Bitcoin and DeFi Yields
As the DeFi market expands there is a slight move away from its dependence on using the Ethereum blockchain. We are seeing other chains in play, and surprisingly one of them is Bitcoin. While the Bitcoin-native DeFi market is still small compared to what’s available on Ethereum, the market for decentralized Bitcoin-native yielding products is on the rise. Currently, the most popular use cases in the Bitcoin DeFi market include lending, trading, staking, and stablecoins. So, with a growing Bitcoin DeFi system, what kind of yields can you expect to earn on your BTC holdings?
Bitcoin-native DeFi apps are emerging with the aim to provide next-generation financial services built on Bitcoin. One example of a Layer 2 (L2) smart contract protocol powered by Bitcoin is Rootstock (RSK). Another is Sovryn, a decentralized bitcoin trading and lending platform that offers a non-custodial, permissionless protocol that utilizes smart contracts for BTC borrowing, lending, yield farming and margin trading. Sovryn is built on top of RSK and has a number of advantages over tokenized BTC on Ethereum, such as better storage handling and data structure, and lower transaction fees.
When it comes to yield, Atomic Finance allows Bitcoin holders to generate yield on their BTC while retaining custody through a covered call strategy fuelled by DLCs (Discreet Log Contracts). A covered call entails holding a token and simultaneously selling a call position on the token, with the option premium being your generated yield.
How are Bitcoin DeFi yields doing?
Interest rates from traditional lenders are at an historic low, but Bitcoin owners who have been holding onto their BTC can gain above-average returns, or yields, on DeFi lending platforms. For example, at the lower end of the market, with Gemini you can earn up to 1.4% APY (annual percentage yield). Or if you are with BlockFi you can gain yields of 5% APY on your BTC deposits. Others, offer even higher gains, so it is worth looking at a range of opportunities.
According to CryptoNews, “Securing decentralized finance protocols with Bitcoin may provide a more robust DeFi landscape, which has long been plagued by insecure infrastructure.”