Bitcoin isn’t just for HODLing anymore. With BTCFi (Bitcoin DeFi), Bitcoin holders can access decentralized finance on Bitcoin, either on Layer 1 directly or through Bitcoin Layer 2 solutions.
Thanks to the growth of Bitcoin-native DeFi, you can now earn yield, borrow against your Bitcoin, or provide liquidity, all while staying in the Bitcoin ecosystem.
Read on to discover three ways to put your bitcoin to work and start earning yield in BTCFi.
TL;DR
- BTCFi enables Bitcoin holders to deploy their BTC to earn a yield in the DeFi markets.
- Stacking STX earns native BTC by “locking up” STX to support the Stacks network.
- Liquidity provision lets you earn trading fees and token incentives on AMMs.
- Bitcoin DeFi lending allows you to earn yield on native BTC you lend to borrowers.
Stacking STX
Stacking is a native yield mechanism on the Stacks blockchain that lets you earn BTC by locking up your STX tokens for a set period. When you stack STX, you support the network and, in return, receive bitcoin rewards every cycle (approximately two weeks).
The amount you earn depends on how much STX you stack and your current network participation. You can click here to stack STX via the stacking pools Xverse Stacking, which is arguably the most user-friendly app for stacking.
What makes stacking unique is that you earn actual bitcoin, not a wrapped asset or token reward, without giving up custody of your funds. There are no complex DeFi maneuvers or bridge risks involved.
Your STX remains in your control and is only temporarily locked during the stacking cycle. It’s a simple, Bitcoin-native way to earn passive income while contributing to the growth of Bitcoin’s Layer 2 economy.
Providing Liquidity to Bitcoin-Native Pools & Yield Farming
Liquidity provision is one of the cornerstones of decentralized finance, and BTCFi is no exception. Several Bitcoin-focused platforms have made it possible to earn yield by contributing BTC (or wrapped versions of BTC) to decentralized exchanges.
Platforms like ALEX on Stacks allow users to supply liquidity to trading pairs involving wrapped. In return, you earn a share of the trading fees, and often, extra yield in the form of incentive tokens distributed by the protocol.
This method offers potentially high APYs, especially during times of high trading volume or when protocols are aggressively incentivizing liquidity. However, the risks are higher too, such as impermanent loss.
If you’re willing to actively manage your positions and use audited, battle-tested platforms, liquidity provision can be a compelling way to earn yield on your BTC without giving up ownership, and without relying on traditional, centralized exchanges.
Lending and Borrowing
Lending and borrowing platforms have long been a staple of DeFi and are part of the Bitcoin ecosystem as well.
You can lend your Bitcoin to others through BTCFi protocols and earn interest in return. Alternatively, you can use your bitcoin as collateral to borrow other cryptocurrencies or stablecoins. This allows you to access liquidity without selling your BTC.
For instance, the peer-to-peer Bitcoin lending platform LiquidiumWTF allows users to lend BTC and earn interest. It operates using a non-custodial model and Bitcoin-native smart contracts, ensuring users retain complete control over their BTC during the lending process.
“BTCFi is finally delivering on the promise of putting Bitcoin to work without compromising on custody or decentralization. For the first time, we’re seeing applications that let you earn yield natively in the Bitcoin ecosystem. To me, that’s a game-changer,” says Alex Lielacher, Founder of Rise Up Media.
Final Thoughts
BTCFi has moved beyond the hype and into real, functioning infrastructure. For the first time, Bitcoin holders can tap into decentralized finance without leaving the Bitcoin ecosystem.
Whether you’re stacking STX for BTC rewards, farming yield by providing liquidity to BTC-based AMMs, or lending native BTC to earn interest on your holdings, the tools are here, and they’re only getting better.
BTCFi offers yield-generating strategies that align with the Bitcoin ethos: decentralized, secure, and self-sovereign.
