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Wednesday, August 5, 2020

Forget hodling, can Bitcoin generate passive income through lending?

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Bitcoin as a financial asset, its popularity has increased considerably in recent years. As adoption continues to grow and access ramps and access ramps become easily accessible, the Bitcoin user base has grown considerably and diversified. In recent years, institutional interest has increased. While the Hodl culture within the community continues to be dominant, users today wonder whether the asset can also be used for passive income.

Andreas Antonopoulos – a popular defender of Bitcoin, in a recent discussion explained whether Bitcoin, as passive income, was a viable idea for many crypto users and the risks associated with crypto-based loans, Challengeand other child care. He argued that while the community has always popularized hodling and focused on price appreciation only through market forces, Antonopoulos noted that appreciation cannot really be guaranteed. In terms of generating passive income via cryptographic assets without having to hand over your coin to another party, Antonopoulos pointed out:

“Another option without giving your parts to someone else is to use a decentralized financing contract. What you could do is you could convert your Bitcoin to Ether or directly to Dai, which is a stable coin, and you could put it in a platform where you could lend DAI and earn interest ”

However, he noted that there is a level of risk that users will have to assume in such a scenario. He noted that the transition from Bitcoin to an Ethereum-based platform involves security risks, as the two platforms are not necessarily the same in terms of security. Antonopoulos also pointed out,

“The underlying platform, which is Ethereum, may have problems. There may be bugs. The consensus algorithm can fail. You may have increases in the price of gas, which causes other cascading problems. And all of this can cause you to lose some or all of your invested capital. “

However, Ethereum’s DeFi ecosystem continues to be a very active space for lending in recent years with earning mechanisms within DeFi; with Dai Savings Rate (DSR) Dai holders can earn passive income by depositing Dai in the contract.

Source: DeFi rate

Earlier in the year, a report by DeFi Rate found that,

“Maker and DSR have offered the most profitable savings opportunity in the past three months – just when MCD was first introduced in November 2019. Compound – the loan protocol without authorization – offered the second highest yield on Dai assets with an average of 90D of 5.23%.

However, although the lending prospects are lucrative, Antonopoulos noted that another major platform risk involved bugs in smart contracts, but noted that simply hiding the crypto may not guarantee return on investment and risks are inevitable.

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