Welcome McFinancers. With the end of the year fast approaching, we wanted to take the time to go over different ways for investors to get cash flow from their investments. As investors, we know that there are two investing strategies: capital gains and cash flow. A reminder that capital gains are made when an investor buys something for a low price and sells it after it has appreciated in price. This offers investors the chance to increase their money exponentially over a short period. On the other hand, investors can invest for cash flow. This is when investors buy assets that provide a consistent income over time. Each investing strategy has its pros and cons and each investor has their preference for their investing strategy. Here at McFinance, we recommend that investors focus on cash-flowing assets over capital gains due to their reliability in any market, and it’s more passive than capital gains investments. Over the next four weeks, we are going to look at different ways for cash flow in the stock market, crypto, commodities, and real estate.

Crypto, short for cryptocurrency, is a digital or virtual form of currency that relies on cryptographic techniques to secure transactions and control the creation of new units. It has gained significant attention and popularity in recent years, and its emergence is closely tied to the transition from Web 2.0 to Web 3.0.

Web 2.0 represents the current phase of the internet, characterized by user-generated content, social networking, and the widespread use of web applications. It's often referred to as the "read-write web" since it allows users not only to consume information but also to contribute to it. Major platforms like Facebook, Twitter, and Google are prime examples of Web 2.0 services. Web 3.0, also known as the "semantic web" or "decentralized web," is an emerging concept that envisions a more intelligent, interconnected, and decentralized internet. It aims to enable a more secure, transparent, and user-centric digital experience by leveraging technologies like blockchain, artificial intelligence, and decentralized applications (DApps). In Web 3.0, data is not controlled by a few powerful entities but is distributed and owned by users themselves.

Crypto is an integral part of the transition from Web 2.0 to Web 3.0, facilitating decentralization, trustless transactions, and user-centric control over data and assets. This shift promises a more open, secure, and inclusive internet where individuals have greater sovereignty in their online interactions and financial activities.

We are going to look at three different ways to generate cash flow. The first is probably the most well-known and that is by lending your crypto to others through decentralized finances (defi) protocols. The second is by staking cryptos in blue-chip cryptos. The third is yield farming with new crypto projects.

Lending

Lending cryptocurrencies to generate cash flow has emerged as a popular and innovative method within the world of digital assets. By participating in crypto lending platforms, individuals and institutions can earn interest on their idle cryptocurrency holdings, effectively putting their assets to work. This approach allows crypto holders to harness the volatility of the market to their advantage, as they can potentially earn higher interest rates compared to traditional savings accounts. Lenders typically lend their cryptocurrencies to borrowers who may require funds for various purposes, such as trading, leverage, or short-term investments. It's important to note that crypto lending comes with certain risks, including counterparty risk and market volatility, but for those willing to carefully assess the platforms and manage risk, it can be a rewarding way to generate cash flow while participating in the growing cryptocurrency ecosystem.

Staking

Staking cryptocurrencies has emerged as a compelling method to generate cash flow within the rapidly evolving world of digital assets. Staking involves participating in blockchain networks as validators or delegators, effectively locking up a certain amount of cryptocurrency to secure the network and, in return, earning rewards. These rewards typically come in the form of additional cryptocurrency tokens or coins. Staking offers crypto holders the opportunity to earn a passive income, often at a rate that exceeds traditional savings accounts. This not only provides a means to grow their cryptocurrency holdings but also actively contributes to the security and decentralization of blockchain networks. While staking offers the potential for cash flow, it's essential to research and carefully consider factors such as the staking platform, token economics, and potential risks associated with price volatility and network vulnerabilities.

Yield Farming

Yield farming, a decentralized finance (DeFi) concept, has gained prominence as a dynamic way to generate cash flow in the cryptocurrency space. Yield farming involves users providing liquidity to various DeFi protocols and platforms by locking up their assets in smart contracts. In return, they receive rewards, often in the form of interest or governance tokens, which can be traded or reinvested for further yield. This strategy enables cryptocurrency holders to maximize their returns by participating in the lending, borrowing, and liquidity provisioning processes of decentralized platforms. However, yield farming is not without risks, as it involves exposure to smart contract vulnerabilities and the potential for volatile token prices. Still, it has become an attractive option for those seeking higher yields compared to traditional financial instruments while actively engaging in the DeFi ecosystem.

Recommended Strategy

Achieving a balanced approach between lending, staking, yield farming, and holding a reserve in your cryptocurrency portfolio can be a strategic way to create diversified and sustainable cash flow. In our allocation, we will be looking at allocating 10% to our reserves (5% in stablecoins and 5% in Bitcoin/Ethereum), lending 10% (stablecoins), staking 60% (blue chip cryptos), and putting 20% into yield farming (speculative).

Reserving 5% of your assets in stablecoin provides a buffer against market volatility and unexpected expenses while allowing you to invest in new opportunities as they arise. Reserving 5% of your assets in Bitcoin/Ethereum provides growth potential as some of the most prominent cryptocurrencies. Lending 10% of your assets in stablecoin provides a stable and conservative income stream that you can use to pay bills or trips or reinvest. The majority, 60%, allocated to staking ensures long-term growth potential and network participation. Staking with blue-chip cryptos (ETH, ATOM, SOL, ADA, etc.) provides investors with stable returns from reputable cryptos. The 20% allocated to yield farming captures the benefits of higher yields while actively engaging in DeFi opportunities. Investors can look at new crypto projects as they provide higher yields for yield farming but provide the largest risk as the crypto projects could go to zero.

Investors would use the rewards from staking and yield farming to lend. This takes the profits from the rewards and places it into a stablecoin that won’t fluctuate in value (i.e. USDC or USDT). Then use that stablecoin to lend on lending platforms (i.e. AAVE or Compound) to generate passive rewards which can be sent to your reserve so you can spend it, reinvest it, or reallocate the profits. You can use the picture below to help show the flow of rewards.

This diversified strategy aims to optimize both passive income and capital appreciation while mitigating risks through a thoughtful allocation mix. It's essential to regularly reassess and adjust this balance to align with your financial goals, risk tolerance, and the evolving landscape of the cryptocurrency market.

Conclusion

This is a new and exciting opportunity for cash flow. As the crypto market continues to evolve and grow, there will be more users and investors thus providing opportunity for huge potential for early investors. We hope you learned something new today. Join us next week as we look at how to use commodities to generate cash flow.

* The examples used in the above scenario are for educational purposes and are not financial advice. Investors should do their own due diligence on investments. Also, remember that you should never invest money that you are not willing to lose.