Today i want to explain you how you can easily create passive income with your cryptocurrencies, what risks there are and everything you have to know about this topic. There are guaranteed apis of 90 percent, depending on which website you look at if this sounds interesting for you stay tuned and watch this video until the very end, maybe ive heard about liquidity mining before. But i want to explain you in detail what you have to watch out for lets get started guys everything you need for guaranteed. Passive income are two cryptocurrencies of your choice and the knowledge how to do this. First, we have to know how the tokens are exchanged on a central exchange in comparison to decentralized exchanges on central exchanges. The price is often made with so called order books people can set an order to buy or sell something at a specific price level, and the exchange will connect the people with matching orders on a decentralized exchange. This is working in a different way, which is very profitable for some kind of people. In the decentralized space the price is created by liquidity pools. I want to explain you how they are working, that you get a deeper understanding of what there is happening. I think its important to understand everything you invest in. I could also just advise you to invest your money in a random pool, but i want you to know what you are doing guys. So please stick here with me.

This is very simple to understand. I will explain you everything when you are on a dex, a decentralized exchange. You usually have two possible functions to use, you can add liquidity and you can actually exchange your coins. There are always these two possible options, and now what is important to understand that you could not have this normal exchange function without the liquidity function, because there is no order book, you cannot say i just want to exchange some bitcoin in dfi coins. I use them just as example, because there is no order book and no centralized platform which is actually providing liquidity to the whole system. The dax does not know who wants to buy or sell cryptocurrencies, because the market making is not happening there. The whole system is based on the idea that random people have to add their funds to use them as liquidity providers. For sure no one is adding funds to a system without getting rewarded for this. So there are basically two things you get on the decks for providing liquidity. First, you get the liquidity mining rewards from the blockchain, and additionally, you can get the transaction fees which are arising on the decks. This together can reach up to 150 percent apy, which you can get from providing this liquidity isnt. This insane guys just compare this to apys, which you would get from a bank. It would be like one or two percent per year who would actually give his money to a bank when he knows every details about liquidity mining.

I think nobody would feel comfortable to do this when there are better alternatives. I also have to mention that you can cash out your cryptos in every second. You want, there is no timeline to hold as in staking. The next thing you need to know is that there are no liquidity pools existing, which are just filled up with one coin. You always have to provide a pair of tokens for every pair of tokens. There is a different liquidity pool and you have to add your tokens exactly in the proportion which is actually existing in the pool. That is very important. I will come back to this point later in this video now lets look at how coins are actually exchanged on the decks. This is basically when you only add one of the tokens to this pool and get the other one as exchanged and thats. The simple thing guys through the relationship between these two tokens, which are in the pool the price, is defined on the decks. You will notice that the proportions between the two tokens cannot always be the exact same as the market price on a centralized exchange. So there are very often some discrepancies. There are actually people called arbitrage traders which are comparing the market prices of a centralized exchange and the taxes market price, and they notice that they can do a safe profit when they buy one coin, cheaper on the one exchange and then transferring it to the other.

And sell it more expensive because of this, the market price on the decks will always be similar to the price in order books, or at least very close to it. So now you know about the idea how everything works, but lets go to the risks. You probably have, first, you can have the risk. The smart contract is maybe not doing what it pretends to do, but you can just fake check the code and verify that its working correctly. Additionally, almost every smart contract has reviews which you can check out before when you are not into coding, especially when the programming language is during complete. That means that you can program whatever you can think about, because its a complete language, the risk of some malware or code you dont, want to be in your smart contract is given so in the ethereum main network. It is maybe more risky than on a device chain, because ethereum uses a during complete language called solidity. The default chain is not during complete, so your risk is very limited. The last risk i want to mention is the impermanent loss. If you guys are interested in liquidity mining, i will do a separate video about impermanent loss with calculations, but i will explain it to you also in this video in a simple way, think about the pool filled with 50 bitcoin and 50 dfi coins. In the beginnings. Every miner who provides liquidity has to add his tokens in the same proportions, but when someone uses the normal exchange function, then the proportions will be different.

Dont get me wrong. The value of the pool is the same because you can only exchange something which has the same value, but the percentage of btc and dfi is not 50 50 anymore. That is not a problem. As i already said, there will be arbitrage traders which are balancing the pool all the time to make profits with this process, but think about what would happen if the price of one of your tokens would rise while the other one is stable, you would basically get A different amount of tokens than your deposit in the pool with different prices. This can be good or this can be bad for your balance. Both is possible, but the important facts you need to know is that this will be balanced over time by the arbitrage traders. So i dont want to go in detail about what percentage you would lose if what especially happens, because its a fact that, if your time is not limited, the arbitrage traders will eliminate the impermanent loss and you can cash out if you want. You have also to think about that, even if you would have an impermanent loss of 20 percent, which would be very, very high, it would takes you two up to three months and this would be balanced by your rewards. If you have any more questions, feel free to ask me in the comment section i will answer as soon as possible. At this point of the video, i want to mention that this whole project would not be possible for all of us without our great sponsor by it.

Bivit is a cryptocurrency exchange and we will also do a tutorial how to use bibit explaining every possible function on the website, how to deposit money, how to do spot trading or margin trading. You can also expect explanations about the possible benefits you can get out of the different options and also in detail what risks you have and how our team is managing the whole financial journey in the crypto space. We think bibit is for sure one of the best exchanges or maybe the best exchange. If you want to do margin trading on a high level, dont get me wrong. I dont recommend anyone to do high margin trades, but if you want to do it, you should definitely try it out and buy it if you just want to buy crypto assets and then store it in your long term. Huddling portfolio buybit is also a very nice way to do it with an user friendly graphical user interface and small trading and transaction fees. We will link the bible platform under every video in the video description and in the pinned comment down below. Thank you for watching this video until the very end, if you enjoyed the content, smash up the like button and share decent following videos with your friends, i hope you could gain some knowledge and have a better understanding about the actual events in the crypto space. If you have any critique, leave it down in the comments and tell me what i could do better in the future, i wish you have a very nice day and enjoy your investments.