5 ways to earn passive income from crypto in 2026

Users are widely relying on staking and similar yield-generating tools to earn passive returns on their crypto investments. As of November 2025, for instance, traders staked more than 33 million Ethereum (ETH) tokens worth roughly $100 billion USD. The rewards come from real economic functions across the crypto ecosystem, not speculation. Liquidity support, yield farming, and other strategies allow even inexperienced traders the opportunity to make a passive income through crypto without managing trades.

In this article, we’ll outline the main ways you can earn passive income, how each method works, and what to consider when exploring how to earn money from cryptocurrency.

What’s a crypto-based passive income?

Earning passive income means you’re making money without continuous effort. Investments are a common type of passive income, and crypto is no exception – for crypto, passive income means you’ll earn more from your digital assets without having to monitor and actively trade. In most cases, this income comes from participating in blockchain networks, lending markets, or reward programs that compensate you for providing liquidity and securing the network.

Like more active crypto trading methods, passive income approaches can be risky. Market volatility can change the value of the assets you use to earn rewards. Smart contract vulnerabilities may expose you to technical failures or exploits, resulting in everything from losing your coins to identity theft. And custodial centralized platforms like centralized exchanges (CEXs) introduce counterparty risk, meaning your funds depend on the platform’s management and security protocols.

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5 ways to earn passive income from crypto

There are many ways investors can make money in crypto, each offering unique risks and benefits. Here are the five most common passive income methods in the industry.

Staking

Staking involves locking a proof-of-stake (PoS) crypto to a blockchain as collateral to help it validate transactions and create new blocks. Stakers support the network’s consensus process by either running a validator node or delegating their tokens to a validator. In return, stakers receive a “yield,” or staking rewards of newly issued native tokens, and a share of transaction fees from the block.

Major PoS assets typically offer around 6.8% in annual rewards, though rates vary by network and the specific staked assets.

Pros

• High yields: Staking lets users earn ongoing rewards on crypto they’re already holding. The reward rates often surpass traditional investment yields.
• Network security and support: Locked assets make transaction validations possible and keep the blockchain stable.
• Governance participation: Some networks give stakers voting rights through governance tokens, such as Cosmos and its native ATOM coin. 

Cons

• Market volatility: Rewards are often paid in native tokens, and they can lose value if the token’s market price declines.
• Liquidity constraints: Some staking systems have a lock-up period that restricts access to your funds and limits your ability to manage tokens if the market shifts. This period ranges from a few days to several weeks.
• Regulatory risk: Staking regulations differ by region, which can affect the profitability of certain platforms (and access to them at large).

Lending 

Crypto lending works similarly to traditional lending: Users supply assets to a platform so others can borrow them. Borrowers pay interest, and lenders receive a portion of those payments. 

Lending can take place in centralized finance (CeFi) and decentralized finance (DeFi), but is more common on centralized platforms. Some, like Aave, also provide additional incentives such as extra APR or bonus rewards.

Stablecoin lending has historically ranged from about 2% to 6% in returns annually, depending on demand and market conditions.

Pros

• User-friendly experience: CEX platforms like Coinbase offer simple onboarding and lots of support for beginners.
• Higher capital efficiency: Platforms offer large liquidity pools for smoother borrowing and lending activity.
• Broader asset access: Some platforms support both crypto and select fiat currencies (tokenized as stablecoins), which gives users more flexibility in which coin they lend to generate yield.

Cons

• Lower transparency: Centralized platforms rarely disclose how your funds are used behind the scenes.
• Censorship and control risk: Accounts can be frozen or limited for compliance checks, suspected fraud, regulatory inquiries, or other service term violations.
• Security vulnerabilities: Centralized databases present a single point of failure, which can attract hackers and lead to major losses.

Providing liquidity 

To provide liquidity, traders deposit digital assets into an automated market maker (AMM) pool, called a liquidity pool, so more users can swap tokens directly on a decentralized exchange. These liquidity pools offer an equal amount of the pool’s native crypto for providers, who can trade it for the original currency at any point. 

Liquidity providers (LPs) earn a share of the trading fees generated by swaps in that pool. Fee-based returns vary widely with trading activity, but on average, you can expect a return between 3% and 8% APY. 

Pros

• Passive income: LPs receive a percent of trading fees (which vary depending on the platform and token) based on their pool share.
• Asset control: Funds stay in your control in a non-custodial wallet, which minimizes custodial risks associated with CEXs.
• Diversification opportunities: Users can choose from a wide range of asset pairs and pools, as major platforms like Uniswap offer thousands of them. This crypto diversification reduces the risks of single-token exposure.

Cons

• Impermanent loss: Diverging prices between assets can reduce the value of an LP’s position. However, the loss only becomes permanent upon withdrawal – long-term holding can wait out some price changes for future potential profits.
• Market volatility: Sharp price movements increase the chances of impermanent loss and slippage risk.
• Rug pulls and scams: DeFi systems are open to all and, as such, are prone to malicious activities like fake pools that can leave LPs with worthless tokens.

Yield farming and vault strategies

Yield farming is a passive income strategy that involves providing liquidity to DeFi protocols. Investors usually move assets between pools or protocols to capture the highest available returns, looking at key metrics like total value locked (TVL) to assess risks and opportunities.

Many users simplify this process by using vault strategies to automate the work involved. Vaults, such as those offered by Yearn Finance or Beefy Finance, work similarly to a centralized point of contact and handle tasks like rebalancing positions and compounding yields on a user’s behalf.

Yield farming gains can come from trading fees, lending interests, and reward tokens. Vault strategies can earn more through the auto-compounding approaches they execute. 

Yield farming: Pros

• High potential returns: Yield farming can offer much higher APYs compared to traditional finance or even staking – sometimes exceeding 100% in newer pools.
• Self-custodial care: Users earn rewards without actively selling their assets.
• Access to new tokens: Many protocols distribute governance or reward tokens, providing a way to get in on the ground floor with new digital assets.

Yield farming: Cons

• High risk of capital loss: Volatile markets and technical failures can cause significant (or total) losses without the safety nets offered by CEXs.
• Smart contract vulnerabilities: Complex DeFi protocol code for smart contracts can contain bugs placed by bad actors, often with the end goal of stealing crypto from users.
• Impermanent loss (IL): Diverging token prices can reduce overall returns.

Vault strategies: Pros

• Automation and efficiency: Vaults automatically handle rebalancing and compounding for a more hands-off approach. 
• Reduced gas costs: Batched (shared) transactions lower gas fees and make smaller investments more cost-effective.
• Simplified access to advanced strategies: Beginners benefit from optimized DeFi strategies that would be challenging to manually devise and execute.

Vault strategies: Cons

• Aggregated smart contract risk: Similar to a CEX breach, a vault contract breach affects all deposited funds on a DeFi network.
• Platform and strategy transparency risk: Users might not see the full mechanics behind strategy decisions, so they may not be able to learn from (or understand) them.
• Exposure to underlying risks: Vaults automate processes but don’t eliminate risks like market volatility and liquidity.

Centralized reward programs 

CEXs like Binance often provide loyalty initiatives to encourage user engagement with the platform by passively earning crypto (often in major coins like BTC, stablecoin, or the platform’s native currency). These reward programs can range from cashback rewards to interest accounts, and earnings from centralized reward programs come from the platform’s internal lending or revenue-sharing operations, as well as reward distributions tied to trading and spending. 

Pros

• Security measures: Centralized platforms – especially publicly-traded ones like Coinbase – offer enhanced security features like 2FA, cold storage, and regular audits.
• Fiat integration: Users can smoothly move between crypto and fiat currencies.
• Ease of use: Intuitive interfaces make these programs accessible to beginners.
• Wide asset choice: Exchanges usually support hundreds of tokens and services.

Cons

• Security risks: Centralized wallets are more vulnerable to hackers and large-scale cyberattacks than self-custodial alternatives.
• Lack of transparency: Users have limited insight into how the CEX manages funds.
• Censorship and restrictions: Exchanges may impose withdrawal limits or freeze accounts if you violate their policies.

Key differences between the main yield methods

Each passive income method in crypto takes a different approach, but there are a few shared features between them: 

• APY stability: Staking and stablecoin lending tend to offer more consistent returns. Liquidity provision and yield farming earnings are more likely to widely fluctuate with changes in market activity and trading volume.
• Custody and technical risk: You have to trust CeFi lending and centralized reward programs to keep your assets safe despite counterparty risks. DeFi methods like staking and providing liquidity avoid custodians but rely on smart contracts, which can still be exploited or fail.
• Capital flexibility: Some staking networks have an “unbonding” period or withdrawal queue, during which you can’t access your funds. Lending markets and AMM pools let you enter and exit freely, but high volatility or low liquidity may affect your withdrawal timing decisions.

Which passive income strategy is best?

There’s no “best” passive income method with cryptocurrency – what works for one investor may not for another. Some prioritize stability and prefer approaches that behave consistently over time, while others are comfortable with strategies that involve more variables and fast-moving, volatile results for the possibility of bigger wins.

While some investors will focus on the highest advertised APYs, you should treat them as indicators, not promises. It’s better to look at how a platform generates its yield, whether you can access your funds at any time, and how reward structures may change as more participants join.

Monitor your passive income activity with CoinTracker

Earning passive income with your crypto starts with understanding how each method works so you can choose the approach that fits your goals and risk tolerance. By setting clear expectations about returns, risks, and flexibility, you can use these strategies more confidently as part of your broader crypto portfolio. Once you’ve set up your preferred passive income method, use CoinTracker to watch how well it’s doing.

Want a clear view of your assets at all times? With CoinTracker, link your wallets and exchanges to monitor your portfolio’s performance in real time. Create a free account and see why crypto investors trust us. 

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

FAQ

How do cryptocurrency beginners make money?

Beginners often start investing in crypto using staking or holding major assets because these methods are easier to understand than more complex ones like scalping and tend to be less volatile, providing steadier returns.

What’s the best way to make money from cryptocurrency?

Some investors focus on long-term holding of Bitcoin (BTC), ETH, and altcoins to make money, while others use passive income strategies like staking or lending (or a combination of the long-term holding and short-term income generation). Those who want to understand how to make money in crypto trading often start with simple steps like placing small, low-risk market or limit orders.

Can you make passive income from crypto?

Yes. You can earn ongoing passive rewards through staking, lending, liquidity provision, yield farming, and other passive income strategies.

Is crypto a good investment?

Crypto can support your long-term financial growth, but it’s more volatile than many traditional assets. It’s best to approach the market responsibly by starting with modest amounts of well-known cryptocurrencies (and financial advice from a licensed professional).