There are many ways to earn interest through crypto assets. Crypto-asset interest is interest earned on storage.
Starting from the most basic, namely buying crypto assets, trading, to mining.
You can also earn profit through crypto asset interest.
There are two ways you can earn interest on crypto assets. What are the ways that can be done?
Getting to Know Crypto Asset Interest
Maybe there are still many who don't know that crypto asset owners can get passive income. Interest on crypto assets is the result of passive income just holding crypto assets.
So, how do you get these flowers?
There are 2 ways to get interest from crypto assets, namely by staking and lending.
Staking is a way to passively profit from crypto assets by storing your assets in a wallet that has a staking service. The stored assets will then be locked into the blockchain using the Proof-of-Stake algorithm convention within a certain period of time.
The amount of profit you will receive depends on the price and amount of the crypto asset you lock and the duration you lock the asset. The parties that stake their crypto assets on the PoS blockchain are usually referred to as validators. Validators become unbalanced when they successfully validate a transaction.
Some define validation based on asset lockout periods or specify a certain minimum threshold. Based on validator rules and algorithms, PoS serves to perform actual validation and distribute imbalances for validators. Yield or interest is usually calculated based on the amount of unlocked assets.
For example, in a PoS blockchain that uses minimum threshold rules, nodes will deposit the required amount of crypto assets into the traffic lock network. If the node succeeds in creating a new block, then the validator will accept the imbalance. The larger the number of unlocked crypto assets and the longer the lockout, the greater the profit.
For the blockchain to work efficiently, validators must provide a stable service. One of the efforts to maintain PoS stability is to use crypto assets owned by legitimate actors who act fraudulently. This interest reduction is carried out directly by the blockchain.
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As the name implies, to lend means to lend funds. The loaned funds can be in the form of fiat currency or crypto assets. In order for a loan to be made, the borrower as a party who needs money must provide a guarantee.
Collateral submitted can be in the form of crypto assets, fiat currencies, or stablecoins. The lender will provide the crypto asset or fiat currency the borrower needs at an agreed rate of interest.
Difference between Staking and Lending
The main difference between staking and lending is the use of assets.
In staking, you will store your assets by locking them in the blockchain network. Meanwhile, lending provides space for your crypto assets to move to other users over a period of time. After that, the lender will return your asset at a predetermined rate of interest on the crypto asset.
In addition to asset utilization, the difference between the two lies in the efficiency of use. Lending has an easier process compared to staking.
Because loans only require lenders and borrowers of crypto assets. Then, the lender only needs to make sure the amount of assets owned is in accordance with that proposed by the borrower, then set interest.
It's different with betting. Staking requires an understanding of how the Proof-of-Stake blockchain works. So to do staking, users must go through a transaction validation process.