What if we could use Bitcoin as collateral to borrow Hive Tokens...?

In a couple of my recent blog posts I've talked about (1) using Bitcoin as collateral to borrow USDT to exchange for HIVE, and (2) creating a Hive-based "flywheel" which such loans can feed. See these blog posts for more info:

(1) https://hive.blog/hive-125568/@hirohurl/using-bitcoin-to-borrow-usdt

(2) https://hive.blog/alive/@hirohurl/time-for-a-change-of-focus-for-my-hive-growth-strategy-enter-the-flywheel

My Hive Flywheel

Crypto Lending Platforms

In the process of researching those ideas, especially using Bitcoin as collateral, I have come across three crypto lending platforms, two of which I have started experimenting with:

• CoinRabbit is a centralized crypto lending platform offering quick, non-KYC loans backed by cryptocurrency collateral, as well as interest-earning accounts for stablecoins and BTC.

• Aave is a decentralized lending protocol on Ethereum and other chains that allows users to deposit crypto (but NOT Bitcoin) to earn interest or borrow assets using crypto-collateralized loans, all managed via smart contracts.

• Sovryn is a decentralized finance platform built on Bitcoin via Rootstock (RSK), enabling borrowing, lending, trading, and yield farming while keeping custody of your BTC.

CoinRabbit pros and cons

I used CoinRabbit to borrow 1000 USDT against about $2,000 worth of Bitcoin, as I discussed in blog post (1) above. I feel that this has been a successful venture because I have been able to pay off a big chunk of the loan with affiliate commissions and at the same time the price of Bitcoin has risen, adding a bigger cushion to my loan security.

However, one limitation of this service is that your collateral is completely tied up until the loan is fully paid off, and you cannot borrow more against it. You can take out more than one loan, but each loan is separate, and uses a separate chunk of collateral to fund it.

Even so, I found CoinRabbit easy to understand and easy to use, and I consider this first crypto loan experiment to have been successful. It boosted my HBD holdings by 1000 HBD, which in turn increased my interest earnings, which in turn sped up the rate of compounding.

Could I have found a more profitable way to use my loan? Quite possibly. For example, I could have put it into a liquidity pool to earn a much higher rate of interest, something I will look at more closely once my current loan has been paid off.

Aave pros and cons

This lending platform has some very attractive features, such as much more flexibility with the loan packages. Unlike with CoinRabbit, you can easily borrow more on your collateral and move your assets around.

However, I haven't put anything into this platform as it is based on Etherium. I don't have any Etherium based crypto, and I don't want to sell my Bitcoin to get any! The whole point of this exercise is to KEEP my Bitcoin and put some of it to work.

That problem prompted me to search for a decentralized platform based on Bitcoin, and that led me to Sovryn.

Sovryn pros and cons

I was excited to discover Sovryn and swapped some Bitcoin for their DLLR bitcoin-linked stablecoin, at which point I wasn't sure how to extract it from the site so took the easy route of lending $200 on the site for 8.38% p/a with auto-compounding LOL! The actual loan has some upfront fees but is set at 0% interest and has no time limit. However, I have tied up a few hundred dollars worth of Bitcoin as collateral, with only $200 worth actually earning so this is hardly a money spinner.

On the other hand, I'm just learning the ropes on this platform, and when I've done a bit more research I'll probably liquidate that loan and find a way to swap DLLR for HIVE, but since there are no more fees to be paid, there is no great hurry.

I am very interested in the Sovryn project, but compared to CoinRabbit, which I found easy to understand, understanding the ins and outs of Sovryn is a much bigger challenge.

Which Platform for a first-time crypto-backed loan?

If you are working with Bitcoin, then I recommend CoinRabbit for a first time loan. Don't borrow more than 50% of your collateral. Don't borrow when Bitcoin seems overheated. Aim to pay off a chunk of the loan asap to increase your margin of safety. Put your borrowed USDT to work. The whole point of crypto-backed loans, as far as I am concerned, is to grow your crypto pot faster than it would grow without a loan; it's a form of leverage.

What About Crypto Loans on HIVE??

All this has caused me to wonder...

Wouldn't it be possible to create a service on the Hive blockchain where people can use Bitcoin (or other cryptocurrencies) as collateral for HIVE, HBD, or even 2nd tier token loans?

Perhaps, in the case of Bitcoin-backed loans, a token that is tied to the price of Bitcoin would be the best vehicle.

As I mused on this question, the first token I thought of was Swap.BTC so I tried to find out a bit about the Swap.BTC project, but didn't get very far... Who on earth runs it? Why haven't they posted any info on their @btc-swap blog?

Then I suddenly remembered that a project I support - @bradleyarrow his @thebbhproject - is in effect a stablecoin tied to Bitcoin because 1 BBH = 1 Satoshi!

How Would It Work?

DISCLAIMER! I am not an expert in the crypto lending space at all! These are just the Sunday afternoon musings of a slightly tipsy geezer who has become interested in the IDEA of crypto-backed loans on the HIVE blockchain. Before today, I had never thought about it, let alone about how it might be done...

ANYWAY,

If 1 BBH can be guaranteed to always be worth 1 satoshi (within a narrow range of variability), then what if there was a way to trade Bitcoin directly for BBH (if it doesn't already exist), and then to use BBH as collateral for a HIVE-token loan, whether that be HIVE, HBD, or a 2nd tier token such as LEN, ALIVE, or whatever. You could then throw your borrowed tokens into a liquidity pool, and use the yield to pay off the loan...

Let's say the interest on the loan was 20% p/a (I guess it should be higher than what you can earn from HBD savings, shouldn't it?) and you had identified a liquidity pool that was paying 45% (at the time you deposit into it), then if everything else remains equal (he he, that's part of the risk), you can pay off your loan and end up with your BBH, and your liquidity pool tokens earning your a daily yield. Rinse and repeat!

This leads to an obvious objection...

If you can earn 45% in a liquidity pool, why would you want to lend for just 20% p/a? After all, for this to work, there would have to be lenders to supply to tokens for the BBH holders to borrow!

I think the answer would be that you are lending against a stablecoin (BBH) that offers a higher yield than HBD, with no risk of impermanent loss etc. After all, even though you can earn higher interest yields in liquidity pools, lots of people, including me, are still putting HBD into savings for "just" 15% p/a.

Okay, how would such a lending platform be set up?

That's it folks, my Sunday afternoon thought experiment. If anybody would like to run with this idea - be my guest!

And if @bradleyarrow sees this - let me know what you think LOL!

Cheers!

DH
#InspiredFocus (?)