main liquidity pool for the project, leaving everyone with worthless tokens for an abandoned project.
- Wallet-related risks: If someone gets the private keys for the funds held by a project, all the assets can be drained in minutes. Phishing attacks, keyloggers, and rootkits (malware) are just some of the ways a determined hacker might gain access to the private keys for a project.
Who Should Use Their Crypto to Earn Passive Income?
- People who are familiar with crypto wallets: You can earn a yield with crypto on several exchanges, but if you want to venture into DeFi, you’ll need a trusted crypto wallet like MetaMask and a solid understanding of wallet safety.
- People willing to do research: That old saying about things that seem too good to be true applies to crypto yields as well. There are some crazy high yields out there, but many times they aren’t sustainable. In other cases, they might be outright scams. Do your research before risking your crypto.
- People who can afford a loss: There are no guarantees on yields, but there may be a price-related risk. Swapping out to a new token to chase a yield could turn into a net negative if the market for the token turns south. Some platforms also require locking. So if news hits that affects your investment, you may not be able to make a quick move.
Final Thoughts on Earning Interest On Crypto
Watching crypto prices go up and then down again isn’t always fun. But if you can earn a yield that helps build your crypto stack, you just might come out ahead — and have fun doing it too. Some yield strategies, like lending, offer passive income on autopilot, while others, like yield farming, require a hands-on approach. No matter which earning strategy you choose, be sure to do your homework first. The extra time you spend on research will help you find the best opportunities and learn which crypto projects to avoid.
Frequently Asked Questions
Do I have to pay taxes on cryptocurrency earnings?
Expand to learn moreYes, in the US (and many other parts of the world), crypto is viewed as property, so you would have to pay capital gains tax on your profits when you sell or swap to another crypto. Yields, like those from staking or lending, are typically treated as income rather than capital gains.
Which tokens are best for staking?
Expand to learn moreSome of the best tokens for staking include Ethereum, Solana, Cardano, and Polkadot. Be sure to compare yields when staking through an exchange like Coinbase or Binance. Yields can vary from one exchange to the next based on fees the exchange collects for its staking service.
Which tokens are best for lending?
Expand to learn moreLook for tokens that are well-represented on lending platforms. For example, you could choose to lend top stablecoins, like USDC or USDT. The advantage of lending stablecoins is that the asset itself probably won’t change in value while you’ve committed to a lending position. ETH and BTC (or WBTC) are also popular lending options on many top lending platforms like Aave. Interest rates vary depending on the borrowing demand.
How much yield can you earn on cryptocurrency?
Expand to learn moreYields on crypto range from 1% up to 20% or more, depending on how and where you earn the yield. Lending typically pays a lower yield compared to providing liquidity on a decentralized exchange, for example. It’s important to research the platform or protocol to understand where the yield comes from and any risks that might come with using that method to generate passive income.
Is there risk in staking cryptocurrency?
Expand to learn moreStaking cryptocurrency to help secure a proof-of-stake network comes with two primary risks:
- Slashing: While rare, on many proof–of–stake networks, staked crypto can be “slashed” if the validator you’re using to stake doesn’t follow the rules of the network.
- Price risk: Staking often comes with a lock-up or cooldown period. If the price of the crypto you’re staking drops, you may not be able to exit your position quickly.
Additionally, if you’re using a centralized exchange for staking, your assets could be at risk if the exchange has a liquidity issue or closes down altogether.
Can you lend your cryptocurrency?
Expand to learn moreYes, you can lend major cryptocurrencies through centralized exchanges, like Binance or Nexo — or through decentralized lending protocols like Aave or Compound. The interest rate you earn usually depends on the borrowing demand for the asset you lend. Lending crypto puts your crypto into a pool with other lenders, from which borrowers can borrow as needed. Borrowed amounts typically require collateral, which helps ensure the safety of the loan.
Contributors
Eric HuffmanWriter
Eric Huffman is a staff writer for MilkRoad.com. In addition to crypto and blockchain topics, Eric also writes extensively on insurance and personal finance matters that affect everyday households.
Shannon UllmanEditor
Shannon Ullman is the managing editor for Milk Road. She specializes in cryptocurrency and personal finance content. Her work has appeared in publications like Insider Inc.
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