The total value locked in decentralized finance (DeFi) has surpassed $122 billion, and BTCFi is carving out a bigger share of the market. HODLing BTC is no longer just about a long-term strategy—it’s about putting your bitcoin to work.
Now, instead of letting it sit idle, you can earn yield on your native BTC.
A growing trend in BTCfi is using Bitcoin L1 assets, like Runes, as collateral to earn a bitcoin yield. Platforms like Liquidium enable users to lend BTC to borrowers who provide Runes tokens as collateral, thereby earning interest on their bitcoin holdings.
Read through this guide to learn how you can earn a yield on your bitcoin on Liquidium.
Use Runes Tokens as Collateral? Yes, That’s Possible!
Runes Tokens are fungible tokens on the Bitcoin blockchain, created using the Runes protocol, which enables efficient creation and management of tokens directly on Bitcoin’s UTXO model.
Using Runes as collateral allows users to unlock the value of their holdings without selling. This provides a new method to leverage your assets and participate in yield-generating opportunities.
DeFi lending platforms like Liquidium have adopted this model to enable secure Bitcoin lending against Runes collateral.
How to Lend BTC Using Runes as Collateral to Earn a Bitcoin Yield on Liquidium
This guide uses Liquidium, a DeFi platform that allows lending against Runes tokens as collateral. While other DeFi platforms offer lending services, Liquidium is specifically designed for Bitcoin, allowing users to lend BTC against Bitcoin Layer 1 assets as collateral.
Now, let’s take a look at the steps to earn yield on bitcoin against Runes tokens as collateral.
Step 1: Access the Platform
Go to the Liquidium platform and click the ‘Launch App’ button to access the borrowing and lending interface.
Step 2: Go to the Lending Section
Select the ‘Lend’ option on the top navigation bar to explore lending opportunities.
Under the ‘Runes’ tab, browse the available offers where you can lend your BTC and earn APY.
Step 3: Choose a Lending Offer
Review the listed offers carefully, check the Max APY (%) for potential earnings, and note the term duration (e.g., 3 days, 7 days). Ensure the loan-to-value (LTV) and collateral details match your requirements.
Step 4: Review the Offer Details
After selecting an offer, confirm the amount of BTC you want to lend and adjust the LTV slider to determine the collateral required for the loan.
Review the interest rate and calculate potential earnings for the specified term.
Step 5: Create a Loan Offer And Wait for it to Get Accepted
Click ‘Create Offer’ to create the lending agreement and confirm the transaction in your connected wallet to deposit BTC for the loan.
Once you’ve successfully created your offer, you now need to wait for someone to accept it.
You can view your created offers on your ‘Portfolio’ tab.
Step 6: Earn Yield
Once your loan gets accepted, your BTC will accrue interest at the agreed APY. At the end of the term, the borrower repays the loan with interest, and you receive your BTC plus the earned yield. If they don’t, you will receive the Runes tokens collateral, which you can then sell to compensate for the default on the loan.
Congrats! You can unlock your earnings or reinvest in new lending opportunities to maximize returns.
Is Lending Bitcoin Against Runes Collateral Risky?
Lending Bitcoin against Runes collateral on platforms like Liquidium offers opportunities, but it’s important to know that there are also risks.
- Volatility risk: Both bitcoin and Runes tokens are volatile assets. That can affect the performance of your loan.
- Liquidation risk: Liquidium will automatically liquidate your collateral to cover the outstanding debt if the value of your Runes collateral falls below the minimum threshold required to secure your loan.
- Platform risk: Utilizing a DeFi platform has inherent risks, such as smart contract vulnerabilities, hacks, or downtime. Researching the platform and performing your due diligence before moving forward is essential.
The Takeaway
Lending bitcoin against Runes collateral on platforms like Liquidium offers a novel way to generate yield on your BTC holdings. Creating leverage on the value of your Runes tokens allows you to participate in the DeFi lending market and potentially earn attractive returns.
However, it’s crucial to understand and acknowledge the associated risks, which include the volatility of both assets, the liquidation risk, and platform risk. Conduct thorough research and assess risks carefully before engaging in any Bitcoin DeFi activities.