Top 5 Ways to Earn Passive Income with Cryptocurrency in 2025

Do you hold crypto and wonder how to make it work for you?

Instead of just sitting on your assets, you can put them to work and earn passive income through a variety of yield-generating strategies. Whether you prefer staking, lending, liquidity provisioning, or more advanced strategies like re-staking and covered calls, there is something for everyone.

Let’s break it down.

1. Staking and Re-staking

Staking is one of the simplest ways to earn passive income with cryptocurrencies. This is usually only possible on Proof of Stake (PoS) chains like Ether or Solana.

There are multiple variations of staking, and here are some of the options.

Native Staking

This is a straightforward way to earn passive income with cryptocurrencies. It involves locking up your tokens, such as ETH, SOL, or Cosmos (ATOM). This helps users support the security and consensus mechanisms of the blockchain. The problem that staking solves is two-fold: it both secures the network and rewards participants with staking yield.

Without staking, a Proof of Stake (PoS) network cannot function effectively. Staking has grown significantly over the past few years, with Ethereum alone having over $100 billion staked after the merger, while platforms like Solana and Cosmos continue to see high participation rates.

What makes staking such an attractive yield opportunity is that it is relatively low risk. It offers stable and predictable returns, with Ethereum offering around 3%-4% annual yields, Solana offering around 7% annual yields, and Cosmos often exceeding 15%. The main drawbacks are capital lock-up, potential slashing risk, and risk of network-specific issues.

Liquidity Staking

Liquidity staking is an ideal option for those who want to stake but still maintain liquidity. Liquidity staking platforms like Lido allow users to stake their cryptocurrencies and receive liquid derivatives (such as stETH for Ethereum or mSOL for Solana).

These derivatives can then be used in decentralized finance (DeFi) protocols for additional yield opportunities, making liquidity staking a more flexible alternative to traditional staking.

For example, the liquidity staking market on Ethereum has been on an upward trend for years, with nearly $39 billion worth of ETH staked in liquidity staking protocols.

Liquidity staking solves the liquidity problem inherent in native staking, allowing users to earn staking rewards while keeping their assets active in the DeFi ecosystem. The space has seen explosive growth, with Lido alone holding billions of dollars in staked assets.

Liquidity staking offers lucrative yield opportunities as it combines staking rewards with other DeFi strategies to maximize returns. However, risks include derivative decoupling, smart contract vulnerabilities, and reliance on third-party protocols.

Restaking

Restaking takes staking to the next level, allowing assets to be staked multiple times for additional rewards. This is true for both rewards and risks. EigenLayer on Ethereum pioneered this concept, enabling users to restake ETH and earn additional rewards by securing external networks and applications.

The main problem that restaking solves is improving network security without requiring additional assets to be staked, essentially recycling staked assets for multiple uses.

Since its launch, re-staking has quickly gained traction, with total locked value (TVL) reaching billions of dollars, and more and more protocols integrating EigenLayer's framework. The returns from re-staking can be much higher than traditional staking, sometimes with an annual yield of 10%-20%.

The added complexity and additional haircut risk make it a high-return but high-risk opportunity, best suited for those willing to take on additional technical risks.

2. Lending: Earn interest on your cryptocurrencies

Crypto lending is a well-established yield strategy that allows users to deposit assets on lending platforms such as Aave in exchange for interest. Floating rate lending follows the principles of supply and demand, with interest rates fluctuating between 1% and 10% annual interest. Meanwhile, platforms such as MapleFinance offer fixed-rate lending, which can provide more predictable returns, typically between 5% and 20% annual interest.

Lending solves the problem of idle capital and allows borrowers who need liquidity to borrow. Over the years, lending protocols have grown rapidly, with Aave and Compound alone managing billions of dollars in lending volume. Lending is an ideal yield opportunity because it offers flexible returns with the option of floating or fixed interest rates.

However, it carries risks such as borrower defaults, smart contract vulnerabilities, and liquidation risks for borrowers using collateralized loans.

3. Liquidity provision

Liquidity provision is one of the highest-yielding opportunities in cryptocurrencies, but it also comes with unique risks. It involves depositing tokens into liquidity pools on decentralized exchanges (DEXs) such as Uniswap, Orca, and Drift. In return, liquidity providers receive a portion of trading fees and additional rewards.

The main problem that liquidity provision solves is ensuring that the market has sufficient liquidity to enable decentralized trading. Automated market makers (AMMs) and dynamic liquidity market makers rely on liquidity providers to operate. Since the rise of DeFi, liquidity provision has grown significantly, with Uniswap alone processing billions of dollars in trading volume every day.

The yields on liquidity provision range from 5% to 100%+APY, depending on trading volume and incentives. However, the biggest challenge is impermanent loss, which occurs when there is a significant change in the price of assets in the liquidity pool. Smart contract vulnerabilities and market volatility also increase risks, making it a high-return but more complex yield strategy.

4. Real World Assets (RWAs)

For those who want to invest their stablecoins into yielding assets with more predictable returns, real world assets (RWAs) offer an attractive alternative. RWAs represent tokenized versions of traditional financial assets such as bonds, treasuries, and real estate, providing fixed income returns directly on-chain. Platforms such as OndoFinance, Goldfinch, and MapleFinance have pioneered this space by connecting institutional-grade assets with DeFi investors.

The main problem RWAs solve is the lack of stable, reliable returns in the crypto market, especially during economic downturns, when DeFi returns fluctuate unpredictably. By providing exposure to traditional financial instruments, RWAs can provide stable returns, with annualized yields typically ranging from 4% to 10%, depending on the asset class. The industry has seen significant growth, with the TVL of tokenized treasuries alone exceeding billions of dollars, making it a strong choice for conservative yield seekers.

For example, the tokenized treasury market has grown to $4 billion over the past few years.

For those who prefer low volatility and stable fiat returns, risk-weighted assets offer an excellent income opportunity. However, risk-weighted assets also come with risks such as counterparty risk, regulatory uncertainty, and reliance on off-chain issuers.

Despite these challenges, the tokenization of real-world assets is expected to grow significantly as institutional adoption increases, providing stablecoin holders with a reliable fixed-income alternative.

5. Advanced yield-generating strategies

Crypto yield-generating methods have gone beyond traditional staking, offering innovative ways to earn returns through strategies such as tokenizing future returns and hedging against volatility. These methods include splitting assets, leveraging decentralized financial protocols, and using derivatives to generate stable income.

Pendle and Ethena are examples of DeFi protocols that offer innovative yield-generating strategies, each taking a unique approach to maximizing returns through tokenization and market-neutral strategies.

How Pendle enables innovative DeFi strategies

Pendle is an innovative protocol that allows users to tokenize and trade future returns on their assets. It essentially splits yield tokens into two parts: the principal token (PT) that represents the underlying asset and the yield token (YT), which can access the future returns of the asset. With this separation, users can lock in fixed income by purchasing PT at a discount, or speculate on yield by trading YT.

Here’s how it works:

Users deposit yield-generating assets (like stETH or USDt) into Pendle, which issues PT and YT tokens.

These assets can be held, sold, or leveraged in DeFi strategies. Users can earn annualized returns of 10%–50%, depending on the asset and market conditions.

Traders seeking stable income can purchase PT at a discount to earn fixed income, while traders seeking high returns can speculate on YT.

These yield strategies all have risks. Liquidity constraints and potential volatility in yield token prices are risks that Pendle strategies need to be aware of.

How Ethena Provides Stable Yield in DeFi Using Delta-Neutral Strategies

Ethena is a decentralized synthetic dollar protocol that aims to provide stable and high-yield opportunities using delta-neutral strategies. Unlike traditional yield methods, Ethena generates yield by combining perpetual futures hedging and on-chain collateral management.

Ethena accepts deposits in ETH or stablecoins, uses perpetual futures to hedge against price volatility, and generates yield through funding rate arbitrage. Returns can exceed 20% annualized yields, often exceeding the lending rates of stablecoins. Ethena offers a market-neutral yield, making it an attractive alternative to traditional DeFi lending.

However, this strategy relies on derivatives markets, which are subject to counterparty risk and potential liquidation risk. These two protocols offer unique ways to generate yield using the innovative mechanisms of DeFi, and they are a great option for users seeking more advanced yield strategies.

Yield generation in cryptocurrencies offers a variety of options, from low-risk staking to high-return strategies such as liquidity provision and platforms such as Pendle and Ethena. Each strategy has its own risks and potential returns, so it is important to align your strategy with your risk tolerance and capital.

A diversified investment approach helps balance returns and reduce risk. As the DeFi landscape develops, new opportunities will continue to emerge, so it is critical to stay informed and experiment thoughtfully.