Earn Passive Income in Cryptocurrency – part 7
This part of the cryptocurrency passive income guide will talk about earning passive income by providing market liquidity.
Market Making Liquidity
Providing liquidity to certain markets was always an important part of trading. The cryptocurrency market, just like traditional markets, requires liquidity in order to run smoothly.
If the liquidity was low, traders would experience “slippage,” an event where the expected prices differ from the executed prices though to sharp turns in the market.
Market-making algorithms, as well as liquidity pools, are another in the line of crypto passive income-generating opportunities. The main concept of this method is that the users act as market makers, therefore providing liquidity to the market. In return, they get rewarded based on the trading volume. This way of generating passive income is greatly dependant on the price volatility.
While market making is not as stable as staking or lending, their returns are often much greater. The returns on this way of generating passive income fluctuate around the 10% mark. The higher return is, of course, an incentive for taking a bigger risk.
This method is of generating passive income is still both underrated and underdeveloped. Somewhere in the ballpark of $40 million in assets act as productive market-making capital in the crypto market. When compared to some more developed methods such as staking, market making is still quite small.
While the incentive for market making is profit, one should distinguish between profit and benefits. Exchanges often provide benefits for market makers in terms of trading fee discounts. However, these are not exactly profits.
Projects such as Uniswap and Kyber Network reward market makers in the true sense of the word, so anyone remotely interested in this way of creating passive income should take a look at these two projects.
Check out our next cryptocurrency passive income guide to learn more ways of creating passive income by leveraging your cryptocurrencies.