Tech » Blockchain

Can You Gain Interest on Ethereum? 

Joseph Williams | Updated On November 23, 2023

The world’s second-largest cryptocurrency, Ethereum, is all set to attract more investors to the cryptocurrency market. The Shanghai Upgrade is complete, so Ethereum has completed its transition to the Proof of Stake consensus protocol, where users validate new blocks of transactions and are compensated for their efforts. For the very first time since the Merge, holders of ETH are able to unstake their assets. Despite many investors withdrawing their funds, the market has no fear or negative sentiment. As we all know, Ethereum isn’t just a cryptocurrency; it’s a decentralized blockchain with smart contract functionality, so it can run any computation. 

Are you looking to earn interest on your Ethereum? If the answer is yes, you’ll be pleased to know various options are available, so don’t let your tokens sit idle in your wallet or on the cryptocurrency exchange. 

Lock Up Some of Your ETH Tokens to Help Validate Blocks

One of the best ways for cryptocurrency investors to earn interest on Ethereum is via staking. You contribute to the security and efficiency of the blockchain project that is very close to your heart and make the Ethereum network more resistant to attacks while strengthening its ability to process transactions. Staking your ETH provides an annual percentage yield, which is calculated daily based on your holdings. The annual percentage yield is the highest for those running their own validator nodes, so if you stake Ethereum through a centralized exchange or staking pool, you’ll earn less. At times, the reward might be higher than the on-chain rate in an effort to attract staking market share. 

Following the Merge, staking on Ethereum generates substantial yields. Rather than locking up your ETH to contribute to the security and effectiveness of the Proof of Stake blockchain, you stake your tokens and receive a receipt as evidence, which can be transferred, stored, traded, and even used in DeFi. It’s basically a tokenized representation of your staked crypto assets. Simply put, you can access your capital and use it more efficiently. You can generate multiple income streams because you can stake your Ethereum and still use it. The derivative form carries the same value and operates in a similar manner to the original asset. 

Lend Out Your Ethereum to Borrowers 

Lending is an excellent way to earn interest on Ethereum. Find a good and trustworthy platform to lend your ETH to others in exchange for interest. How much you’ll get in return for your investment ultimately depends on the platform you’ve chosen. It’s strongly advised to consider different platforms to spread out the risk. Consider your overhead costs, the borrower’s financial health, and the economy. As a rule, lending platforms use smart contracts to automate the process, which works on pre-programmed terms and conditions, executed on a condition-based principle. You and the borrower can interact and respond in real time, transacting anonymously if needed. 

With centralized Ethereum lending, you trust a company or another entity to oversee the process. The platform takes control of the digital assets; it will require a KYC process, which includes ID verification, face verification, document verification, and biometric verification. You can generate passive income on your Ethereum at a rate that’s typically higher than the rate on a savings account. However, you make a deal on individual terms with the lending platform, so you must exercise due diligence, i.e., be careful before entering into an agreement with another party. Illiquidity in the market can stop the platform from selling the borrower’s collateral fast enough to cover your principal. 

Deposit Your Ethereum in A Savings Account and Earn Interest on Your Tokens 

Crypto savings accounts are designed to hold Ethereum that you don’t plan to spend right away. You can use one for your short-term or long-term goals, growing your money. Instead of holding your ETH in a wallet, put it to good work and earn interest daily, weekly, or monthly. There are several platforms that let you earn interest on your crypto holdings – the interest is paid in Ethereum, so your initial investment will appreciate if the Ethereum price increases. On the other hand, if Ethereum depreciates, the interest earned and the initial investment will go down in value. 

As the world of DeFi continues to evolve, an ever-increasing number of platforms offer interest-bearing accounts. It’s not much of a difference between a crypto savings account and a traditional savings account. In either case, you need to find a reliable platform to create a savings account, after which you must complete a KYC (if required) and deposit your money. Crypto savings accounts fall into two categories: flexible and locked. A flexible savings account empowers you to move your funds anytime, while a locked savings account offers higher rewards and prevents you from accessing your Ethereum during the agreed term. 

Final Considerations 

If you have a surplus, you should put your Ethereum to the best possible use rather than holding it in your wallet. You can, of course, splurge and buy whatever you’ve been craving but make sure to take care of more urgent needs. Investing is low risk, but you’re still exposed to the volatility of the cryptocurrency market, meaning there’s potential for upward or downward movements over a short period of time. With rising inflation, it’s only normal to search for ways to earn interest on your ETH, but it’s important to do your homework. If you’re okay with not having access to your funds for quite some time, you can stake your Ethereum.

Instead of trading your ETH, you can lend your tokens to someone in need. You fund the loan via a third-party platform to the borrower; the platform can use the funds for investment purposes too. The interest rate varies from one platform to the other, and unlike traditional loans, the terms can be as short as seven days. Last but not least, you can deposit your Ethereum in a savings account and earn interest on your existing tokens. You don’t have to be an active crypto trader, making numerous transactions a day to stay ahead of the market and time your buying and selling to maximize profits.