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Dan Held Elaborates on: Lending Pools These allow HODLers to earn interest by lending tokens to margin traders and borrowers. Rates fluctuate based on supply/demand. This low yield is similar to the rates we see in wrapped Bitcoin on Ethereum.
Interest payments made by borrowers are distributed to lenders. Some protocols have an insurance fund, which exists to protect lenders in the possible case of loan default.
Borrowing Conversely, this allows users and smart contracts to borrow tokens from the lending pool. All lending is over-collateralized.
Governance tokens These are a form of quasi-equity where holders of the token are able to vote on various proposals for the protocol (hence “governance”).
However, there are numerous issues still being figured out like increasing voting participation, and there is no real-world enforcement of ownership.
He points users to check Sovryn as a great example of governance token on a Bitcoin DeFi platform.
For clarity, Sovryn was created for decentralizing trading and lending of Bitcoin, on the Bitcoin-native RSK DeFi platform. It has a token called SOV that is utilized for these activities. Sovryn aims to enable decentralized applications for Bitcoin.
Also, AlexgoBtc is a new DeFi Platform on Stacks.
ALEX offers a decentralised exchange (DEX) with an embedded constant product automatic market making (AMM). They also have a platform of loanable fund (PLF) delivering fixed-term and fixed-rate loans to users.
Dan states that once ALEX is out of testnet, he will be checking it out. He is interested to compare it to Sovryn.
With any “DeFi” protocol, risks inherently exist with the underlying smart contracts. Exploits are found semi-often in Ethereum DeFi, so it’s wise to think that it could happen over in Bitcoin DeFi.
ALEX will undergo a series of audits in the next few months. However, Dan held states, “I am in no way am I vouching for the quality of these audits, nor am I saying that ALEX or Stacks are safe.”
Disclosure: note that some of these protocols gave me a small number of coins to play around with when trying out the functionality. (I also disclosed the first time I tweeted about these protocols).
Someone said: Love the fact that you focus mostly on Bitcoin but take the time to research new ideas, like Bitcoin DeFi, instead of blanket rejecting these new use cases.
Dan replied: I think we should always keep an open mind + explore new things even if we later find they didn’t have protocol market fit.
