Decentralized finance (DeFi) on Bitcoin is bringing a new era of yield-generating opportunities for Bitcoin users. Bitcoin yields provide investors with a way to earn bitcoin while enabling them to benefit from the security and robustness of Bitcoin’s infrastructure.
In this article, we will learn about Bitcoin DeFi protocols and list the ones you can earn yield from.
What Are Bitcoin DeFi Platforms?
Decentralized finance (DeFi) is an umbrella term for blockchain-based financial applications, protocols, and trading platforms.
The concept behind DeFi is removing barriers that hinder consumers from interacting directly with traditional financial systems, and instead offering an open and decentralized alternative to these systems. The alternative is blockchain native applications that allow users to access them directly, and utilize smart contracts for trustless transactions.
By eliminating intermediaries and relying on blockchain technology, DeFi promotes transparency and financial inclusivity.
Decentralized finance has been mostly focused on the Ethereum ecosystem but that is beginning to change. Bitcoin DeFi is steadily growing as more crypto users are shifting to Bitcoin, the world’s leading digital currency blockchain.
The development of DeFi applications on the Bitcoin network has been made possible by two key innovations.
- The introduction of the Taproot protocol upgrade in 2021 allowed for smart contract functionality to be added to Bitcoin. This enabled the minting of fungible tokens on Bitcoin, such as BRC-20 and Runes tokens.
- The rise of Bitcoin L2 chains enabled developers to build DeFi applications. Services built on these chains lean on Bitcoin’s durable infrastructure and benefit from its on-chain liquidity.
3 Ways to Earn Yield on Bitcoin DeFi Protocols
Earning yield involves depositing cryptocurrency into a lending protocol, staking pool, or liquidity pool to earn rewards on its use while it’s locked up for some time.
The following are three ways you can earn yields on Bitcoin DeFi applications.
Staking
Staking refers to the process where users lock up a certain amount of crypto in a “staking pool” to become an active validator node for a blockchain network. They earn staking rewards in the form of crypto for validating transactions and securing the network.
Lending
Lending protocols allow users to deposit crypto within their smart contracts and loan it out to borrowers, in exchange for collateral and interest. Lenders can earn a yield on their loans from interest earned from loans to borrowers.
Liquidity Provision
Liquidity providers deposit into liquidity pools on automated market makers (AMMs), which are a version of traditional market makers. The AMMs charge a fee whenever a token pair is traded in a liquidity pool, and a fraction of those fees are distributed to liquidity providers.
Bitcoin DeFi Platforms That Allow You to Earn Yield
The following are DeFi platforms that allow users to earn yields.
ALEX
ALEX is a Bitcoin DeFi platform that allows users to securely trade Bitcoin native assets and earn yields. ALEX aims to bridge the gap between Bitcoin’s L1 and L2 chains and create innovative cross-chain DeFi products. The platform is built on Stacks, a Bitcoin L2 protocol for smart contracts to provide BRC-20 inscription services, BTC bridges, AMM pools, liquid stacking, and more.
Arkadiko
Arkadiko is a DeFi protocol for minting stablecoins, earning yield on deposits, and borrowing assets on Stacks. The protocol aims to build decentralized finance applications that are secured by the Bitcoin network. Arkadiko is built on the Stacks protocol, allowing users to lend Bitcoin and collateralize their STX tokens.
Stacks Swap
Stacks Swap is a DEX based on the Stacks protocol and allows users to build Web3 projects on Bitcoin. The platform aims to combine AI and Stack’s properties to bring more DeFi capabilities to Bitcoin. Stacks Swap offers products like Group Farm for projects to reward their users, and liquidity pools for Bitcoin users to swap BTC for STX tokens, and deposit them therein to earn yield.
Conclusion
In the dynamic world of decentralized finance (DeFi), Bitcoin is challenging the dominance of pioneers like Ethereum and other blockchains. Bitcoin’s unparalleled security and reliability will appeal to developers seeking to build secure and trustless financial applications. The prospect of earning Bitcoin yields is a strong incentive to drive DeFi innovations on the Bitcoin network.
