As a long-term Bitcoin holder, earning interest on your Bitcoins is an extremely attractive concept. In the world of crypto, there are many ways to earn interest but with each way comes a trade off on a variety of metrics.
In the latest LeoFinance roundtable podcast, we discussed the various options for earning interest on BTC that we are familiar with. While there are a number of ways to earn, there are also a number of ways to lose or take unnecessary risk.
At the end of the day, becoming a liquidity provider with your crypto holdings is one of the best ways to earn interest. While there are other ways to earn on your Bitcoins, we focus on liquidity providing in this clip.
The one major issue with becoming a liquidity provider (LP) with Bitcoin is that you need to use a wrapped version of Bitcoin. The most common one is wBTC on the Ethereum network. To wrap your Bitcoin into wBTC on the Ethereum network, you need to send your BTCs off to be custodied by one of the trusted custodian partners in the WBTC network. This opens you up to additional risk outside of holding native BTC: not your keys, not your crypto.
If a cross-chain liquidity pool is built - one that allows you to deposit your BTC into the smart contract as a liquidity provider or swap BTC for the paired cryptocurrency - then you wouldn't have the third-party custodian risk. Your keys, your crypto.
Thorchain is the most prominent project in this cross-chain liquidity pool approach. Their native BTC pooling is likely going to release before the end of 2020 and in my opinion, it will be a huge deal. The main reason why I don't pool Bitcoin is because I don't want to rely on the wBTC network for any significant amount. If I'm able to swap and provide liquidity in native BTC, then the option of becoming an LP becomes a lot more attractive.
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