Bankless: A Guide to Using Bitcoin DeFi

For the past few years, the center of DeFi’s activity has been Ethereum, but it has also expanded to the Ethereum Virtual Machine (EVM) chain such as BSC, Polygon, Arbitrum, optimistic, and more.

However, Bitcoin has its own native DeFi ecosystem, which, while much smaller than EVM-based DeFi, is steadily clustered at all layers of the network.

Therefore, this article will show you how a newbie can use Bitcoin DeFi.

* Goal: Learn how to navigate the Bitcoin DeFi ecosystem

* Skill requirement: Intermediate

* Effort required: several hours

* Return on investment: Dive into the new frontier of DeFi and earn up to 8% APY with STX staking.

Bitcoin DeFi, let’s get started!

Defi, back to Bitcoin

One day in 2017, I hit the “Random” button on Reddit and went to r/ethtrader to start my crypto journey.

As a result, I became part of a new wave of entry into the crypto world through Ethereum – not OG Bitcoin in the crypto economy.

I started writing crypto journalism, and I could say that I started out as a generalist and didn’t specialize in a particular field. In 2018, I exchanged my last Bitcoin for ETH, and I’ve turned my attention to Ethereum ever since.

I’ve also seen the rise of DeFi. I was an early user of Maker and lent DAI stablecoins with my ETH and have been making real-life money by doing so ever since.

This ability made me a big fan of DeFi early on, and it has led me to explore as many DeFi projects as possible in recent years, while the total lock-up value (TVL) of the ecosystem has reached an all-time high.

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DeFi’s TVL peak as of date is $182 billion as of December 2, 2021 – originating from DeFiLlama

In this boom, we are also witnessing more and more innovation and diversification. You can earn trading fees with LPing on Uniswap, Curve and Balancer, borrow and borrow on Aave and Compound, trade derivatives on dYdX and Opyn, and so much more!

Decentralized finance is booming.

From Alt-L1 to Ethereum-centric L2, there has been a boom in other chains in the same wave.

In most cases, the largest of these new chains are EVM-based due to network effects, which makes it easier for the large number of existing users to try out the new chain.

MSgzMOj3WarJ9723hl1mMNPLBvNeRB53IdbHFxg9.png

Solana is currently the only non-EVM chain in the top ten of DeFi TVL – originating from DeFiLlama

So far, I’ve tried most of the known EVM chains. Lately I’ve been working on non-EVM DeFi projects to learn more, such as how to trade on Cosmos’ Osmos app-chain.

I felt familiar with most smart contract platforms, but I needed a challenge.

Are there DeFi projects on the Bitcoin network?

To be sure, I haven’t paid attention to Bitcoin for many years.

But now, this blockchain OG has indeed initially built its own DeFi ecosystem. It is built on top of the transaction settlement system at the base layer and executes all the contract logic on top of Bitcoin (sounds familiar?). )

So I think as an EVM person, it should be interesting to try out some of the biggest Bitcoin DeFi projects and then write an article on how to use those projects.

Before we get into the ground, let’s quickly review what Bitcoin’s “layer” means for DeFi.

Let me explain as follows:

Bitcoin DeFi Basics: Beyond the Fundamentals

While DeFi can be built on the base layer of Ethereum, the base layer of Bitcoin can only handle basic transactions. There is no smart contract logic!

Therefore, the Bitcoin DeFi scenario occurs at the top of the protocol layer, where external projects can build and inherit Bitcoin’s security.

The largest Bitcoin DeFi protocol is the Lightning Network, a Bitcoin L2 that uses payment channels to allow people to make extremely fast and low-cost payments in a decentralized manner.

Today, more than 5,000 bitcoins have been deposited into Lightning, equivalent to about $96 million.

Not bad! This makes Lightning the 78th DeFi protocol, behind protocols like Ribbon Finance.

However, despite ongoing efforts to build a more expressive application layer on top of Lightning itself, the network is currently only available for payments.

To use more advanced Bitcoin DeFi features such as borrowing, lending, etc., you must also use a common protocol that provides smart contract functionality on top of Bitcoin.

The two biggest examples of such agreements right now are RSK and Stacks, which at the time of writing have $51 million in TVL and $11 million in Stacks.

6WvvdS9ZROsyHTAQ6B9jNXvHwwuXqzpQERuv3NSk.png

RSK’s TVL is down from its last peak of $229 million, but it’s not gone away — stemming from DeFiLlama

Let’s explore the three Bitcoin DeFis of Lightning, RSK and Stacks in detail.

Try Lightning with Breez

QYLhax4joEwdx19K4Psap3HUs1nUt1YiniTR5Pnu.pngDecentralized payments are at the heart of DeFi, so the Lightning Network is the core of Bitcoin DeFi.

If you’re new to Bitcoin DeFi like me, you’ll be interested in how to interact with Lightning in the simplest way possible, allowing you to get into the groceries and get some tips first.

For this, Breez is arguably a solid choice, an unmanaged Lightning client designed for mobile devices.

You don’t need to master any technical know-how, just download this app on your phone, deposit some Bitcoin from another wallet or crypto exchange of your choice, and you’re good to go!

You’re ready to start your Lightning journey.

The specific steps are as follows:

(1) Download Breez from the Apple App Store or Google Play.

(2) Click the “Receive” and “Receive via BTC address” buttons to generate a deposit address.

(3) Deposit BTC in your Breez address, deposit as much as you want, and wait for the deposit transaction to be confirmed.

(4) Alright! Now you can start sending/paying BTC on the first L2 of the Bitcoin network.

Personally, I wanted to try to make the best use of my newly saved Lightning sats (abbreviation for “satoshi”, the minimum denomination of Bitcoin), so I found the Lightning address of the Human Rights Foundation through the QR code and sent about $50 worth of Bitcoin.

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Very simple! Although Breez is still in beta, the experience is smooth.

I was impressed, but it’s just a basic payment. We also want to borrow, exchange and make money. We need DeFi.

So, let’s explore RSK to understand the possibilities of the more complex Bitcoin DeFi.

Exchange, borrow and borrow and more on RSK

EoYQLABTqsLXStE0ERYGpf2uQPLMb3FkP8OV1Xp8.pngRSK is an EVM-compatible smart contract protocol on the Bitcoin network.

The sidechain inherits some of Bitcoin’s extensive security guarantees through merge-mining, allowing users to connect their BTC with RSK’s native token, RBTC, which is pegged to BTC in a 1:1 ratio, and then apply RBTC to Ethereum-like smart contracts.

One of the biggest DeFi applications on RSK right now is Sovryn.

The downside is that RSK and Sovryn require users to pay for transactions with RSK’s native token, which is RBTC pegged to BTC.

There are three solutions:

(1) Quick way: Buy some RBTC on Bitfinex, Bisq and other exchanges that support such transactions, and then transfer it to your wallet.

(2) Normal mode: Use the FastBTC transfer option to deposit BTC to RSK via the RBTC “Receive” button on Sovryn.

(3) Slow method: Use the official conversion process to convert BTC to RBTC, which can take up to a day.

lNpIttKuw1HLm6by4gLpd5HGtJahtgFqgm4sbQD2.pngBefore diving into Sovryn, you’ll want to add the RSK EVM chain to your wallet, such as your MetaMask.

To do this, you can log in to the chainlist.org, search for and add chains from there.

Once you’re ready for RBTC on RSK, you can go to the Sovryn app and select a DeFi activity such as borrowing, lending, providing liquidity, margin trading, staking, and more.

If you only want to exchange tokens, you can go to the Swap center to exchange any token you want, just like on any EVM decentralized exchange.

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Stake STX on Stacks for Sats earnings

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Stacks is another smart contract protocol on Bitcoin.

Unlike RSK, Stacks doesn’t support EVM, but if you’ve used any other smart contract platform before using the protocol, you shouldn’t be unfamiliar with it. The network’s native token is STX, which is used to pay for transactions.

Notably, Stacks offers a Stacking program that allows users to stake their STX tokens to support the network and receive BTC rewards from Stacks’ BTC miner participants. You can join the event by following these steps:

(1) Download the popular Hiro desktop wallet for Stacks

(2) Back up your wallet account for more subsequent transactions

(3) Get STX from your chosen crypto exchange and deposit it to your new Hiro wallet address

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(4) After your STX deposit is in your Hiro wallet, click the “Get started” button under the “Stacking” option, and then click on the “Stack in a pool” option.

(5) Find the stacking pool address of your choice on the stacks.co and copy it to your Hiro UI.

(6) Enter the amount of STX you want to lock and choose whether you want your deposit to be timed or indefinite.

(7) Confirm the transaction with your wallet. All right! Now you will stake STX and get SATS earnings. APY is currently expected to reach more than 8%.

Bitcoin requires DeFi

As things stand, Bitcoin’s DeFi scenario is much more primitive than Ethereum’s DeFi scenario, but of course, it already exists.

As Bitcoin’s block subsidy continues to decline every four years, the OG blockchain can greatly benefit from an increasingly thriving protocol and application layer that will generate more and more BTC transaction fees over time.

In this regard, the rise of projects such as Lightning, RSK and Stacks is very gratifying, although they are undoubtedly still in their infancy. In addition, these projects are just the first of many more upcoming projects, with new competitors joining all the time, such as DeFiChain’s sidechain efforts.

So, keep an eye out for veterans and newcomers to the Bitcoin DeFi space!

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/bankless-a-guide-to-using-bitcoin-defi/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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