Part 1: The Basics of Earning Crypto Interest
Cryptocurrency markets are well-known for their inherent volatility. While this poses nontrivial risks, it also opens up unique opportunities to earn yields and returns that the traditional stock market investor may not even dream of.
These substantial yield opportunities have grown larger and more accessible with the development of the decentralized finance (DeFi) industry. The real game changer has come about with the boom of crypto centralized exchanges (CEXs) and decentralized exchanges (DEXs), both striving to give customers a diversity of financial products.
In this article, we’ll show you how to earn interest on crypto and, more importantly, how to choose investment opportunities that will optimize your yields.
Jargon to Know to Help You Earn Interest on Crypto
Before diving into the best opportunities to earn interest on crypto, let’s cover some of the most important terms used in the crypto finance industry.
Annual Percentage Yield (APY)
Annual percentage yield (APY) is yearly interest that accrues to your investment, taking into account the effect of compounding.
Market Capitalization
Market capitalization is the measure of a crypto’s market value, which is derived by multiplying its current market price by its circulating supply.
Total Value Locked (TVL)
Total value locked (TVL) refers to the total market value of all the crypto funds currently locked in a DeFi platform’s smart contracts.
Bear Market
A bear market refers to a substantial and usually prolonged market decline. Bear markets are characterized by the dominance of selling rather than buying among market players.
Blockchain
A blockchain is a decentralized digital network that stores transactions in chains of blocks. Transactional activity on a blockchain is controlled collectively by all of the network’s participants/users. Most of the activity on a blockchain network — exchange of funds between users, confirmation of transactions, and business operations — involves the use of crypto coins.
Proof of Stake
Proof of stake (PoS) is a consensus mechanism used on some blockchain networks for validating block transactions. In PoS blockchains, network users lock a certain amount of their crypto assets on the platform for the right to validate transactions and receive staking rewards.
Crypto Staking
In a broad sense, crypto staking refers to locking crypto funds, both on centralized and decentralized platforms, in order to generate income.
Liquidity Mining
Liquidity mining is a process whereby you deposit your crypto assets in a DEX’s liquidity pool in order to receive rewards in tokens and fees.
Impermanent Loss
Impermanent loss occurs when the price of a deposited asset in a liquidity pool decreases from the time when you deposited it.
How to Earn Interest on Your Crypto
The primary methods through which you can earn interest on crypto are staking and lending. Staking involves locking your funds on a blockchain to help validate transactions, in return for which you earn crypto rewards from the platform. Additionally, some centralized platforms — such as CEXs and liquid staking service providers like Lido — also offer staking opportunities.
Staking, however, has moved beyond its original intent and now often refers to a plethora of investment products on CEXs and DEXs, in which funds aren’t specifically used for blockchain validation.
Lending refers to depositing your funds to lending pools (and sometimes to other types of pools as well) with DeFi lending and borrowing protocols, as well as with centralized crypto lending platforms.
Crypto Lending vs. Staking
When considering lending and staking crypto, of key interest to investors are the security and investment risks involved.
Security
Staking is often viewed as a safer option than lending. After all, staking is a fundamental process on a blockchain network, and is thus well-protected by the overall blockchain security model. If staking fails on a blockchain, the entire blockchain fails, along with all of its decentralized apps (DApps). Due to this critical importance of staking, its safety is secured against all but the most severe hacks.
DeFi lending also takes place on DApps residing on top of the underlying blockchain, which introduces an additional layer of vulnerability. Furthermore, DeFi lending presents some very specific security risks, such as flash loan attacks and rug pulls.
Therefore, staking generally poses comparatively fewer security threats to your funds as compared to lending.
Risk vs. Return Difference
The risk-vs.-return between staking and lending, however, may not be as clear-cut. In general, established lending protocols such as Aave or Compound Finance offer lower interest rates for large-cap, popular cryptocurrencies, as compared to standard staking interest rates. However, some smaller lending platforms might offer extremely high-interest rates, usually for highly volatile, small-cap coins.
As with everything in the world of finance, the higher the rate offered, the more risk the investment carries. The downside risks of investing in very new, “dark horse” cryptos available on some lending platforms might be extremely high. Furthermore, when you use DeFi lending protocols, you’ll also face the potential for impermanent loss, due to the volatility of crypto assets. Nevertheless, protocols usually assist with mitigating the losses by distributing a portion of the trading fees to liquidity providers.
Collateralization
Another important factor in the staking vs. lending comparison is collateralization. On lending and borrowing platforms, borrowers are first required to lend funds to the protocol as collateral for their borrowed amounts. Staking, on the other hand, involves no collateral.
Staking |
Lending |
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Security |
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Risk returns |
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Collateralization |
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Staking on Exchanges vs. Staking on Blockchains
If you decide to stake your crypto funds, your two main options will be via CEXs, and/or participation on a blockchain platform, which can be done directly by running a validator node or by joining a staking pool.
Blockchain Staking
Running a blockchain validator node lets you earn staking rewards directly. However, the technical setup and minimum investment requirements are often significant. For example, to run a validator node on Ethereum, you’ll need to download the entire blockchain, be online at all times to avoid “slashing” penalties and run all the requisite software.
Financial requirements for validator nodes are also far from trivial. For instance, Ethereum validators must stake at least 32 ETH (around $43,000 as of Sept. 25, 2022).
As an alternative to direct staking, you may join a staking pool, which is run by a staking service provider who allows you to participate, with significantly lower technical and financial commitments. However, unlike direct blockchain staking, participating in a staking pool makes you dependent on that pool’s operator.
Staking on CEXs
Instead of staking on a blockchain, whether individually or via a pool, you might consider staking via a CEX. For many crypto investors and users, the CEX route is more affordable, less risky and less technically complicated.
This is largely due to two key factors — the security of your funds, and customer support. Major CEXs are the largest crypto trading platforms in the industry. Their security setups and customer support provide key advantages over blockchains and DApps.
Any potential hacker attacks on a blockchain could lead to potential loss of funds. At the same time, you may use a custodial wallet on a major CEX so that your funds are at lower risk of being hacked. Naturally, CEXs aren’t immune to hacker attacks. However, the larger ones feature cybersecurity as a critical part of their business model. Thus, custodial wallets on these CEXs are relatively more secure as compared to noncustodial blockchain wallets.
Staking on a CEX may also help you access investment products with more stable and predictable rates and terms. For novice investors, it could also be a less complicated way to enter the world of crypto staking.
Additionally, staking on CEXs allows you to use coins that are normally not “stakeable” via a blockchain platform. Blockchain staking only works with cryptocurrencies based on PoS networks. For instance, the world’s largest crypto, Bitcoin (BTC), isn’t based on a PoS network, so it can’t be staked on a blockchain.
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Staking on a Blockchain |
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Choice of Coins |
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Best Crypto Staking Coins for Highest Interest
The volatility of the crypto market means that there’s dynamic change when it comes to the best coins for earning interest. Regardless, the best interest rates in the staking game are normally available via CEX staking. Since CEXs offer a wide array of coins and products, there are often great deals available. For instance, Bybit’s current highest-rate staking offer is for the Gunstar Metaverse (GSTS) coin, at 30% yield.
CEXs also offer staking for popular stablecoins — such as USDT, USDC, BUSD and more — that can’t normally be staked on a blockchain. In addition, some of these coins have great rates on offer. For example, Bybit’s current interest rate for USDT staking is 12%, one of the highest rates for staking in general.
The table below shows the top nine coins available for staking on Bybit.
Coin |
Current Best APY |
Current Market Cap (in millions of USD) |
GCAKE |
999% |
Unknown |
GSTS |
30% |
$1.44 |
ROND |
20% |
Unknown |
USDT |
12% |
$68,439 |
BUSD |
8% |
$21,273 |
SOL |
6.5% |
$10,819 |
KASTA |
6.5% |
$6.02 |
BIT |
5% |
$472.84 |
ADA |
4.7% |
$12,436 |
Coins are listed in descending order by interest rates. Interest rate and market cap data are valid as of October 17, 2022. (Data source — Bybit.com; Market cap data source — Coingecko.com)
How to Earn Higher Interest on Crypto
Given the volatility of the crypto industry, the key to earning the best crypto interest rates is to keep an eye on the market and source the best deals as they arise.
Invest in Stablecoins
One way to deal with the inherent volatility of crypto markets is to invest using stablecoins. The leading stablecoins — USDT, USDC and BUSD — are readily available for staking on exchanges, though not directly on a blockchain.
Stick With One Platform
Some crypto investors, in chasing the best possible rates, move their funds in and out of centralized and decentralized staking and lending opportunities. However, this strategy might backfire, especially with smaller investment amounts, due to the fees involved in withdrawing and depositing your funds on some platforms.
Thus, to earn a higher interest rate in the long term, it’s best to choose a trusted platform in which to stake and hold your crypto, instead of moving your assets around.
Simple Interest vs. Compound Interest
Another important consideration for maximizing your returns is the type of interest rate applicable to a staking or lending product. Some of these pay interest based on APY, while others use the APR calculation method.
The key difference is that APR is a simple interest rate calculation that doesn’t take compounding into account. On the other hand, APY is based on compounding interest. All other things being equal, an APY-based investment will earn you higher total returns as compared to an APR product with the exact same numeric interest rate.
Do Crypto Interest Rates Vary Over Time?
Interest rates on crypto investments do change over time. These changes can be abrupt, and quite substantial. This is particularly true for DeFi lending investments on platforms like Compound, which has algorithmic interest rates that can change within a single day. On the other hand, staking interest rates are comparatively less volatile.
Are You Eligible to Earn Crypto Interest?
Before making your first investment, check your eligibility, as requirements may vary from platform to platform. As the first, obvious requirement, you need to have some actual cryptocurrency funds on hand.
On most established centralized platforms, you also need to satisfy Know Your Customer (KYC) and residency requirements. The residency requirement is particularly relevant for Americans, as some CEXs outside of the U.S. don’t provide service to U.S. residents.
Additionally, you must, of course, do your own research (DYOR) so that you understand the risks and technicalities involved in crypto staking and lending.
Part 2: How to Start Earning Crypto Interest on Bybit
Bybit is one of the leading crypto trading and investment platforms in the world, offering a wide range of interest-bearing products. To start investing with Bybit, you’ll first need to open an account. You can register your new account with Bybit via email and mobile.
How to Buy Crypto on Bybit
There are three main ways to buy crypto on Bybit: Peer-to-peer (P2P) service, fiat deposit and balance payment service, and credit card/bank transfer.
1. Buying Crypto With P2P
The first option allows you to buy crypto from another Bybit user via Bybit’s P2P platform. There are zero taker and maker fees for these transactions.
2. Buying Crypto With Fiat Deposit and Balance Payment Service
You can also buy crypto using cash through the Fiat Deposit and Balance Payment service. The fiat currencies available for this service are the euro (EUR), Brazilian real (BRL), Argentine peso (ARS), British pound (GBP) and Russian ruble (RUB).
3. Buying Crypto Using Credit Cards/Bank Transfer
Bybit also allows you to purchase crypto using credit cards and/or bank wire transfers with the One-Click Buy option.
How to Deposit Crypto on Bybit
You can directly deposit crypto funds into your Bybit account from a variety of centralized and decentralized sources — for instance, accounts on other exchanges, cold or hot wallets, and multisig wallets. To do so, head over to the Assets page on your Bybit account’s homepage. From there, choose the Spot Account section. The available cryptocurrencies will be shown in this section. Click on Deposit next to the crypto you’d like to transfer to Bybit.
When you click on Deposit, you’ll see Bybit’s deposit address for the chosen crypto. Simply use this as the destination wallet address in your wallet or account on another exchange.
Part 3: 6 Ways to Earn Interest on Crypto With Bybit
There are six key ways to earn interest or income on your crypto with Bybit. Let’s take a closer look at each one.
1. Earn Interest on Crypto with Staking (Bybit Savings)
Bybit Savings is an investment product that allows you to stake crypto for interest. There are around 20 coins and tokens available for staking, including BTC, ETH, USDT, USDC and BUSD. Choose between a flexible staking term, where you can withdraw your funds at any time, or a fixed term, which depends on each crypto and is usually 30, 60 or 90 days.
Bybit Savings is a great choice for risk-averse crypto investors. It provides a simple way to earn stable interest from popular coins and tokens, and you can even choose a flexible staking period. If you’re taking your first steps in the world of crypto investing — or, in general, prefer predictable and low-risk investment products — Bybit Savings might be the most suitable option for you.
Pros and Cons of Bybit Savings
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Cons |
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2. Earn Interest on Crypto With Liquidity Mining
Bybit Liquidity Mining uses a revamped automated market maker (AMM) trading model to assist you in providing liquidity to coin-swap liquidity pools. By adding liquidity, you earn a share of the trading fees applicable to the corresponding pool. Each pool comprises a pair, based on USDT and another popular coin, such as BTC, ETH, SOL, UNI, BIT, AVAX and more. Leveraged borrowing is also available to help you maximize your potential earnings.
You can add and withdraw liquidity at any time. Liquidity Mining offers yields that can go as high as 100%, depending on the coin and trading activity in the pool. It’s a suitable product for those seeking good long-term yields, and a great way to become proficient with AMM-based liquidity investing.
Pros and Cons of Bybit Liquidity Mining
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3. Earn Interest on Crypto With Dual Asset
Bybit’s Dual Asset allows you to earn yields even in stagnant or falling markets. Simply predict the price movement of your chosen crypto asset — e.g., BTC, ETH or BIT — against USDT for a preset period. If your chosen crypto increases in price upon maturity of the Dual Asset contract, you’ll receive your funds in USDT. If the price of the coin declines, you’ll be paid out in your chosen crypto.
The maturity periods are typically 1, 3 and 5 days, with some of the highest interest rates on offer. Annualized rates of over 450% are possible under some of the 1-day contracts.
Dual Asset is a product suitable for traders who prefer short-term investment options and would like to earn high yields, even when the market is slow or in decline.
Pros and Cons of Bybit Dual Asset
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4. Earn Interest on Crypto With Bybit Shark Fin
Shark Fin is a structured product from Bybit that lets you earn yields at zero fees in a low-risk setting with guaranteed principal protection. With Bybit Shark Fin you choose to invest in a popular coin, such as BTC, and earn interest on your investment based on where the coin’s price falls within a specified range upon maturity of the contract. If your chosen crypto falls within this range, you may earn interest of up to 25%. Even if the coin’s price falls outside of it, you’ll still earn some interest.
There are two Shark Fin product varieties — Bullish Shark Fin and Bearish Shark Fin. You can earn three types of yields from Shark Fin: Minimum guaranteed APR, maximum APR and enhanced APR. Each product comes in three different short-term plans — 7, 14 and 21 days — and your yields are calculated at the end of each settlement period.
The amount of interest you’ll earn depends upon both the type of Shark Fin product you choose, and where the crypto price falls against the specified range on the settlement date.
- If the coin’s price is within the specified range on the day of maturity, you’ll earn interest of up to 20%. Depending on the Shark Fin product, the higher or lower the settlement price within the range, the higher the interest that you’ll earn.
- If the coin’s price is above or below the specified range, you’ll still earn either guaranteed interest of around 1–2% or enhanced interest, based on whether your product is a Bullish or Bearish Shark Fin.
Shark Fin is a great product for traders who would like to earn yields of up to 20% in a low-risk, principal-protected environment.
Pros and Cons of Bybit Shark Fin
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Read more: 10 Reasons to Invest in Bybit’s Shark Fin Products
5. Earn Interest on Crypto With Bybit Launchpool
Bybit Launchpool lets you invest in tokens of new and promising blockchain projects which are listed periodically on Launchpool. You can stake and unstake your tokens at any time, with no additional fees involved. There are opportunities to earn very high yields of up to 1,000% or more via Launchpool staking.
If you’re constantly on the lookout for new blockchain projects with the potential to become tomorrow’s star performers, then Bybit Launchpool is ideal for you. Moreover, you can potentially earn some of the highest yields available in the world of crypto.
Pros and Cons of Bybit Launchpool
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6. Earn Interest on Crypto With NFTs
Bybit’s NFT Marketplace is another potential source of crypto income. Unlike the Bybit Earn products above, NFTs on the marketplace aren’t interest-bearing investments per se. Instead, you can earn passive income from NFTs if they appreciate in price, particularly with the GrabPic program, which launches low-priced NFTs (from 0.01 USDT) that can quickly appreciate.
GrabPic doesn’t just offer low-priced, high-quality NFTs: You can also trade at zero fees, which means you’ll get to earn more. There are other ways you can earn profits as well, such as through Merge, GrabPic’s flagship feature that allows you to combine several regular NFTs to create a “legendary” NFT potentially worth 100 USDT.
Bybit NFT Marketplace also offers Mystery Boxes every one or twice a month, which give you the chance to receive a rare NFT that you can sell for a higher price. And if you receive a GameFi NFT, you can use it to reap even more profits in the associated play-to-earn game.
The NFTs listed on the Marketplace come from diverse domains, such as GameFi, the metaverse, artworks and more. You can also conduct multi-chain trades, with support available for four blockchain platforms — Polygon, Tezos, BNB Chain and Klaytn. Bybit’s secure infrastructure ensures that all the NFTs traded on the Marketplace are authentic.
If you’re an NFT enthusiast, then Bybit’s NFT Marketplace is an ideal place to earn crypto interest and have fun.
Pros and Cons of Bybit NFT Marketplace
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Read more: What Is Bybit NFT Marketplace?
Part 4: Dealing With Your Crypto Interest Taxes
Which Countries Allow You to Earn Tax-Free Interest on Crypto?
Due to its novelty as a financial asset class, many countries around the world haven’t yet introduced taxes on crypto. This applies to the majority of jurisdictions. Unless your country’s taxation authority specifically addresses the issue of crypto income, you may enjoy, at least for now, tax-free crypto income. Some of the most crypto-friendly countries in the world include Singapore, Switzerland, El Salvador, Vanuatu, Malta, Cyprus and Belarus.
Note, however, that in some of these jurisdictions, crypto income might be taxable if crypto trading is determined to be your principal business activity.
Which Countries Require You to File Crypto Interest Taxes?
Many OECD countries — as well as some of the largest economies outside of the OECD — have explicitly legislated crypto taxes. Below, we’ll briefly cover the current state of affairs in this area as applicable to four economies — the United States, Australia, India and Japan. Crypto taxation laws in these countries are among the least forgiving on the planet.
United States
U.S. authorities tax cryptocurrency capital gains, as well as any non-capital income from crypto, which includes crypto interest income. In the land of the free, your crypto interest income is generally treated as ordinary income and is subject to income tax rules. There are also instances where it may be treated as capital gains — for example when you trade crypto assets, such as NFTs — in which you’ll be taxed accordingly.
Australia
Similar to the U.S., Australia treats your crypto interest earnings as ordinary income, unless you swap assets, in which case you’ll be subject to capital gains tax.
India
Since April 1, 2022, the Indian government charges a 30% flat tax rate on all crypto gains and income. The government applies this tax rule broadly, regardless of the nature of the crypto income. As such, crypto interest is likely to fall under this rule.
Japan
For Japanese tax residents, crypto interest is classified as “miscellaneous income” and forms part of your total taxable income. As a Japanese taxpayer, you’re required to pay income tax on crypto interest earnings at your corresponding tax bracket rate.
Part 5: Pros and Cons of Earning Crypto Interest
Benefits of Earning Interest on Crypto
Earning crypto interest carries numerous benefits. The main ones are as follows:
- The ability to generate passive income without having to dedicate time to active trading
- Income diversification away from overreliance on stocks, bonds and fiat currencies
- Some products — such as Bybit Savings (staking) — are especially suitable for novice investors, as they require minimal monitoring
- Products like Bybit Launchpool offer low-risk, high-yield returns, unlike trading, which is generally riskier
- Ability to earn during bear markets with products like Shark Fin and Dual Asset
Risks Involved in Staking Crypto
Despite its benefits, crypto staking (and crypto investing in general) is certainly not a completely risk-free activity. The key risks include:
- Potential price declines for the coin(s) you own. Due to the volatility in the crypto market, your high yields might be offset by a coin’s price decline, leaving you in the red as a result.
- Some staking platforms, particularly decentralized ones, have lock-up periods lasting weeks or months, a significant amount of time by the standards of the fast-changing crypto market.
Part 6: Recap of How to Earn High Interest on Crypto
Bybit Checklist: Finding the Best Product to Earn Interest on Crypto
As a recap of our discussion, here’s a summary of the six key products on Bybit that let you earn crypto income.
Bybit Savings: A low-risk, principal-guaranteed investment with customizable investment periods, particularly suitable for beginners and risk-averse investors.
Liquidity Mining: Provides good long-term yields, with the ability to add leverage to maximize yields. Ideal for experienced traders familiar with leverage and the liquidity mining process.
Dual Asset: Earn one of two different coins, depending upon the market’s direction, by betting on the rate movements of a chosen crypto asset against USDT. Suits short-term, focused swing traders.
Shark Fin: Targeted for risk-averse investors. Simply predict the price range of popular coins to earn principal-protected, guaranteed interest, regardless of the asset’s final price.
Launchpool: Flexible staking for promising new coins with high-yield returns. Suitable for investors looking for high yields and potential “future star” coins.
NFT Marketplace: Investing on low-price, high-quality NFTs that appreciate quickly in value. Ideal for NFT enthusiasts and traders focused on capital gains income rather than interest.
FAQs: Crypto Interest Earning
1. What’s the best way to earn interest on crypto?
The best way to earn crypto interest will be highly dependent on your risk appetite. Naturally, higher yield opportunities come with higher risks. Among the Bybit products detailed above, the highest potential yields are often found in Launchpool and Dual Asset. On the other end of the risk/reward spectrum is Bybit Savings, a product with guaranteed yields for the most risk-averse investors.
2. How do I calculate interest earned on crypto?
APR and APY are the two primary methods of interest calculation. While APR is a straightforward, simple interest calculation method, the formula for APY is more complex. You can use an online crypto APY calculator to calculate APY.
3. Which crypto pays the most interest?
Aside from highly volatile or new coins, the best interest rates are often offered for established stablecoins, such as USDT and USDC.
4. Are crypto staking rewards taxable?
This depends entirely upon your country of residence. Specifically, for U.S. residents, it’s safe to assume that the Internal Revenue Service (IRS) will apply income taxes to your staking earnings, just as it does for crypto interest income. The prevailing consensus is that the IRS is keen to tax anything in sight that has the word “crypto” on it.