Key facts:
There are decentralized finance platforms on Bitcoin sidechains or second layers.
In them you can use bitcoin to earn interest, borrow and operate with derivatives.
Despite having the most valuable cryptocurrency and being the most used decentralized currency network, Bitcoin is not usually the first alternative when thinking about decentralized finance (DeFi) protocols. Other blockchains such as Ethereum, BNB Smart Chain (ex Binance Smart Chain), Polygon, and Terra are used more in this arena.
However, this is not to say that there are no decentralized finance platforms for Bitcoin. Indeed, they exist and can provide great benefits for their users. Next, we propose to review some of them and see what they have to offer to those who use them.
1.Money on Chain
Money on Chain is a protocol that issues the stablecoin Dollar on Chain (DOC). This stable cryptocurrency maintains price parity with the US dollar. DOC is collateralized in bitcoin (BTC), which means that all DOC issuance is backed by bitcoin deposits.
In this way, DOC offers its users the possibility of saving without exposure to the volatility of bitcoin. It can also be used to exchange for goods or services.
Another of the tokens of the Money on Chain ecosystem is BitPro (BPRO), whose price varies according to that of BTC, upwards or downwards, although with greater percentage intensity.
In the event that bitcoin continues its upward trend in the medium and long term, as it has done so far, those who own BPRO will have a higher profit than they would have if they had bitcoin.
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As detailed in the Official site of Money on Chain, so far the BPro token has historically outperformed bitcoin by 28%.
The protocol works on top of RSK, a Bitcoin sidechain.. This means that RSK does not occupy the resources of the main network, but works in parallel, but interacts with it and shares its capabilities.
For this reason, both MoC and most of the other DeFi protocols that we will mention below require a previous step to be able to carry out any operation on the site. What to do is convert bitcoins (BTC) to RSK Smart Bitcoin (rBTC), the cryptocurrency of the RSK network.
Once you have rBTC in your wallet, you have to lock a certain amount of that token in the protocol’s smart contract to get DoC or BPro. The choice of each will depend on the intention of the user.
In addition, by owning any of these tokens the user receives MoC (MOC), the governance token of Money on Chain. This token allows you to participate in decision-making in the protocol, is used to pay commissions on the platform and can even be sold or exchanged for other tokens.
To operate on the platform, which also has a Spanish version, you have to connect with a wallet. This is something transversal in all the platforms that we are going to describe in this article, since a wallet is needed that allows interaction with RSK smart contracts.
The wallet options that Money on Chain supports are Metamask —configured for the RSK network, as we detail in this CriptoNoticias tutorial—, Nifty and Liquality. Wallet Connect can also be used to access from a wallet installed on the cell phone or with the Trezor and Ledger hardware wallets.
2. Tropykus
This RSK sidechain protocol focuses on cryptocurrency investments, interest generation and lending. At Tropykus you can request a loan in the Money on Chain stablecoin DOC, for example.
In addition, it allows you to exchange between the cryptocurrencies that are accepted on the platform. It also has an educational section, called Escuela Tropykus, and another for markets.
On many DeFi platforms, funds are locked into a smart contract for a set amount of time. Therefore, the user loses control over them. Instead, in the case of Tropykus details that funds can be withdrawn at any time. In addition, the platform offers compound interest on deposited funds and can be accessed using Metamask, Defiant, Nifty, Liquality or any other wallets compatible with the RSK network.
As detailed by representatives of the protocol in an interview with CriptoNoticias in 2021, people from all over the world can access the platform, but the attention is directed mainly to the Latin American market. As has been reported in this newspaper, inflation is a problem that “eats” the savings of the inhabitants of many countries in that region.
With the premise of trying to solve this problem and protect the users’ savings, Tropykus offers to trade stable cryptocurrencies. Unlike Money on Chain, it does not have its own stablecoin, but it does support the use of DoC, rUSDT, and xUSD in its protocol.
When depositing these cryptocurrencies, the protocol grants annual interest ranging from 3% to 6.5%. For loans, meanwhile, you can get an annual rate of between 4% and 9.7% depending on the option selected, for which it is necessary to deposit another cryptocurrency as collateral.
3. Sovryn
Sovryn is a DeFi protocol that includes a lending and investment platform and a decentralized exchange where the user can buy, sell and exchange cryptocurrencies. This DEX is still in the alpha testing phase. Like the others on this list, this protocol works on the RSK network, a Bitcoin sidechain.
Unlike a traditional exchange, the Sovryn DEX works through a smart contract, so the user connects their wallet and never loses ownership of the funds. Hence the play on words of his name with sovereign, “sovereign” in English.
Browser wallets that can be used on Sovryn are Metamask, Portis and Liquality. Meanwhile, from the mobile it is possible to connect the D’cent, Defiant, Math and rWallet wallets by scanning a QR code on the PC. Finally, Ledger and Trezor hardware wallets can also be used. In all these cases, the wallet must be configured for the RSK network.
As mentioned, in addition to being an exchange, this platform allows you to lend cryptocurrencies or tokens and receive interest in exchange. The annual interest rates paid at the time of this publication are 0.29% for rBTC; 6.36% for XUSD; 3.70% for DoC; 26.4 for rUSDT; and 0.06% for BPRO.
If you need a loan, you can also request it in this DeFi, either in rBTC, xUSD, DoC or the Sovryn (SOV) token. Annual interest is 2.9% (rBTC); 14.2% (XUSD); 10.7% (DoC); and 1.35% in BPRO. To receive a loan it is necessary to deposit cryptocurrencies as collateral.
Another option to take advantage of this decentralized application is to obtain returns from yield farming, a strategy that consists of lending funds to the platform to provide liquidity and receiving the SOV governance token in exchange. There is various pairs of tokens that Tropykus accepts for yield farming, such as SOV/rBTC, XUSD/rBTC, and rUSDT/rBTC, among others.
This strategy, as noted before starting to use the site, carries risks, since a possible fall in the value of a cryptocurrency would cause the investment to be devalued. A safe, albeit less profitable, alternative is to trade stablecoins, whose value is tied to that of another asset, usually the US dollar.
Finally, in Sovryn you can also stake the SOV token to obtain rewards and be able to participate in decisions corresponding to the protocol.
4.RSK Swap
RSK Swap is a decentralized exchange that offers the ability to trade tokens from the Bitcoin RSK sidechain. This DeFi emerged as a fork of Uniswap, a decentralized exchange for Ethereum tokens adapted to RSK.
It is a pool (or pool) of liquidity, so it is presented as a protocol with different objectives from the previous ones. A liquidity pool is a platform that entices users to lend their cryptocurrencies by offering them a variable return in return. In this way, the pool obtains liquidity of funds for the operations in its protocol.
One of the main features of RSK Swap is the variety of tokens that it allows to exchange. There are over 30 tokens, both price volatile and stablecoins, that can be traded on this protocol. Thanks to this service, the user can easily get hold of any token to use in protocols of the side network of Bitcoin, RSK.
Finally, in RSK Swap it is also possible to send funds to another wallet, even making an exchange in the same operation. This means that if you have rBTC and you have to pay something in rUSDT, you do not need to go through the swap beforehand, but the protocol itself will make the change you indicate to send it to the corresponding address.
5.LN Markets
LN Markets is a decentralized finance protocol where you can trade bitcoin (BTC) futures. Lbitcoin futures are contracts with which two parties agree to buy or sell an asset at a certain price in the future. For these financial operations, LN Markets allows a leverage of up to 50 times.
The most outstanding feature of LN Markets is that uses the Bitcoin Lightning network to achieve faster operations and with much lower fees than when operating on the main network. At this point, it differs from the four networks previously mentioned in this list. It does not use a sidechain to operate, but rather a second layer of the Bitcoin mainnet.
Having a wallet that supports the Lightning Network is all that is needed to connect to this protocol. It can also be entered by creating an account on the platform —for which a username, password and email are required, although the latter is optional— or with the Lightning Alby or Joule browser extensions.
Bitcoin DeFi has a long way to go
So far, we have listed five Bitcoin decentralized finance protocols and side networks, with different features and possibilities for their users. It should be noted that there are many more, but as this is a relatively new and developing field, not all of them are fully tested.
Even in the ones we include in this list Responsibility and criteria are recommended to operate. In fact, all platforms require you to accept the terms and conditions before you start using them. In addition, some even ask the user to state that they are not breaking any law in their country by using them.
Beyond all, in this area there is still a lot to be done and Bitcoin can provide the necessary infrastructure for these protocols. Several investment experts think so, as CriptoNoticias has told. It may take a long time, if ever, to reach the number of DeFi users who already have networks like Ethereum, BNB Chain or Terra, but there are many interesting projects that have already started down the road.