Staking Or Liquidity Mining?

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14 Oct 2024

An Extensive Menu
Crypto is well-known amongst insiders for its abundance of passive income opportunities. Sadly, newcomers and speculators are still locked onto price like a Staffordshire Bull Terrier. However, there are endless passive income opportunities within the Crypto economy and those that discover and utilize them can secure ongoing profits. In a prolonged bear market, Crypto assets can be sold for stablecoins.
DeFi investors must view their portfolios as collateral, not as coins or tokens. This can be difficult for those who form a love relationship with their bags. Holding on to an altcoin portfolio throughout a bear market is unwise. This dynamic will soften as Bitcoin and altcoins gain additional acceptance from TradFi.
As institutions get behind the Crypto space, stability increases. Along with this dynamic comes a taming in price, promoting the idea of staking and liquidity mining. Both of these ideas have their benefits. However, any opportunity to earn yield simultaneously introduces risk. This has to be understood and appreciated before any investments are made. Many investors only consider the risks involved once they have been affected by them.
For The More Risk-Averse
Staking is one of the best passive income opportunities with minimal risk. Let me clarify, I am speaking of authentic Proof-of-Stake protocols and not “staking” opportunities provided via a mobile app or other investment product. Authentic Proof-of-Stake means the coins or tokens are delegated and locked on-chain. Furthermore, the investor controls the private keys and maintains control of his assets.
This is a great strategy for investors with significant capital, as they can earn a healthy income by utilizing it. The risks are minimal and the returns are lucrative, depending on your asset of choice. Projects such as Polkadot, Injective Protocol, and others offer healthy staking rewards. I always like to mix it up by leveraging blue chips and micro-caps. Risk management needs to be a priority though.
Depending on the asset and the protocol, assets are readily available. Some options require a longer unlocking period. Investors who view their portfolio as collateral can swap assets for alternative assets when more favorable opportunities arise on alternative blockchains. As I said, you have to cut the emotional connection. It’s an imperative aspect of DeFi.
Greater Gains
The world of liquidity mining can offer some amazing returns, which are enticing, especially to newcomers. TradFi investors are familiar with a 10% APR at best. The idea of hundreds of percent can appear like a dream come true. However, these returns are not guaranteed and do fluctuate. The concept of impermanent loss also needs to be factored in. Providing LP tokens is a lot more risky than Proof-of-Stake opportunities.
Once again, it’s better to mix it up regarding your exposure. Depending on your risk profile, you can allocate accordingly. For example, a more risk-averse investor can allocate 70% to blue chip Proof-of-Stake projects, 15% to micro-caps, and 15% to liquidity mining. Risk can be further mitigated regarding the exposure to liquidity mining. Providing liquidity in the form of a single asset is a lot less risky.

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Final Thoughts
Crypto investment strategies must be planned by incorporating risk management and capital deployment. This is especially true of DeFi investment strategies. Liquidity pools can also be hacked, another important element to consider. If there’s money to be made, risk is present. There’s no escaping it. All the best! See you next time!

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Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.