Bitcoin as a financial asset has grown dramatically in popularity in recent years. As adoption continues to grow and rapid entry and exit ramps become easily accessible, Bitcoin’s user base has grown and diversified significantly. The last years saw a greater institutional interest. While Hodl culture within the community remains dominant, today’s users are also wondering if the asset can also be used to earn passive income.
Andreas Antonopoulos, a popular Bitcoin advocate, in a recent discussion talked about whether Bitcoin, as passive income, was a viable idea for many crypto users and the risks associated with crypto-based lending, DeFi and other custodial services. He argued that while the community has always popularized hodling and focused on price appreciation solely through market forces, Antonopoulos noted that appreciation cannot really be guaranteed. In terms of generating passive income through crypto assets without having to hand over his currency elsewhere, Antonopoulos noted,
“Another option without giving your coins to someone else is to use a decentralized financial contract. What you could do is convert your Bitcoin into Ether or directly into Dai, which is a stable currency, and you could place it on a platform where you could lend DAI and earn interest. “
However, he pointed out that there is a level of risk that users will have to assume in such a scenario. He noted that Bitcoin’s transition to an Ethereum-based platform carries security risks, as both platforms are not necessarily the same in terms of security. Antonopoulos also noted:
“The underlying platform, which is Ethereum, may be in trouble. It may have errors. The consensus algorithm may be flawed. You may have increases in the price of gas, leading to other cascading problems. And all of those things can cause you to lose some or all of your invested capital. “
However, Ethereum’s DeFi ecosystem continues to be a highly active lending space in recent years with earning mechanisms within DeFi; with Dai Savings Rate (DSR) Dai holders can earn a passive income by depositing Dai in the contract.
Source: DeFi rate
At the beginning of the year, a DeFi Rate report found that,
“Maker and DSR have offered the highest-yield savings opportunity in the past three months, just when MCD was first introduced in November 2019. The compound, the No-Permit Loan Protocol, offered the second-highest performance of the Dai holdings averaged 90D at 5.23%.
However, while the prospects for loans are lucrative, Antonopoulos noted that another major platform risk involves errors in smart contracts, but noted that encryption simply cannot guarantee a return on investment and risks are unavoidable.
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