Compare The Best Crypto CeFi & DeFi Staking Yields
March 2023

Not Sure Where to Start? Try Our Crypto Yield Optimiser

It can be difficult to know where to invest your crypto for the best possible return whilst also diversifying your portfolio so as to manage your risk. The DeFinda Crypto Yield Optimiser is an automatic tool that will use your investment preferences to develop an investment strategy that is bespoke to your requirements.

What Is Crypto Staking?

When you buy crypto you store it either in your own private crypto wallet or on a crypto platform. Ordinarily, this crypto will not earn any interest. 

Just like with traditional fiat currencies such as US Dollars, you can invest your crypto to earn interest on it. With any investment that earns income there is always some element of risk. As with traditional investments, it is necessary to balance risk and reward when making these type of investments. 

Note that investing your crypto is different to speculating on the value of your cryptocurrency going up. Instead, with yield investment, you are looking to hold your crypto long-term and earn some interest on it whilst doing so.

Investing your crypto to generate a return is known by many names including crypto staking and yield farming.

What Are The Main Types of Crypto Investments That Generate Yield?

There are two main ways of generating income on your crypto.

The first option is to invest your funds on a centralised crypto platform (CeFi) or centralised exchange (CEX). Examples of these would include Nexo and Crypto.com. These platforms are great for beginners. They normally offer an easy to understand interface, customer support and insurance against loss.

The second option is to invest your funds on a decentralised platform (DeFi) or decentralised exchange (DEX). This is a more advanced investment strategy that is not suitable for beginners. On a decentralised exchange you can invest your crypto in the exchange algorithm for a specific currency pair. This is known as a liquidity pool, and investing in the pool allows the exchange to offer instant exchange rates to its clients. In return for your investment you receive a percentage return (APY).

Advantages and Disadvantages of Crypto Staking

When to Consider Investing Your Crypto

Crypto investing is a great way of earning passive income on your crypto assets. Many owners of crypto assets have their coins stored in private wallets and manage their own private keys. Whilst this is an excellent way to secure your assets it does mean that your assets are not working as hard as they could be for you. Sure, the value of those crypto assets could go up, but you could also earn interest on those assets if you were to deposit some of them into an interest-bearing crypto investment.

Many of the new centralised crypto platforms offer excellent APYs for your crypto assets and are very easy to use. Simply signup for an account, complete the Know Your Customer (KYC) and Anti Money Laundering (AML) checks and then transfer your funds. The KYC and AML checks are automated on many platforms and can often be completed in just a few minutes by using your camera and ID document (passport, driving license etc.).

Once you deposit your funds in the platform's investment product, you will immediately start earning interest. Interest is accrued daily on most platforms, and many platforms also offer instant access to your funds.

Investing in liquidity pools on decentralised (DeFi) platforms may be attractive for advanced crypto users. Careful research and risk management will be required to manage these types of investment effectively, but the APYs available are substantially higher than those available on centralised exchanges.

Enhanced Interest Rates For Stablecoins

Many centralised platforms offer substantially higher rates for deposits in stablecoins such as Tether (USDT), USD Coin (USDC), Paxos Standard (PAX) and TrueUSD (TUSD). Many crypto platforms grant loans denominated in stablecoins so the platform is looking to attract stablecoin investors to provide liquidity. In return for this additional liquidity the platform is willing to pay a higher annual percentage yield (APY). Interest rates of 10% or more for stablecoins are available on some platforms.

Can You Earn Interest on Fiat Currencies on Crypto Platforms?

Yes! You could earn 10% or more on your Dollars, Euros and Pounds? Whilst the investment products are focused on crypto, many centralised platforms also offer very high yielding accounts on regular fiat currencies such as US Dollars (USD), Euros (EUR) and Pounds Sterling (GBP).

You don't even need to own any cryptocurrencies to benefit. Just sign up for an account on the platform, complete the KYC/AML checks and then transfer your fiat currency from your regular bank account to the platform using a normal bank transfer. If you complete the transfer using a regular bank transfer (e.g. SWIFT, SEPA) then most platforms will not charge any fees, however transfers via VISA or Mastercard normally attract a substantial handling fee so are best avoided.

Benefits of Centralised Platforms (CeFi) and Decentralised Platforms (DeFi)

One of the key decisions is whether to invest in a centralised or decentralised exchange. Each have their unique advantages and the right choice will depend on your financial position, appetite for risk and level of experience.

How to Find the Best Crypto Staking Yields

Comparing crypto investment returns can be a little tricky. Each centralised platform has a multitude of different interest rates available, which vary according to the type of currency deposited, the type of currency your interest is paid in, your loyalty level and how long you deposit the money for.  These platforms also express their savings rates in different formats, with some quoting Annual Percentage Rate (APR) and others quoting Annual Percentage Yield (APY).

Making sure that you are comparing like with like is no easy task. In addition, understanding the cost and benefit of the various loyalty schemes can further affect the decision and make a substantial difference in the total value of your income over the course of a year.

Then we have the investment products available on the decentralised exchanges. There are literally thousands of these products, each with their own unique features. The investments available are on multiple different chains, and the rates offered change daily.

Thankfully here at Definda we've done all the hard work for you. We carefully monitor all the platform rates and arrange the data in an easy to use crypto investment apy calculator. Simply enter the amount and type of currency that you want to deposit and we search all the platforms that support that currency, compare the rates and show you the enhanced benefits available with their various loyalty schemes. The calculator is completely free to use and does not affect the savings rate that you obtain.

Loyalty Schemes

Many centralised crypto platforms offer loyalty programmes that provide enhanced interest rates in return for buying or holding the platform's own house crypto currency. The increase in APY can be substantial, with up to 2% additional interest per year available at the top end of some of the loyalty programs.

In addition to enhanced savings rates for buying the platform's own cryptocurrency, some platforms also provide increased annual percentage rates if you are willing to accept your interest being paid out in the platform's own cryptocurrency rather than the currency you deposited. Many of these platforms are highly innovative companies that are operating within a very fast moving industry. There is certainly potential for the platform cryptocurrencies to increase substantially in value, although, of course, as always, you should do your own research and make your own judgement on each platform.

Tax Considerations & Benefits of Crypto Staking

If you invested in crypto a few years ago then you may be sitting a substantial capital gain in the value of your crypto assets. Having not sold the assets, you have not yet triggered a capital gains tax event. Such an event would require a substantial proportion of your gain to be paid to the government in most jurisdictions.

Instead of selling your crypto assets you could invest them in a crypto investment product and earn interest on them. The accrued interest would be subject to income tax in most jurisdictions, however, you would still be realising some level of income from your crypto assets without being forced to sell them. As such, you can still benefit from any potential future increase in the value of those crypto assets.

Please note that tax is an extremely complex subject with a wide range of different structures depending on the country you are a tax resident in. We are in no way providing tax advice, and you should always seek independent professional expert tax advice about your own specific situation.

How to Signup For an Earnings Account on a Centralised Platform

Signing up for an investment account on a centralised platform is really easy. Just find the best platform for your situation using our crypto investment calculator, click through to the platform and create an account with your username and password in the normal way. Most platforms allow you to sign up either via their mobile app or directly on their website.

As part of the account signup process, most platforms will offer two-factor authentication (2FA) as a security option for your account. We highly recommend that you enable 2FA as it makes your account significantly more secure. 2FA works in a similar way to the physical security dongles that some traditional banks are now providing to customers. All you need to do is install a 2FA application on your phone such as Authy or Google Authenticator. You can then pair this authenticator with your platform account by using the authenticator app to scan a QR code provided by the platform. Once completed, somebody can only access your account if they also have access to your authenticator.

Once you have signed up and setup your 2FA, then you will need to complete the platform's Know Your Customer (KYC) and Anti Money Laundering (AML) checks. Thankfully this process is highly automated on most platforms now. All you need to do is take pictures of your face and your ID document, such as your passport, and you'll have completed most of the process. The platform may also ask you what the source of the funds that you are depositing is. Some platforms may manually review your application before providing you with access, whilst others may provide you with limited access until your application is formally approved.

Finally, once your account is approved, you simply need to transfer your funds to the platform. This can be via a regular crypto transfer or, if you are depositing fiat currency (e.g. Dollars or Euros), then a regular bank transfer.

Safety and Security Considerations

The world of cryptocurrency and decentralised finance is extremely fast moving and you should always act with caution when dealing with any company operating in the space. There is inevitably a certain level of risk involved in any new industry, and if you are not comfortable with taking some level of financial risk then cryptocurrencies and decentralised finance platforms may not be the right choice for you.

Whilst all of the centralised platforms offering crypto investments are very young companies, they are operating within a highly regulated industry. The KYC and AML checks when you signup to these platforms are annoying, but they also provide some level of confidence that these companies are legitimate and are following the appropriate regulatory procedures and protocols.

We provide significant background information on the centralised platforms that we list including the company location, legal status, licenses and certificates held, key individual bios, insurance levels and much more. It is worth reviewing this information carefully before deciding to proceed with signing up. Also, carefully check recent reviews for the platform. It's best to check a number of different review sources in case the reviews on one review site have been manipulated in some way.

When you deposit funds on the platform, the platform then needs to act with extreme caution to ensure that those funds are not lost, for example by the platform being hacked. Many platforms have opted to outsource this function to a third party crypto security custodian such as Bitgo. By taking this approach the crypto assets are held separately to the platform software, so even if the platform was hacked, the amount of crypto currency that could be stolen would be limited. The third party crypto custodians offer substantial protection of the crypto assets such as storing the assets in cold storage wallets (wallets that are not network connected), using multi-signature wallets (more than one person required to authorise transfers), and using discrete geographical locations for storage of wallets. In addition the custodian will provide substantial insurance against theft of the assets.

As new businesses, there is a risk that they could go bankrupt due to mismanagement or a collapse in crypto prices. Check the background of the business carefully to decide whether you feel it is well managed before deciding to proceed.

When transferring money to and from the platform always ensure that you are dealing directly with the platform (i.e. you are using the platform's mobile app or you are definitely on the platforms website and have a secure connection). It is sensible to transfer a small amount of money to the platform first and once that has been received then transfer a larger amount.

Treat any received messages, emails or calls from the platform with extreme skepticism. Any messages requesting money, suggesting a change in your account or saying you need to act urgently should be handled very cautiously. It is always best to contact the platform directly and speak to their customer service team if you have any doubt about the legitimacy of the message.

Whilst cryptocurrency and DeFi platforms certainly are not for the faint of heart it is worth keeping in mind that traditional banks can and do go bust, and in some countries suffering financial collapse assets have been seized from private banks by governments. There is always some level of risk involved no matter where you store your money and it is important to find the right level of risk for your own personal circumstances.