No, cryptocurrencies do not pay out dividends but can earn interest as they do not function as traditional stocks of companies. In this blog, we take a better look at why crypto does not pay dividends and how you can still earn by just holding on to your digital coins.
In the world of crypto, we can earn interest and gain on our crypto by holding it. We usually revert to this in other terms. By using terms like Staking, Earning interest, and in some cases dividends. When we revert to staking we usually talk about the rewards earned on-chain by locking up a blockchain’s main token to maintain security and the value of its token. Earning interest revers to earning interest by either lending out or providing liquidity to whatever person or project in the crypto space. And dividends revert to the payout of a part of the profits a company has made.
Staking rewards, not dividends
So you probably have seen many APYs (Annual Percentage Yield) on either centralized exchanges or lending platforms or Dapps. This yield comes often from either staking rewards or liquidity/lending rewards. But never from dividends. This is because if a token would payout company dividends that would mean that that token fall under the security law. And the token/coin thus is a security. When it comes to securities and the payout of dividends there is a whole book of regulations and laws that come into play. Where you will have to register and comply with KYC and AML regulations.
This is all a lot of work and makes it only more difficult to work with. Luckily most crypto projects work in a different way and let you either lend out your coins or participate in the on-chain governance by staking tokens. These so-called staking rewards that are paid out to you then are not made up of company profits bet rather come from the blockchains inflation or transaction fees.
Dividends paying tokens
You do however have some dividend-paying cryptos. These cryptos would be classified as securities as a company asset paying out profits would fall under that category. Not many of these tokens currently exist and the once that do are usually representatives of direct company stocks. Which would classify them as a form of digital shares. But with the functionality of a blockchain token.
Will dividend paying tokens be classified as securities?
Yes, stocks that payout dividends will probably sooner or later be classified as a security. Meaning that you will only be able to trade them on specific exchanges after you have passed KYC and AML. And the exchange is compliant with all the securities laws. This does remove the idea of decentralization from the tokenized stocks as it is then all controlled by central entities.
Crypto dividends through crypto stocks
If you do decide to hold crypto stocks and want to earn your dividends. You will have to make sure that you comply with all the necessary rules. Payouts to crypto stocks could be frozen or not paid if the holder of these crypto stocks does not identify themself or does not hold the stocks in the “right” place.
How these dividends will be paid is also the question and could diver per share. Normally you would have the choice between a fiat currency or more shares of that company. But in the case of a crypto share, you could also be paid out in other (crypto)currencies if the company or platform wants to offer you that option.
Crypto stocks
In the last years, many crypto stocks have also gone up for trading on the Nasdaq. With stocks like Coinbase, Riot, Microstrategy, Tesla, and many others that work with or hold cryptocurrencies. If investing in crypto businesses is your thing, you could hold these stocks. And if they pay you a dividend from their profits that would provide you with a crypto company dividend. However, currently, not many of these companies pay out dividends to investors. As these companies usually prefer to spend their profits on more BTC or the expansion of their business.
Earn interest on your crypto
One other way to make your crypto work for you would be by just earning interest on your crypto through providing liquidity/lending it out. Many platforms like NEXO and Coinloan offer these features. Making it easy to earn some yield for yourself. So you can make your Bitcoin grow.
You could also do this in a non-custodial way if you value your privacy a bit more. With platforms like Aave, compound, PancakeSwap, and many more that let you earn decent yields on many different cryptos. For this, you will need a wallet like Metamask so you can connect to web3 applications on multiple blockchains.
Crypto performance payout
One way many crypto tokens provide a yield for their token holders is also by sharing the performance payout. What we mean by this is that they share (a part) of the fees that are made with the token to their token stakers. One good example of this is the Chain Games token that charges the users of the Chain Games platform a fee, which is then partly paid out to their token stakers via a smart contract.
This way holders of the token can benefit from the performance of the platform without holding control of the company that originally created it.
One other good example is through staking mainchain tokens. When you hold BNB on the BNB Smart Chain for example. You will not be paid out anything if you do not stake the tokens. However, a part of the transaction fee will be burned with each transaction. Making the BNB token deflationary. And thus slowly increasing the value over time (as long as there is a demand). This is not a dividend but it does link the value of the token to the performance of the blockchain. So you can reap the benefits of that blockchain.
You can add BNB Smart Chain to Metamask if you want to start using it.
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We hope you now understand if cryptocurrency pays dividends, and how you can earn some money with your coins. If you have any other questions for us, feel free to reach out on social media. And do not forget to check out our library of crypto articles.
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