The DeFi market has made several millionaires since DEXs like Uniswap and lending platforms like Compound debuted in 2020. Currently, the total DeFi market cap stands at $65 billion, while 24-hour trading volumes stand at $7 billion.
These numbers are a testament to the dynamism of this nascent market. Today, many investment firms are focused solely on DeFi products – this was not the case during the DeFi summer, when retail traders dominated the market.
More importantly, DeFi traders now have many opportunities to generate passive income instead of focusing solely on speculative trading. Sure, asymmetric bets can be very rewarding but at the same time brutal when the market suddenly crashes, as recently witnessed by fears of a recession in the US and macroeconomic turmoil in Japan.
DeFi’s total value locked (TVL) dropped from $98 billion to $85 billion in a week, while over $1 billion was liquidated in the broader cryptocurrency market. Times like these call for alternative strategies – even the best are sometimes not immune.
So, what other options are available to native DeFi traders to earn income even during times of market turbulence? In the next section of this article, we will highlight how successful DeFi traders can leverage their success to generate additional income streams.
Asset Management – Token Baskets
Similar to traditional finance, it is now possible for DeFi traders to create ETF-like products and earn management fees. The Mosaic Alpha platform is one of the few decentralized solutions that currently leverages automated smart contracts to enable the custody of what is called a “basket of tokens” by experienced DeFi traders.
Rather than keeping their trading strategy to themselves, Mosaic’s decentralized platform allows DeFi asset managers and experienced traders to share their expertise through curated token baskets. New or less experienced crypto investors can then use these token baskets as a guide to invest alongside the experts. In return, token basket owners generate passive income from the fees collected while building a loyal customer base.
What particularly sets Mosaic’s token basket management apart is the ease of getting started; unlike traditional finance where there are several hurdles before you can become an asset manager, Mosaic Alpha only requires a digital wallet and a few KYC documents.
Educational and influential content
The DeFi ecosystem is still in its infancy. As a reminder, the S&P 500 currently has a market cap of $45 trillion, gold $16 trillion, while DeFi is only $65 billion. This means that there is a huge knowledge gap and it will likely take a long time for DeFi to catch up with traditional markets. Who better to equip potential future DeFi adopters than those with experience?
Creating educational content is another way for traders to kill two birds with one stone. On the one hand, it is a contribution to increasing industry knowledge, while on the other, one can earn up to $0.25 per word doing so. Rates are even better for influencer content if one is a trader with a strong presence on Crypto Twitter.
Being ahead of the curve means embracing modern technologies, not just cryptocurrencies, but also artificial intelligence (AI). According to the latest data, the AI-powered trading market was recently valued at $14.42 billion, and other projections show that it could surpass $50 billion in the next decade.
So where exactly does the opportunity lie for DeFi traders? If your trading strategy is successful, there are several ways to share it in addition to the decentralized asset management model mentioned above. It is possible to develop an algorithm or trading bots whose execution is coded to mimic one’s DeFi trading strategy.
Sure, it will likely cost a few bucks for those without technical experience coding such products. However, it can be just as rewarding; some of the services that currently exist in the industry charge as much as $80 per month, which could translate into a lucrative income if the subscription base expands significantly.
Staking and re-staking
DeFi traders can also generate passive income from their idle assets by staking them on Proof-of-Stake (PoS) blockchains such as Ethereum, Solana, and Avalanche. At the time of writing, the reward rate for staking on these chains is as follows: Ethereum (2.58%), Solana (6.96%), and Avalanche (7.95%).
Even more interestingly, it is now possible to re-stake ETH or other liquid staking tokens (LST) via staking platforms such as Eigen Layer. This means that DeFi traders can generate additional income from their staked tokens.
While a relatively new narrative, staking has gained popularity this year, with TVL on a platform like Eigen Layer increasing from $1.3 billion at the start of the year to $12 billion at press time.
Whether a DeFi trader opts for staking, staking, or both, it’s not just about earning a few extra coins, but also contributing to the security and functionality of these PoS chains.
To conclude
The DeFi market isn’t going anywhere. Initially, skeptics compared it to a house of cards that would collapse once the hype died down. However, time has proven that DeFi is not just about trading, but a whole new financial ecosystem, one that runs on automated technology rather than biased intermediaries. We will surely see more developments soon, but for now, the options listed in this article are some of the ways DeFi investors and traders can diversify or exploit more opportunities.
