The Holy Grail of Passive Income – 4. DEX Liquidity
Uniswap Pools

The Holy Grail of Passive Income – 4. DEX Liquidity


When people think about profiting from Crypto exchanges they think about trading, or day trading that is.

The truth is that most people end up losing in the exchange. Short term price variations are simply unpredictable, putting money on that is just like gambling. But the business is triving because Exchanges, just like Casinos do not gamble. It does not matter if a coin goes up or down, the Exchange gets a cut of every transaction.

As you may have guessed, the passive income opportunity here is not to trade, but to be the exchange.

But how can that be?

The crypto age in finance has seen the arrival of new alternatives to the traditional way of doing business in finance. In a previous post we explored how DeFi iniciatives were replacing the role of the traditional bank and serving to connect lenders and borrowers directly. Platforms such as BlockFi, Celsius Network, Crypto.com, Nexo pay you interest on your crypto while lending it to someone who needs the funds.

A similar situation arises with Decentralized or Non-Custodial Exchanges (DEX). These platforms offer an alternative to the traditional exchange method of holding people’s funds on escrow in order to be able to trade. On a DEX you send only the funds you want to trade, and receive back to your wallet the amount traded. This means that the exchange only holds your money momentarily, reducing the chances of your funds being lost to hackers.

The problem is that in order to execute an exchange you always need two parties (buyer and seller), and it might take some time to find a second party for every customer. To solve this problem DEX keep a pool of funds for each exchange pair traded on the platform. All transactions are executed against that pool, instead of having to find a counterpart for each exchange request. If you are one of the people who put money into the pool you will get paid for each transaction involving that pool.

Some Dex are:

  • Uniswap
  • Kyber
  • dYdX
  • 0x
  • IDEX
  • Balancer
  • DEX.ag
  • Airswap
  • Totle

There are also some DEX Aggregators, which are platforms that pool resources from various exchanges in order to offer quicker response time and better trading pairs.

You can go into any of these platforms and find liquidity pools to join to start earning some passive income on your crypto.

 

It must be noted that even though all the sites mentioned in this article have been proven to be reliable, there is always risk associated with dealing in cryptocurrencies. This is an unregulated market, so care must be exercised to contrast the information provided in this article before you commit any funds. This article is not intended as financial advice.

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ManuelAR
ManuelAR

Male, Electrical Engineer, from Panama


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This blog chronicles my experiences trying to make money on line with different websites, products and methods. Eventually some off topic musings may find their way to this blog but I promise to keep that to a minimum.

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