DeFi
How to Earn Passive Income with Bitcoin in DeFi
Earn passive yield through DeFi lending and borrowing protocols such as Compound, MakerDAO and Sumer.money is one of the effective ways by which investors can fully optimize their dormant crypto portfolios.
However, although the DeFi market has opened up passive income opportunities, most of them are only compatible with Proof-of-Stake (PoS) blockchain networks. This explains why Ethereum currently accounts for more than half of the total value locked (TVL) on DeFi protocols: $52 billion, while the total across all blockchains is $90 billion.
What about investors who prefer to hold digital gold, BTC?
As a reminder, the price of Bitcoin recently reached a new all-time high of $73,000 following the enthusiasm generated by the approval of spot ETFs by the US SEC. And even though the long-awaited halving did not result in a significant increase in price, longer-term projections from experts and established banks show that the BTC price could still surpass the $100,000 mark this year.
That being said, any investor who intends to hold BTC for a longer period of time should ask themselves this fundamental question: are there opportunities to make idle BTC work through DeFi yield?
BTC DeFi Yield Optimization
In Bitcoin’s early years, the native token BTC operated solely on the Bitcoin blockchain, limiting investors to speculative gains that depend solely on price action.
Fortunately, siled environments are no longer the norm for native crypto tokens; Recent advancements in DeFi have brought its BTC into smart contract blockchain ecosystems, including Ethereum and Avalanche.
Wrapped BTC
Launched in 2019, Wrapped Bitcoin (WBTC) is an ERC-20 token that allows BTC users to leverage the Ethereum ecosystem. Technically, each WBTC is backed by an equivalent amount of BTC held by a central custodian (1:1).
The process is quite simple. Let’s say a user with 2 BTC wants to use their assets to exploit the yields available on Ethereum. This would mean sending the 2 BTC to a central entity or exchange such as BitGo, which would lock the BTC and, in turn, create 2 WBTC which could be used in various ways on Ethereum’s DeFi ecosystem. This includes lending WBTC to earn interest and produce agricultural yields, among other DeFi operations.
While this is a new way to expose BTC to potential gains on the Ethereum network, the main drawback of this approach is that it involves centralized custodians. If history is a good teacher, even those who were the best at one point, including the infamous FTX exchange, reinforced the “not your keys, not your crypto” philosophy.
Currently, the total value locked (TVL) of WBTC stands at $9.6 billion while the circulating supply stands at 155,304 BTC, according to Coingecko.
Synthetic omni-chain actives
Multi-chain synthetic assets are another revolutionary way for BTC holders to earn passive income through DeFi protocols. The beauty of this approach is that it is not limited to a single DeFi ecosystem as is the case with WBTC.
A good example in this case is the Sumer.money synthetic asset and money market protocol. Instead of locking one’s BTC with a custodian, this omni-chain protocol is designed to facilitate transparent communication between smart contract chains. The protocol allows BTC users who want to explore the DeFi ecosystem to deposit their BTC on the native blockchain, after which it mints an equivalent amount of synthetic BTC (SuBTC).
What particularly stands out is that, unlike most cross-chain solutions in which a completely new non-composable token is created, Sumer.money SuBTC is fungible, meaning it can work on all supported blockchain networks without losing any of its security features or any significant losses. price gap. The concept is quite similar to that of a credit card; No matter which country you travel to, the credit card funds are liquid and usable.
Likewise, with synthetic BTC (SuBTC), it is possible to lend, exchange, mine or spend your Bitcoin on multiple DeFi chains in order to generate passive income.
BTC bridging on Avalanche
Linking Bitcoin to the Avalanche blockchain is also an option for those looking to maximize DeFi returns in this ecosystem. According to the last data on Dune Analytics, the total supply of BTC.b at the time of writing is approximately 3,310, which translates to a market cap of $209 million based on current BTC market prices.
So how does the Avalanches BTC bridge work? Simply put, this smart contract network relies on a bridge address that manages the conversion process. A transaction is initiated on the Bitcoin Core, after which it is indexed by the bridge nodes. Once confirmed and verified, an application called “SGX” generates an equivalent amount of BTC.b. This token is what the user leverages to interact with Avalanche’s DeFi opportunities.
Notably, BTC.b, unlike WBTC, uses a decentralized and non-custodial approach. However, it is also worth mentioning that bridged BTC.b has limited composability, meaning that exploiting DeFi opportunities outside of the Avalanche ecosystem will require additional technical nuances.
Conclusion
Bitcoin is here to stay; With the big trading players now on board, the only question is when and not if more institutions will seek exposure to BTC. For those who already own BTC, the best way to optimize your portfolio is to put it to use.
What better way to do this than DeFi yields? Of course, the process can be a bit technical, but the most important thing is to get started from the start of the game. This way, one does not have to worry about his digital assets remaining unused capital .