Crypto Business Models Beyond Trading — Surveying Emerging Models Like Staking, DEX Market Making and Liquidity Mining

he crypto landscape has evolved far beyond just trading tokens on centralized exchanges. Innovative economic models enabled by blockchain incentives are allowing different ways to earn healthy returns through staking tokens, providing liquidity to markets and even just sharing excess HDD space.

This guide surveys popular decentralized business models for earning income by participating in crypto networks beyond speculative trading.

Limitations of Trading Only Approaches

In the early days of Bitcoin and Ethereum, the only real way to generate returns was to trade the tokens directly on exchanges speculating on price movements.

However, this approach has limitations:

Dependency on speculation: Returns fully reliant on more traders entering to raise prices rather than intrinsic utility

High risk: Extreme volatility where prices crash by >90% during bear markets carries huge downside risk

Zero Sum Game: Trading profits come directly from other losing traders, amounting to a zero sum game

Low Capital Efficiency: Maximum 2–5x leverage means high capital needs for meaningful positions

Platform Risk: Both crypto deposits and personal data with exchanges carries risk of loss via hacking or mismanagement

DeFi models like staking and liquidity mining solve many issues posed by trading only approaches as we analyze next.

Staking Returns from Network Validation and Governance

Proof of Stake (PoS) blockchains allow token holders to earn recurring returns on investment by staking their holdings to participate in validating transactions and securing the network as validators. The key aspects are:

Capital efficient: Only need 1 ETH rather than expensive mining gear for earning potential

Little management: Avoid hassles of operating miners with automatic delegation options

Annual yields: Up to 14% APY for some stacks allowing compounded growth

Helpers improve access: Centraziled staking helpers like Lido allow earning stacking rewards on ETH even without 32 ETH minimum deposit

Shift power to users: Decentralizing network influence and monetary expansion away from just minersgroup

Risks: Funds remain locked while staked although they can usually be exited within weeks. Slashes if malicious validator but very rare.

Staking has evolved as the most popular form of earning attractive recurring yields in crypto without relying on speculative trading.

Now let’s explore liquidity provision and market making models common in Decentralized Finance.

Liquidity Rewards For Supporting Protocol Growth

Automated Market Maker (AMM) dexes like Uniswap and Curve enable flexible trustless swaps between crypto tokens. The key innovation making this possible are liquidity providers supplying capital into pooled tokens supporting trading:

Flexible non custodial markets: Anyone becomes market maker rather than orderbook guaranteed by liquidity pool

Earn trading fees: Liquidity providers get rewarded from the 0.3% trading fees collected proportional to share of pool ownership

Impermanent loss protection: Offset dilution by minting tokens representing deposited assets so gain ifplatform usage grows

Additional incentives: Governance tokens, boosted subsidy rewards distributed to further incentivize providing capital

Risks: Technical complexity around managing positions across multiple AMM positions and platforms. Potential smart contract risks and large price impact from withdrawals if low liquidity

AMM liquidity provision unlocks flexible opportunities beyond just owning tokens to support ecosystem development, attracting over $100 billion capital to major platforms. Now let’s cover market making.

Crypto Market Making For Professionals

While individual liquidity provision has low barriers to entry, professional crypto trading firms focus on advanced infrastructure and algorithms for market making capturing spreads and arbitrage opportunities across CeFi and DeFi platforms:

Sophisticated infrastructure: High performance engines to discover opportunities across 1000s of markets

Automated strategies: Quant models for optimal order placement without manual intervention

Expertise from markets: Apply low latency techniques from traditional HFT (high frequency trading) translated to crypto AMMs

Wider opportunity breadth: Capture inefficiencies across both centralized and decentralized venues

Dedicated focus: Uncover niches ignored by individual LPs spinning multiple plates

Market marking requires far more sophisticated infrastructure, data analytics and quant modelling skills translating into healthy opportunities for dedicated trading firms supporting cryptocurrency ecosystem growth through enhanced liquidity and efficiency.

Optimizing Excess Capital With Yield Aggregators

To maximize returns on crypto holdings, funds leverage yield aggregators and optimized lending markets:

Auto compounding: Platforms auto harvest and compound yield generating tokens maximizing annualized yield through the power of daily compounding frequency

Efficiency via aggregation: Allocates holdings across dozens of yield opportunities selecting most profitable lending pools

Enhanced yields: Yearn, Harvester offer over 20% average APY consistently versus just holding tokens while handling moving funds

Lower gas fees: Reduced transaction costs by pooling harvests across many users focusing only on most profitable yield farms minimizing waste

The yield aggregator model has attracted billions in AUM allowing both retail and institutions to boost yield through auto-optimized lending market efficiency.

Sharing Spare Resources For Web3 Rewards

Several web3 projects allow earning rewards for sharing spare home resources like bandwidth, storage and GPU cycles to support ecosystem growth:

Home crypto mining: Monetize powerful GPUs otherwise idle through token rewards proportional to contribution power to networks like Filecoin, Chia and Livepeer.

Host apps: Get paid for providing bandwidth and storage for apps and websites at edge rather than relying on AWS type data centers like on decentralized networks like Akash and Holo hosting.

Rent out power: Unutilized batteries from electric vehicles and even traditional generators can earn payments for supplying energy grids or elsewhere it’s needed.

Monetize data: Securely sell access to valuable home data like solar roof production history, electric vehicle driving diagnostics to researchers rather than just gifting free to Tesla and the like.

Web3 protocols allow capitalizing what would otherwise remain zero revenue resources already payed for at home ultimately shifting power and participation access.

Evaluating Capital Allocation Across Models

With the breadth of business models explained, here is one approach to allocate holdings:

• 60% Staking and governance: Core holdings in staking tokens like ETH, SOL and ALGO for recurring yield and influence
• 30% Liquidity provisions: Diversified across 3–5 reputable AMMs like Uniswap, Curve and Balancer earning trading fees
• 5% Yield optimization: To maximize lending interest rates through auto-compounding harvest services
• 5% Speculation: Small allocation reserved for concentrating upside exposure whether exchange tokens or early stage projects

Within each category, further diversification such as providing paired liquidity across multiple asset pairs helps mitigate risks like reliance on demand for any one given token.

Conclusion

You can see crypto economic models have matured far beyond trading tokens allowing varied opportunities like staking, liquidity provision, yield maximization and even monetizing edge resources for those seeking alternatives to speculative price exposure.

As future adoption grows, these decentralized models offer new ways for wider access to participate while funding the networks they depend upon in an aligned incentives driven way.

Beneath the casino-like trading, lies immense design innovation around bottom-up economics not possible outside trustless environments like Ethereum and Solana enabling both open access and rewards simultaneously.

Specialized opportunities will only continue flourishing as blockchain evolves across gaming, social and finance driving sustainable growth not seen in traditional equity markets.