DeFi: Everything You Need to Know on Decentralized Finance
It is becoming impossible to ignore the explosion of the decentralized finance (DeFi) markets over the past few months.
The total value locked USD (TVL) in the DeFi markets has grown from $2.037B on July 1 to $10.99B on Oct. 1 according to defipulse.com (https://defipulse.com/). In fact, TVL has increased by an order of magnitude since it first reached the one billion dollar milestone in the spring of 2020.
Until recently it was quite challenging for Bitcoin holders to participate in the DeFi markets, which are built on the Ethereum blockchain. There have been simpler options for Bitcoin holders to earn interest on centralized exchanges like BlockFi and crypto.com.
A number of solutions have popped up to allow Bitcoin to be leveraged in the DeFi markets, from the catastrophic failure of imBTC to the emerging winner Wrapped Bitcoin (wBTC) which currently has about a billion USD locked into it as of Oct. 1st.
Follow along to learn how to start earning high yields on your Bitcoins that you purchased from MyBTC.ca
Token options for Bitcoin users to enter the DeFi markets
Before you can begin to earn high yields from your Bitcoins on the DeFi markets you will need to turn your Bitcoin into a token that can be used on the Etherum blockchain. The most promising token options are built using the tried and tested ERC20 token specification.
wBTC is currently the most popular DeFi option for Bitcoin holders and the only one that can be used on MakerDao, the most popular decentralized lending platform. wBTC is built on ERC20 token specification but is not completely decentralized because there are human intermediaries.
You can turn your Bitcoins into wBTC at one of 20 merchants or exchanges listed on https://wbtc.network/dashboard/partners. Once you have your wBTC you can lend them on lending platforms, trade them on decentralized exchanges or earn yields through other financial instruments such as staking, stablecoins, and derivatives.
The second most popular DeFi option for Bitcoin holders is renBTC, another ERC20 token. Unlike wBTC, renBTC is completely decentralized thanks to renVM. renVM is a network powered by decentralized virtual machines called Darknodes. renVM is a trustless protocol so there are no intermediaries between your Bitcoin and renBTC.
You can turn your Bitcoins into renBTC by visiting https://bridge.renproject.io/. Once you have renBTC you can participate in many of the same DeFi activities that you can with wBTC.
Although wBTC and renBTC are leading the pack, there are several other completely decentralized and semi-decentralized options for Bitcoin holders who want to experience the DeFi Markets.
sBTC is built on Synthetix, a decentralized synthetic asset platform. tBTC is another completely decentralized option based on the ERC20 token. pTokens, yet another option, have provided the overview below:
How to earn high yields on the DeFi markets
Decentralized Exchanges (Dexes)
Now that you have turned your Bitcoin into a token that you can use in the DeFi markets, you can begin to use decentralized exchanges (Dexes). Dexes are for trading many different kinds of decentralized financial instruments that are not available on centralized Bitcoin exchanges.
Uniswap and Curve are two of the most popular Dexes with a combined TVL of over US$3 billion. There are several other Dexes available as well.
Lending is one of the most popular ways to earn high yields on your Bitcoins. MakerDAO is the most popular lending platform and allows for the use of wBTC. The second most popular lending platform is Aave, but they currently have no support for wBTC. Compound, the third most popular lending platform, does support wBTC.
Lending is one way to earn high yields on your Bitcoins, but there are more and more complex decentralized financial instruments appearing every day.
Staking is when you earn rewards by locking your tokens into a contract. You can quickly and easily calculate which contracts will yield the highest by checking here: https://www.stakingrewards.com/calculator.
Stablecoins are tokens that are tied to other assets, such as the USD. They offer more stability than Bitcoin, which has been known to swing wildly within a short period of time.
It seems like every day there is a new DeFi product to buy in to. DeFipulse.com has become a trusted source to track the DeFi markets and compare what has the highest TVL. They have recently launched their own financial product called the DeFiPulse index. It is a “novel blockchain financial product that lowers the barrier to entry for new users who lack the expertise to gain exposure to DeFi, and provides experienced users with exposure to DeFi through one single asset.” (https://defipulse.com/blog/defi-pulse-index/)
Risks and concerns related to the DeFi markets
Like with any financial investment there are always risks, though there are much higher risks related to the DeFi markets than their traditional centralized counterparts. The higher risks are related to how new the DeFi markets are and the concerning history of attacks, exploits, and hacks that have caused incredible losses.
The aforementioned imBTC token caused a catastrophic failure when it was rushed to the DeFi markets without due diligence. Every decentralized exchange that listed imBTC was attacked. imBTC was based on the newer ERC777 token specification, which had not been tried and tested like the ERC20 token. Hackers found an exploit in the code that the exchanges were not prepared for and the result was thefts exceeding hundreds of millions of dollars.
Though the risks are high, the rewards can be higher. It is almost impossible to earn any interest in the current centralized finance economy. Like the early adopters of Bitcoin, those who are early adopters of DeFi have the potential to earn massive, life-changing windfalls.
DeFi allows HODLers a new way to earn high yields
Once you have purchased your Bitcoins from MyBTC.ca you have the option to Hold On For Dear Life (HODL) and history shows that you are likely to increase your wealth. Owners of Bitcoin are much less risk-averse than those who invest in traditional centralized assets, so put that to the test and jump into the DeFi craze today. There is no telling how high your yields will be.