The simplest and easiest way to make money in cryptocurrency: Hold & Earn. You can earn just by holding, and almost all major exchanges offer investment services, which can be generally referred to as exchange investment CeFi, mostly focusing on flexible options, also known as exchange flexible investment.
Exchange investment has two major advantages: it is very simple to operate + relatively safe (compared to complex on-chain operations), making it very suitable for beginners or those who just want a lazy, brainless approach.
What is exchange investment in cryptocurrency? What are the risks?
Investment is one of the common services provided by cryptocurrency exchanges, allowing held cryptocurrencies to earn interest like deposits, helping us make more money. The most basic risk is the collapse of the exchange, while more advanced structured investments carry additional asset risks.
Q: What is a cryptocurrency exchange?
A: A place to trade cryptocurrencies, similar to a cryptocurrency version of a stock exchange; to use the exchange, one must first register an account, and the cryptocurrencies held in the account are also held in custody by the exchange.
Q: What is cryptocurrency exchange investment?
A: Cryptocurrencies placed in an exchange account are idle when not traded, which means they cannot earn money and waste capital efficiency. Exchanges provide additional investment services that allow us to utilize idle assets and earn additional returns.
Q: What risks are associated with cryptocurrency exchanges?
A: Banks have deposit insurance, and stocks in securities exchanges are under custody protection, both providing a certain degree of assurance. However, assets in exchanges do not have deposit insurance; they are managed by the exchange. If the exchange is hacked, misappropriates assets, or mismanages them, the assets we hold there may be at risk of loss.
Exchange investments can be further divided into three categories, with the most common being flexible/fixed investments, which are also the simplest.
On-chain earning is when the exchange helps you take the currency to earn on-chain. Unless it is a special cooperative event, it is recommended to earn on-chain by yourself to avoid the additional risks associated with the exchange.
Structured investment adds an options mechanism, making it more speculative and not suitable for brainless investment options; it is not recommended for beginners.
Flexible/Fixed
Taking the Bybit exchange interface as an example, Finance > Investment > Bybit Savings, which includes flexible/fixed investment products.
Find the currency, click to view the plan, and then immediately stake it; the operation is very simple and similar to online bank fixed deposits, without needing on-chain operations.
Key Point: The interest earned on both flexible and fixed investment products in this currency means that you earn the same currency you deposit. The flexible option can be redeemed at any time, while the fixed option may sometimes not allow early redemption, and early redemption might incur interest losses.
On-chain earning
On-chain earning is when the exchange takes the currency on your behalf to operate on-chain, earning on-chain returns. The exchange helps you put the money on-chain, which involves taking on additional risks, including risks associated with that chain, that protocol, etc. Although it appears that flexible options can be redeemed immediately, on-chain redemptions may sometimes have a waiting period; it can be redeemed at any time, but it may take several days or even weeks to arrive.
Unlike flexible investment, there may sometimes be a situation where the deposited currency and the earned currency are different, depending on on-chain activities. The on-chain part is handled by the exchange, and the actual operation is very simple, just like flexible investment.
Structured products
No matter which exchange it is, if you see the term 'structured', it means it is related to options, not a traditional investment product, but incorporates mechanisms such as futures and options.
One of the characteristics of options is leverage and the ability to make large profits from small investments. Although there is a risk of losing principal, it also provides opportunities for additional profits, leaning more towards speculative strategies, and not quite within the traditional investment category.
Due to higher risks, it is recommended not to try before fully understanding the mechanism, or to experience it with a small amount.
Important notes on exchange investment.
The displayed return rate is usually the APR (Annual Percentage Rate).
If you invest for a whole year, you can receive this much; if the investment period is not a full year, you will not receive such a high return rate.The return rate is variable.
It could be 10% today, 8% tomorrow, and 16% the day after, depending on market conditions.Returns are usually calculated every minute and distributed daily.
You don't need to worry about fluctuating return rates; whatever the rate is at the moment will be calculated as such, distributed once a day. (Structured products are excluded, as each structured product has a different mechanism.)
Where do the returns from exchange investment come from? Is it a Ponzi scheme?
Exchange investment is not a Ponzi scheme; different types of investments have different sources of returns, briefly described as follows:
Flexible investment - lending assets to other users with funding needs and receiving interest in return, suitable for investors who have currency and want to earn stable returns.
On-chain investment - participating in on-chain staking to earn staking rewards, or liquidity mining to earn liquidity rewards, suitable for investors who want to pursue higher returns but do not want to operate on-chain themselves.
Structured investment - usually involves options operations, with returns coming from the financial mechanisms involved, where 'time value' is key, suitable for investors who are more sensitive to price ranges.
