There’s a number of ways you can make profits from crypto without selling your coins. We’ll explain how you can take profits from your crypto through lending, staking, yield farming and using your crypto as collateral for a loan.
While these methods won’t give you as much liquidity as you could get by simply selling your coins, they can result in solid earnings over a longer period of time and allow you to benefit from the your crypto potentially increasing in price.
How to take profits from crypto without selling?
There are four main ways in which you can take profit from crypto without selling it:
Lending: You can lend out your cryptocurrency to passively earn interest on your holdings.
Staking: If you hold a Proof-of-Stake cryptocurrency, you can stake it to contribute to the security of the network and earn rewards.
DeFi yield farming: Decentralized finance (DeFi) protocols offer multiple ways of making profits from your cryptocurrency without selling it.
Crypto-collateralized loans: You can use your cryptocurrency as collateral to borrow fiat currency or stablecoins.
Now, let’s take a closer look at each of these methods.
Pros Cons Risk level Lending
Plenty of flexibility when it comes to loan terms
Exchanges typically support a wide range of cryptocurrencies for lending
A passive and relatively safe way to earn yield (if using a reputable exchange)
Counterparty risk (crypto is custodied by exchange or lending platform)
Relatively low yield unless lending stablecoins
Low Staking
Contributes to the security of the cryptocurrency network
Users stay in control of their private keys
Some users might not be comfortable with self-custodying their crypto
Low DeFi yield farming
Users stay in control of their private keys
Yields can be significantly higher compared to staking or simple lending
Smart contract bugs can lead to losses
Requires more knowledge from the user
Medium Crypto-collateralized loans
Access liquidity while still benefiting from your crypto’s upside potential
A broad range of cryptocurrencies can be used as collateral
Counterparty risk
Users need to keep track of their LTV and other factors
Medium
Lend out your crypto to earn interest
Many cryptocurrency exchanges (for example Binance and KuCoin) provide lending products where you can earn passive income from crypto by lending out your coins.
Lending products offered by exchanges are a relatively safe way of earning yield from your crypto, although you could still end up with a loss overall if the value of the cryptocurrency you’re lending declines to the point where it offsets the interest you have earned so far.
Typically, users can choose between fixed and flexible lending products. Fixed products require users to lock up their cryptocurrency for a predetermined period and the rewards are only earned if the user doesn’t withdraw their coins before that period expires.
Meanwhile, flexible products allow users to withdraw their cryptocurrency at any time and keep the rewards, but offer lower interest rates than fixed lending products.
Here, it’s worth keeping in mind that stablecoins tend to have the highest interest rates among all types of crypto assets. However, if you’re trying to profit from your crypto without selling it, you can still lend out coins such as Bitcoin and Ethereum to earn (lower) yield on your crypto.
Lend Your Coins and Earn Interest on Binance
Stake your crypto
Another way to earn profit on your cryptocurrency without selling it is to stake your coins. This only applies to coins that utilize a Proof-of-Stake (PoS) consensus mechanism, for example Ethereum, Solana, Cardano, Toncoin and Polkadot.
PoS cryptocurrencies don’t use mining to add new blocks to the blockchain. Instead, users temporarily lock up their coins and become a validator. With each new block, a validator is selected to add it to the blockchain.
After adding a new block to the blockchain, the validatorr receives a reward, but PoS protocols also implement punishments for validators that behave dishonestly (for example trying to pass off an invalid transaction as valid). If a validator is found to be acting against the rules of the protocol, a portion of their staked coins is taken away from them.
Depending on the specific cryptocurrency, you can either participate in staking directly as a validator or delegate your coins to an existing validator. In the example where you delegate your coins to a validator, you will receive a portion of the staking rewards they earn.
Staking is a relatively safe way of earning yield with your cryptocurrency holdings, so long as you take precautions to secure your cryptocurrency wallet and do your research on validators before you delegate your coins to them.
Use your crypto to farm yield in DeFi
If you’ve been involved in the DeFi (decentralized finance) space, you’ve likely encountered the term “yield farming”.
Yield farming refers to the practice of using DeFi protocols to earn token rewards by providing liquidity, staking, or lending tokens. Often, experienced yield farmers combine multiple DeFi protocols to maximize their returns. Yield farming typically involves more passive investment strategies rather than active trading.
Liquidity is crucial for DeFi protocols. High liquidity allows for efficient transactions between different types of tokens with minimal price impact. However, the market is already crowded with numerous DeFi protocols competing for their share of liquidity.
To enhance their liquidity, many projects have introduced liquidity mining. This involves users providing liquidity to specific pools. In addition to standard rewards from trading fees generated by the liquidity pool, liquidity providers also receive the protocol’s governance tokens.
In addition to yield farming, other ways of earning crypto in DeFi include liquid staking through protocols as Lido, as well as lending through protocols such Aave and Compound.
DeFi yield aggregators such as Yearn Finance and Beefy Finance automate the process of earning yield through DeFi protocols and are a good option to consider if you don't have a lot of knowledge about individual DeFi protocols.
Use your crypto as collateral for a loan
Another way to take profits from crypto without selling is to use your cryptocurrency as collateral to take out a loan in fiat currency or a stablecoin.
This gives you access to liquidity immediately but allows you to still benefit from the cryptocurrency you’re holding potentially increasing in price. Of course, there’s no such thing as free lunch, as you’ll have to pay interest on the loan.
Platforms that offer cryptocurrency-backed loans typically require overcollateralization. This means that the value of the crypto you provide as collateral must be higher than the amount you’re borrowing.
One of the advantages of over-collateralization in crypto loans is that the lender doesn’t need to conduct background checks or evaluate your creditworthiness. The lender's risk is already covered by the value of the crypto you provide as collateral.
A key concept in crypto-collateralized loans is the loan-to-value (LTV) ratio. For example, if you offer $10,000 worth of Bitcoin as collateral to borrow $5,000 worth of USDT, your LTV would be 50%. If the value of Bitcoin dropped to $7,500, your LTV would increase to 66.6%.
When taking out a crypto loan, you will typically have a specified liquidation LTV. To avoid reaching this threshold, you may be required to repay part of the loan early or provide additional collateral. Loans with higher LTV ratios usually come with higher interest rates due to the increased risk for the lender.
The bottom line
There are numerous methods available with different risk and reward profiles for those who don’t want to sell their crypto but still want to make some profits from it.
If you’re interested in learning more about the topic of earning with your cryptocurrency holdings, we encourage you to take a look at our article highlighting the best methods for making crypto passive income.
