2.11.2024
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Are your bitcoin holdings simply sitting in your wallet, tucked away and waiting for the next bull run? Then, you might be interested in ways to earn a yield on your holdings.
Read on to learn how you can earn yield on bitcoin.
Unlike fiat currency held in a bank account, holding bitcoin in your wallet doesn’t earn you any interest. However, over the course of the past decade, numerous ways to earn interest on bitcoin have emerged.
Centralized bitcoin lending platforms and bitcoin savings accounts were the first to appear, allowing bitcoin holders to deposit their coins to earn yield.
With the emergence of DeFi, however, decentralized lending has taken center stage, enabling bitcoin investors to retain more control over funds during the lending process while offering more yield-generation opportunities.
The biggest Bitcoin DeFi protocol that enables you to earn yield on BTC is Sovryn, a non-custodial, permissionless platform that enables bitcoin trading and lending on Rootstock (RSK), the oldest Bitcoin sidechain, and Build on Bitcoin (BOB), a new Bitcoin Layer 2.
There are two key ways to earn a yield on your bitcoin holdings: lending and liquidity provision. Both are available on Sovryn.
Let’s take a look at how each of them works.
Decentralized bitcoin lending is pretty straightforward: you decide what amount you’re willing to lend out, and then you deposit it to a pool, from which others can borrow when needed.
Every pool has its own APY, which varies depending on several factors, including pool size and popularity. Sovryn shows a graph of APY changes in a given timeframe.
When lending, you can withdraw the amount you lent out whenever you want with no penalties, as long as the pool holds enough funds. If the pool doesn’t hold enough remaining funds for you to withdraw your bitcoin, the interest rate will rise until users have enough incentive to pay off their loans and free up your funds.
Before you can deposit your bitcoin, however, you will need to convert BTC to RBTC, the 1:1 pegged version of bitcoin on Rootstock.
To start lending in the Sovryn app, click on the ‘Earn’ tab and then on ‘Lend.’
You will be able to choose from a list of lending pools, including one for BTC. Each lending pool’s current information is shown on this page: the available amount, how much has already been borrowed, and what the APY is. Your deposited amount will also be shown as well as your interest earned.
When you click on ‘Deposit,’ you’ll be prompted to enter the amount. The Sovryn dapp will tell you the estimated network fee and the current APY value. If you're satisfied with the APY, just click on the ‘Deposit’ button again, and you’re all set.
Liquidity provision is another way to generate additional income from your bitcoin holdings while helping its DeFi ecosystem.
Similar to lending, it involves users locking away a certain amount of their funds into liquidity pools and receiving rewards in return. For example, in the case of Sovryn, a trading pool provides liquidity for traders using automated market makers (AMMs).
To start, click on ‘Earn’, then ‘Market making’ in the Sovryn dapp. You will be shown the available pools, the ratio of one token to another, and the way the APY has changed over time, along with a change in liquidity.
Choose the pool you want to deposit to, set the amount you want to deposit, and click the ‘Deposit’ button. Entering the amount for one token will automatically fill in the appropriate amount for the other one as well. Most Sovryn pools are 50/50 balanced pools, which require you to deposit equal values of RBTC and another asset. Before you invest in this type of pool, you should familiarize yourself with the risk of divergence loss (sometimes called impermanent loss).
Sovryn often has running promotions for different pools. If you deposit to a pool with one ofr these promotions, you are eligible for bonus rewards. These are paid out weekly in SOV, the platform’s native token.
Sovryn’s newest yield-generating opportunity comes in the form of a decentralized money market. This new DeFi product lets users deposit their BTC for other users to borrow it, while the lenders receive a percentage of the fees for their effort.
Sovryn promises a consistent APY between 4.5% and 6.5% paid in BTC, for BTC-derived assets, such as FBTC, WBTC & TBTC. In addition to this, users will be able to generate extra rewards depending on the currently running promotions.
In Sovryn’s money markets, there are no lock-up periods, which means you can withdraw your funds whenever you need them (liquidity allowing). Users who are borrowing against them will have to overcollateralize, which ensures that lenders don’t lose money in case borrowers have to liquidate or the price of the asset changes a significant amount.
While looking for the highest yield on bitcoin, explore Sovryn, as it offers both lending and liquidity provision to its users as a way to generate investment income.
The first thing you will need is a Rootstock-compatible wallet that you will set up for RSK Mainnet. Once it’s connected to the Sovryn dapp, you’re free to explore their different ways of earning yield on your bitcoin.
All the options you need in the Sovryn dapp are available under the Earn tab. In addition to lending and liquidity provision, this platform also offers SOV staking as another source of income. The size of the payout depends on the trading volume on Sovryn AMM—the higher it is, the more stakers earn. Additionally, SOV provides its holders with platform governance rights. The token can be staked for up to three years, with greater rewards the longer you stake.
For users who would rather not lock up funds, lending and liquidity provision are still available options. The main difference is that when you lend, your funds go to borrowers or margin traders, and when you provide liquidity to a pool, you enable AMM-powered trades and swaps. Also, lending and liquidity provision can produce different bitcoin yield rates. This is specific to each pool, so you can find the most suitable option for you.
Bitcoin yield is the additional income you can generate by deploying your BTC holdings in a lending or liquidity pool. Bitcoin DeFi Platforms like Sovryn enable bitcoin holders to earn yield on their BTC via lending or liquidity provision.
Yes! On Bitcoin DeFi platforms like Sovryn, users are incentivized with varying APYs, or annual percentage yields, to deposit their funds into pools. This provides the platform's services with much-needed liquidity while users are rewarded for their role in this process.
The best way to earn a yield on bitcoin is by using a Bitcoin DeFi platform, such as Sovryn, where you can engage in bitcoin lending or liquidity provision to earn yield on your bitcoin holdings.
