By Judy Smith
Bitcoin and cryptocurrencies are experiencing a new wave of popularity in 2020. Prices are soaring and the market is comfortably set for another record-breaking bull run.
Many are already familiar with the fact that they can buy bitcoins, hold them for some time to resell them for profits at a later date. However, this is not the only way that you can use Bitcoin to make profits out of it.
In this article, we will talk about an alternative way to increase your gains from the cryptocurrency markets and that is cryptocurrency deposits. First, we will explain this concept, to finally share with you a list of the most popular platforms, each with their pros and cons.
What are cryptocurrencies?
Cryptocurrencies are digital currencies, that were first introduced to the general public with the release of Bitcoin, back in 2009. The first cryptocurrency was a true peer-to-peer digital payment system, aimed to provide people the freedom on how to use their money by eliminating banks and governments from the equation.
Since, over 5000 other cryptocurrencies have appeared on the markets through the years, each one trying to bring something new to the table.
- The ethereum network functions as a global supercomputer here developers can deploy different decentralized applications.
- Smart contracts are self-executing contracts. One of the most significant smart contract standards is known ERC-20, which allows developers to implement their own cryptocurrency within the Ethereum blockchain.
Many of these cryptocurrencies today allow their holders to gain passive income through deposits. Here’s how that works.
What are cryptocurrency deposits?
Cryptocurrency interest-earning has emerged as one of the most popular ways to make profits out of your cryptocurrency holdings. Similar to depositing traditional FIAT assets like the Euro or the US dollar in a bank, users can deposit their cryptocurrencies on different platforms to gain interest.
The facilitating platforms can use these funds in various ways, such as to lend these tokens to other users for trading or other purposes like lines of credit in FIAT value.
There are two types of platforms that can be found on the market:
- centralized (or custodial) - where the customer transfers their funds to a custodial wallet handled by the platform, similar to traditional banking systems.
- decentralized (or non-custodial) - where the customer retains control of their funds but locks a certain amount of their crypto holdings to begin earning interest.
The deposit schemes can vary quite a bit from one another. For example, some require the depositor to lock their funds for a fixed amount of time. Others will allow you to withdraw at any time but will charge you with hefty withdrawal fees instead.
Also, investing in cryptocurrencies isn’t exactly risk-free. Cryptocurrencies are volatile assets and can lose a fair bit of value in short amounts of time. The fact of having your funds locked in a wallet increases the risk that your tokens might be worthless once the deposit period is over.
Nevertheless, there’s also the chance of making excellent gains with these platforms, especially compared to traditional deposit banking schemes. ROI can greatly vary between platforms but offers often yield between 10 and 15% on a yearly level. This is considerably more than the usual 1-2% offered by banks, which hardly even covers yearly inflation rates.
Top deposit platforms for 2021
Below are some of the most popular deposit platforms on the market.
Nexo is a financial product launched by Credissimo, a leading FinTech group that has been serving millions of users from all over Europe for more than a decade.
It is a custodial platform for instant crypto loans that provides its services in 40+ FIAT currencies and in more than 200 jurisdictions.
Celsius Network is a custodial crypto wealth management platform that allows you to borrow and lend crypto assets.
This deposit system works on a tiered (bronze to platinum) system and is the most advantageous when used with their native CEL token.
Aave (previously ETHLend) is one of the pioneers of the decentralized deposit ecosystem. This Ethereum-based platform allows its users to lend and borrow a large range of Ethereum-based assets that include DAI, Ethereum, USDC, TUSD, USD, BNB, BAT, and more, with competitive interest rates.
However, the biggest drawback is that there’s no support for Bitcoin.
Depositing cryptocurrencies is a great way to earn passive income for long time holders. Platforms are relatively risk-free and have, until now, provided good returns for investors.
As long as you understand the risks of investing in crypto, depositing it on a centralized or decentralized platform can be a good way of adding an alternative source of cash flow to your portfolio.