There are three passive ways to invest in cryptocurrencies these days: you can just do the classic hodl, or you could try staking which is still something relatively new, and then there is liquidity providing or LPing which is the most recent.
There are risks and rewards for all three of these methods. For example, just hodling your cryptocurrency is the least risky, but it still carries the risk of price fluctuations. Staking your tokens carries some extra risks since you still suffer from the same risk of price fluctuations, but you could also stake using a compromised staking DApp, and lose all your staked tokens. LPing is the riskiest method of them all since it has all the risks of the other 2 methods, and the additional risks brought about by impermanent loss.
On the flip side of the coin though, the riskier ways to invest in crypto also carries the most rewards. This makes sense because just hodling your tokens will only give you returns if your token appreciates in value. If you stake your tokens, you will benefit from your token’s price appreciation, and you will also be rewarded with more tokens in terms of staking rewards from the project whose tokens you are staking. LPing in many cases carries huge rewards since you will be getting rewards from 2 different sources.
LPing is done on AMMs (Automated market makers) by becoming a liquidity provider. An AMM will use the liquidity its liquidity providers provide to facilitate trading, and the fees the AMM generates from traders will go to the liquidity providers. Additionally, certain AMMs like
Quickswap also rewards its liquidity providers with the AMMs native tokens.
Personally, I like doing all three, but my preference tends to be towards staking on
pStake as it carries far fewer risks than LPing, and still provides good token rewards.
