Put your crypto to work by lending it to borrowers and earning interest. On Liquidium.WTF, you can lend native BTC against Ordinals and Runes at quoted rates of up to 380% APY in selected Runes markets.
This guide breaks down the nuts and bolts of DeFi, shows you how it stacks up against traditional lending, and why Liquidium.WTF is a great place to earn yield on your bitcoin.
What Is DeFi Lending?
DeFi lending refers to putting your digital assets to work for you by lending them to borrowers on non-custodial lending protocols built on blockchains, all without the need for any intermediaries like banks.
Liquidium.WTF connects BTC lenders with borrowers who pledge Ordinals or Runes as collateral. You agree on the amount, interest, and duration upfront, and the collateral stays in Bitcoin escrow for the loan.
How Does DeFi Lending Work?
DeFi lending uses blockchain transactions to fund loans, hold collateral, and settle repayments. Depending on the protocol, you lend through a pool or agree to an individual loan offer.
This is how it typically works but the process differs from platform to platform:
- You deposit your crypto into an autonomous lending pool from which borrowers can access the funds they need.
- Borrowers take loans by putting up collateral, which makes sure lenders don’t get the short end of the stick (i.e. they receive the collateral in case of a borrower default).
- Interest starts rolling in, and you earn a cut based on how much you contributed to the pool.
- Smart contracts keep things running like a well-oiled machine, from setting rates to liquidating collateral if needed.
Some decentralized lending platforms, like Liquidium.WTF, take a more direct peer-to-peer approach, where borrowers and lenders agree on terms directly with one another, and smart contracts handle the lending process from there.
CeFi vs. DeFi Lending: What’s the Difference?
Crypto lending falls into two main categories: centralized finance (CeFi) and decentralized finance (DeFi).
Here’s how they compare:
Benefits & Drawbacks of DeFi Lending
DeFi lending comes with plenty of benefits, but let’s not pretend it’s all sunshine and rainbows all the time. Here are the pros and cons.
Pros
- Non-custodial: Your funds, your rules. No one’s holding them hostage.
- Always open: No 9-to-5 banking hours. DeFi never sleeps.
- Transparent terms: See the loan amount, collateral, interest, fees, and duration before you sign. Follow the transactions on Bitcoin and track your loans in the app.
- No paperwork: Connect your wallet, review the terms, and sign on Bitcoin.
- Interest income: Choose a lending market and loan terms that suit your goals. Borrower demand and the collateral you accept shape the rates available.
Cons
- Smart contract vulnerabilities: If there’s a bug, things can go south fast. Stick to well-audited platforms.
- Crypto volatility: Prices swing hard, so collateral values can drop quickly.
- Regulatory uncertainty: Governments are still figuring DeFi out, so changes could be on the horizon.
DeFi Lending Risks: What Are They & How Do You Mitigate Them?
Much like anything in crypto, DeFi lending also has its risks. Here are the risks you need to be aware of:
Smart contract risks
As with any piece of software, smart contracts can have bugs. Hence, stick to reliable platforms with strong security records and audited smart contracts.
Collateral volatility
Crypto markets are susceptible to volatility, so make sure not to get caught off guard by price swings. It’s probably best to overcollateralize your loans to avoid getting liquidated during the roller-coaster market dips.
Liquidity concerns
Sometimes, a lending pool might not have enough funds to settle all the withdrawals. Make sure the lending pool is active and well-funded before getting in, as you don’t want your funds stuck in an inactive pool.
Regulatory changes
The DeFi space moves quickly. Staying in the loop with news and regulations can save you from nasty surprises and keep you ahead in the game.
Getting started with Liquidium.WTF’s Bitcoin markets
1. Open Liquidium.WTF’s Bitcoin app, choose Lend, and select Ordinals or Runes. Connect your wallet and choose the collateral you want to lend against.
2. Set your loan amount, interest, duration, and LTV. For Instant lending, create and fund a BTC vault so borrowers can accept your offers without a separate countersignature. For Manual lending, create an offer and countersign when a borrower accepts it.
Set the interest and duration for each loan. The displayed APY expresses that rate over a year; your earnings depend on fees, repayment, and time spent lending.
Instant-loan vault and signing model
Connect with Xverse, UniSat, Leather, OKX, or Wizz Wallet, then choose your lending market.
Earn BTC with Liquidium.WTF
Start with the Ordinals or Runes market, choose collateral you want to lend against, and set your terms. When the borrower repays, you receive BTC principal and interest after fees. If they default, you can claim the collateral; its value and liquidity determine how much you recover.
Connect your wallet, choose the collateral you want to lend against, and sign your offer. Track your loans and BTC repayments in Portfolio.
Connect your wallet to Liquidium.WTF to start growing your Bitcoin asset portfolio.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research before making any financial decisions.
FAQs
Is DeFi lending risky?
Like with anything in crypto, there are risks in DeFi lending. Here, they come in the form of smart contract bugs, market crashes, regulatory pickles, and liquidity concerns. But doing your due diligence before diving in and choosing a platform can help you avoid the worst pitfalls.
What are DeFi lending pools?
DeFi lending pools are like community fund reserves where multiple lenders deposit crypto. Borrowers use these funds to get loans, and interest earned is split among the lenders based on their contribution to the pool.
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