Do you have some Solana(SOL) on an exchange or web3 wallet? Also, are you looking for an extra way to earn passive income over your Solana holdings?
Look no further! In this article, I’ll provide you with some practical tips on to let these dormant holdings work for you!
DeFi on Solana Explained
In short, the Solana blockchain is designed for decentralized finance(DeFi). The main reason why the Solana network can be used for DeFi is its low transaction costs, high performance, and scalability.
When you want to send your crypto into the Solana DeFi system to make money you need to connect to a DEX. A DEX or decentralized exchange allows users to trade cryptocurrencies directly with each other using smart contracts.
This eliminates the need for intermediaries like traditional exchanges, providing greater security and control over funds.
Experienced traders often prefer DEXs like Jupiter over centralized exchanges (CEXs) like Coinbase because they offer greater autonomy and flexibility. DEXs don’t require users to share personal information(NO-KYC) or trust a third party with their funds, reducing the risk of hacks and security breaches.
How To Earn Passive Income with Solana DeFi
As explained above, using DeFi on Solana is more than just trading your SOL tokens. Thanks to the ongoing developments in the cryptocurrency and blockchain space, it’s also possible to use MetaMask or Phantom wallet to connect to platforms and start earning additional crypto assets.
Below a list of methods you can use to start making money with DeFi on Solana:
Native Staking SOL(Lock your crypto and earn over it)Liquid Staking SOL(Stake SOL and earn JitoSOL instantly)Providing Liquidity(Deposit SOL and earn fees over crypto trades)DeFi Lending(Lend out cryptos from within your wallet)
Don’t worry, later on in this article, I’ll go into detail according to each method mentioned above. First, some basic explanation on how a crypto DEX works in the Solana crypto space.
Finally, I’m just an enthusiastic crypto guy. Meaning, all info shared in this article should be considered for educational purposes only. To avoid losses and reduce risk, make sure to do some proper research before investing your cryptos.
How Does A Solana DEX Exchange Work?
To understand how trading on a DEX works it is essential to learn the basic concept of Web3 trading. In particular, Web3 refers to the next generation of the internet that is decentralized, peer-to-peer, and built on blockchain technology. It aims to empower individuals by giving them full control over their digital identities, data, and assets.
DeFi (Decentralized Finance) wallets like MetaMask or Phantom are an integral part of Web3. It enables users to securely store, manage, and interact with various decentralized financial applications and assets, such as cryptocurrencies, tokens, and lending platforms, without the need for intermediaries like traditional banks.
Swap for SOL on Jupiter DEX
In other words, to start earning crypto on a Solana DEX exchange you need a crypto wallet first. Instead of trading on a centralized platform you are going to trade(or initiate transactions) from within your wallet.
Make Money With Solana DeFi
As explained above there are simple ways where you can use your Solana tokens and earn some passive income with them. In other words, you can let your Solana holdings work for you!
Next I’ll deep dive into the several methods that you can use when using DeFi on Solana.
1. Native Staking Solana
Staking Solana (SOL) involves lending your coins to validators who help secure the network. In return, you earn rewards in SOL. It’s like putting your money in a savings account that earns interest.
To start staking, you can use the Phantom wallet, a user-friendly and popular choice for beginners. Simply select a reputable validator, choose the amount of SOL you want to stake, and confirm the transaction. Your staked SOL helps validate transactions on the network, and you’ll earn rewards over time.
Native staking SOL with Phantom
Phantom wallet is recommended for beginners due to its intuitive interface and ease of use, making it simple to navigate and stake your SOL with confidence. All in all, staking SOL with Phantom gives you about 6.63% APY.
2. Liquid Staking Solana
Liquid staking Solana allows you to earn staking rewards while keeping your SOL tokens usable. Instead of locking your SOL in a staking account, you receive JitoSOL tokens that represent your staked SOL. These JitoSOL tokens can be used for trading, lending, or other DeFi activities, providing greater flexibility compared to traditional staking.
Key differences between liquid staking and native staking:
Liquidity: Native staking locks your SOL, making it inaccessible for other activities. Liquid staking allows you to use your staked SOL through JitoSOL tokens.Flexibility: JitoSOL tokens can be used in various DeFi applications, offering more investment opportunities.Liquid staking SOL with Phantom
Why beginners should use Phantom Wallet:
Phantom Wallet is a user-friendly interface that simplifies the process of interacting with Solana-based applications, including liquid staking platforms. Its intuitive design makes it easy to navigate and find reliable providers for liquid staking your SOL and receiving JitoSOL tokens. Liquid staking SOL with Phantom wallet could give you 9% APY.
3. Providing Liquidity
Providing liquidity on Solana DeFi platforms means that you contribute your cryptocurrencies to a liquidity pool. In fact, this is a smart contract that facilitates trading between those cryptocurrencies. By doing so, you become a liquidity provider (LP).
When you provide liquidity, you typically contribute an equal value of two different cryptocurrencies to the pool, creating a balanced pair.
For example, you might contribute equal amounts of Solana (SOL) and a stablecoin like USDC. The pool now holds these assets and allows users to trade between them directly.
As a liquidity provider, you earn fees for the trading activity that occurs in the pool. Whenever someone trades or swaps between the two assets you provided liquidity for, a small fee is charged. This fee is proportionate to your share of the liquidity pool.
Liquidity pools on Raydium
Overall, providing liquidity on Orca or Raydium allows you to earn fees from trading activity and potentially earn additional cryptocurrencies through yields, giving you a way to generate income from your crypto holdings.
4. DeFi Lending
DeFi lending allows individuals to lend and borrow cryptocurrencies without the need for intermediaries like banks. In this system, users can lend their cryptocurrencies to others and earn interest on their loans or borrow cryptocurrencies by providing collateral.
With a web3 wallet like Phantom, you can connect to different Solana Defi lending platforms like Solend or MarginFi. To earn interest, you’ll need to deposit your Solana(SOL) into one of these lending platforms.
Assets for DeFi lending on Solend
The interest you earn will depend on factors like the platform you choose, the cryptocurrency you deposit, and the length of time you lend.
You can withdraw your cryptocurrency at any time, but you may have to pay a penalty for withdrawing before the lending period ends.
Defi lending can be a way to earn passive income on your cryptocurrency, but it also carries risks like price volatility and smart contract vulnerabilities.
Related: Borrow USDC with SOL on Solend(GUIDE)
How to Install and Deposit To Phantom Wallet
All options above requires you to setup a web3 wallet like Phantom. In short, Phantom is a next-generation crypto wallet designed specifically for the Solana blockchain. It’s more than just a storage solution for your digital assets; it’s a gateway to the exciting world of DeFi (decentralized finance) and NFTs (non-fungible tokens).
Install Phantom Wallet(Solana)
Visit https://phantom.app/download and select your browser type. Follow the steps in your respective extension store to add Phantom to your browser. After installing, you should see Phantom Startup in a new tab. Setting up a new wallet goes as follows:
Create ‘New Wallet‘ and ‘Create a password‘Write down or store the seed phraseFinish the setup and start Phantom from within the browserInstallation of Phantom is finished
Finally, if you are using Chrome, it will be on the top right-hand side of your browser. If you don’t see it look for a “puzzle piece” icon and click on it to access a list of installed extensions.
Funding your Wallet
Funding your wallet with SOL tokens can be done in several ways:
Withdraw from an Exchange: Buy SOL tokens on any major exchange like Binance, Kucoin, Bybit, and withdraw them directly to your Phantom wallet using the Solana network.Use a Bridge: If you already hold cryptocurrency on another blockchain, you can use a bridging service like ChangeNOW to convert your coins to SOL.
Conclusion: Make Money with Solana DeFi
In conclusion, DeFi on Solana offers a range of options for earning money with cryptocurrency. Whether you’re lending out your coins, providing liquidity to AMMs, or want to play it safe with staking, using a web3 wallet makes it easy to participate in the world of decentralized finance.
However, it’s important to remember that cryptocurrency can be volatile and risky, and you should always do your own research before investing.
With that said, I hope this article post has inspired you to explore the several ways you can earn passive income with DeFi on Solana!
Related: 5 Places to Trade Solana Tokens(Best Solana DEX)
Make Money With Solana DeFi(Beginners Guide) was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.