The cryptocurrency market offers immense gains for the ones who are good at trading and understand the charts effectively but can be a risky space for newbies and those who can’t comprehend the basics of trading. However, with the passing time and increasing applications of blockchain, many new Defi platforms are being developed that offer plenty of other opportunities for earning passive income that doesn't involve trading. Investors can simply stake their assets or participate in liquidate pools to earn incentives and rewards. Another convenient option to earn passive income through the crypto market is to invest in crypto savings accounts that offer lucrative interest rates.
Defining a Crypto Savings Account:
Crypto savings accounts are somewhat similar to traditional savings accounts available in banks. These accounts are offered by cryptocurrency exchange or a decentralized application that utilizes blockchain technology. These accounts operate exactly in the same manner as bank savings accounts that lend out a user’s money to other people and then offer a portion of the interest rate earned over it to the user. However, a crypto savings account offers much more returns as the interest rates can go up to 10% in some cases as compared to traditional banks that offer 1% or even less on the savings account.
One major difference between both accounts is the influence of a third party on your assets. Crypto savings accounts are completely decentralized without any governing authority where you make use of a smart contract to invest and lock your assets for a certain period to earn interest over it as compared to a bank savings account where the bank owns and controls your investment, offers it to a person of their choice as a loan and then keep a portion of the interest generated from that loan. An aspect of security should also be mentioned as crypto savings accounts can be a risky option as everything is controlled by a DeFi platform and any mishap or cyber-attack on the platform can lead to loss of money. To counter this risk, many centralized exchanges and platforms are also available that offer crypto savings account with flexible investment options.
Working of a crypto savings account:
There are multiple DeFi platforms that offer the facility of locking up your assets for a fixed period and earning interest from it. The working mechanism of these platforms may vary as some of them are limited to lending only where the invested amount is offered as a loan to a borrower. While there are other platforms like centralized exchanges which utilize the invested funds for different purposes. These include putting the money into staking and liquidity pools to generate more coins or rewards from it.
These savings accounts allow people to invest in multiple currencies including bitcoin, Ethereum, BNB, or even stablecoins like USDT, USDC, or BUSD. The interest rates may vary depending upon the cryptocurrency you have invested in a crypto savings account as stablecoins offer less interest rates as compared to altcoins where the APY can even cross 20%. The period of investment or lock period of your funds can also impact the interest rates you are being offered in a crypto savings account. However, long terms contracts of six months or a year offer better rates. These interest rates can also be compounding in some platforms while others will offer simple interest rates which is less beneficial.
Cryptocurrency exchanges like Binance and Coinbase have also stepped into the DeFi market to offer crypto savings accounts to users with a variety of flexible and fixed deposit options. While DeFi apps like Nexo and crypto.com are also becoming increasingly famous due to their lucrative interest rates on savings accounts.
Cons and risks associated with crypto savings accounts:
Although crypto savings accounts are a wonderful opportunity to earn interest without learning about cryptocurrencies and taking part in a complex trading process, there are still a variety of risks that you should be aware of. Do not directly jump in if a platform is offering a very high-interest rate that seems unrealistic as it may be just an attempt to steal your assets. DeFi applications offer better interest rates but if you are new to the crypto market, it is always recommended to use a centralized platform like the Binance Savings account that keeps good care of your assets and automatically invests it in multiple protocols without any risk of being lost.
As the crypto market is still unregulated therefore it is very hard to eliminate criminal entities, you should always invest your assets in a platform that is famous, has good fundamentals, and is backed by deposit insurance. The Crypto market is still in its infancy phase and it may take a few more years to become completely secure as the platforms that are vulnerable will likely shut down in the coming years such as the case of Celsius and Block Fi which went bankrupt and have questioned the efficacy of crypto savings account.
If you are looking for options other than a crypto savings account, you can also take part in arbitrage trading by holding ViCA tokens without the need to learn any trading strategies. ViCA utilizes its unique ViBot system that continuously operates to identify any arbitrage opportunity on major exchanges and execute trades instantly to pocket the price difference. ViBot has been performing arbitrage on Ethereum Coin for the last 15 months and is continuously generating monthly returns. If you want to become a part of ViCA’s unique arbitrage trading without worrying about understanding the fundamentals, trading charts, and its complex terms, buy ViCA Token now and become a part of the ViCA Community.
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