Investing your Bitcoin on Ethereum

Investing your Bitcoin on Ethereum

By fblauer | Yield Hacking with Defi | 16 Apr 2020


Introduction

This article talks about how to invest your bitcoin while you are waiting for it to increase in value, which may take months-years. If you leave it on the Bitcoin chain it will not earn any income in the meantime. However, there are various ways to move it over to a chain that supports smart contracts and decentralised finance protocols. I have written a lot of article on the benefits of Defi, in my blog on this fine publishing platform. The best platform for Defi is currently Ethereum. At present, there are many ways to go about moving and investing your Bitcoin, and each one has advantages and disadvantages, described below. Here is a  great article which compares Defi returns vs. just holding BTC and Eth from the people at Zerion. Here is another more recent article that talks about the huge trend trend developing to move BTC over to ethereum to take advantage of DEFI, while still hodling BTC. 

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Where to Invest

  • Celsius - this is currently the easiest and simplest way, but it is custodial and centralised. If you are a beginner this one is probably the best for now. You can get 4.13% APR, and more if you want to invest in Cel tokens (which is not for me, personally). I don't like the idea of having to buy a separate token to get better rates. But, you just have to send your BTC directly to the custodial address, on your mobile app, and you will start earning and compounding immediately. Also, I prefer to manage my own private keys. But this is a great alternative for the new people in the space. 
  • New alternative - Curve.fi (formerly only stablecoins now supports RenBTC/WBTC pool). This is currently my favourite approach.
  • Synthetix is currently incentivising investment in sBTC by rewarding people who stake either sBTC, or RenBTC, or WBTC on their curve pool. This a very good alternative as well.  
  • Unipool (Uniswap pool) - You can deposit Wbtc, Sbtc, or BTC ++ in one of the unipools, with an equal amount of eth and you will get a share of the swap fees in proportion to the liquidity that you provide. The rest of the coins listed below will probably be available here as well, as soon as they go live. The returns have been decent, but there isn’t a lot of historical data, especially for the newer ones. You can check ROI on pools.fyi. More details on how to use Unipools here. There is also a very convenient Zap utility which can speed up the process, and make it even simpler because it will automatically convert the right amount of eth to any ERC20 coin that you chose.  Very easy to Zap in and Zap out of the Unipools. Or you can use Zapper.fi, which has this tool built in, and also supports Uniswap V1, V2, and Balancer. Another way to do this is to use 1inch.exchange/earn, which supports all the coins and pools. 
  • Set protocol - You can invest Wbtc in one of the many sets that use it, some include a share of eth, and some are only Wbtc. You can chose one that automatically re-balances when the moving average or other indicator falls above or below a threshold value, and rebalances the proportion of BTC to Eth or BTC to an interest bearing stablecoin such as cUSD. These usually do better than just holding BTC.  Here is an example. 
  • Bancor - Similar to Unipool, but the pools are called relays, and the other side of the token pair is BNT, instead of Eth. They also have a stablecoin which can be used in the new version of the protocol, called USDB which can replace BNT in the pair, and make it less volatile (reduce impermanent losses)
  • Balancer Labs - This a newer liquidity provider that is similar to Uniswap, but supports multi-dimensional pools rather than pairs with eth, like Uniswap. It is also incentivising deposits for liquidity providers with its BAL token. 
  • Collateral for loan - There are some defi services that allow you to take out a loan, using BTC or WBTC for collateral. Then this loan can be used for arbitrage. These platforms are primarily intended for people who want to take cash loans against their bitcoin to pay expenses, and hold on to their BTC. But if the borrowing rates are low, you can sometimes use the loan to earn a higher rate by investing the funds elsewhere. One of these projects is Atomic Loans. But, I would be very cautious this strategy for now, unless you are very experienced, since it is the most risky, and they have to be monitored constantly to make sure that your collateral doesn't fall below the system threshold. Otherwise, it will be liquidated. 

BTC derivatives on Ethereum

There is a good medium article on the BTC/Eth alternative projects here, so I won’t go into as much detail about that aspect. 

  • WBTC - This is currently the most established, supported and mature of the options, but it is centralised, so some people may not consider this ideal. As per the article cited above: 

“One important thing is that anyone can verify that all issued WBTCs are supported 1:1 by BTC through the so-called proof of reserves on-chain, so as to ensure that they faithfully represent the underlying.

The WBTC project is managed by a DAO consisting of 16 consolidated projects, such as Dharma, Compound, MakerDAO and Set Protocol. In addition, distributors and custodians can be added or removed through an open process controlled by a multi-signature smart contract managed by DAO members.”

  • SBTC - This is a derivative from the Synthetix project, which is decentralised and pegged to the BTC market value. See the hyperlink in the subtitle, and article above for more detail. Also, I have written a full article about the synthetix platform here. 
  • IMBTC - This pegged coin be obtained from the Tokenlon exchange and pays commissions on conversion fees. 
  • PBTC - This one is a decentralised alternative, from the Provable project.  It hasn’t been released yet. 
  • TBTC - This is another decentralised option which hasn't been release yet. I mention the unreleased projects here because they are interesting, and promising for the future. 
  • RenBTC - This one is also pegged to BTC, and is privacy focused. Recently released it can be obtained on Uniswap, and deposited on Curve.fi for staking yield
  • BTC ++ - This is a "meta-coin" which includes Wbtc, Sbtc, IMbtc, and Pbtc (all described and hyperlinked above). So, it allows you to hedge your risk against any of the individual projects failing. It can be minted with their native app by supplying one or several of the component coins (it uses balancer). But it’s easier to obtain the coin on one of the Eth Dex’s like Uniswap. Then it can be invested on one of the Liquidity Pools listed above.
  • cBTC - Wrapped BTC on compound. So it will earn some interest while you hold it (currently .14% APR). So you will be exposed to the volatility (up or down) of BTC plus you will also earn a small amount of interest. 
  • aBTC - Wrapped BTC on Aave, similar to compound. I will also earn some interest in this case

Here is another very good article from The defiant/Substack comparing the decentralisation and scalability of the different projects that allow you to use BTC on Ethereum. 

Here are the charts, which show that there is a tradeoff between the two (decentralisation and scalability):

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Here is a full list of all the places that you can invest wrapped BTC on eth, with return rates for the last 24 hours. It includes all of the above and more. 

Here is a dashboard with the liquidity of all the BTC on eth products

Conclusion

If you want to track the explosive growth of BTC on ETH, you can do it here: https://btconethereum.com/ and also here: http://www.predictions.exchange/ethbtc/

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As you can see above, There are a lot of different options available that allow you to earn income or rewards, while you are holding Bitcoin, and waiting for it to go up in value. To me, this strategy offers the best of both worlds. I think that Bitcoin has great potential, but combining it with the smart contract power of Ethereum makes it much better, for the reasons discussed above.The best alternative will depend on the timing and your risk tolerance. Also, the best option for you may change over time. 

Also, these approaches also apply to investing Gold on Ethereum. That will be the subject of a future article/blog post. 

As usual Comments are welcome. 

 


fblauer
fblauer

Self styled crypto enthusiast. Unbank yourself


Yield Hacking with Defi
Yield Hacking with Defi

This is a blog about the intersection between crypto currency and finance. I have been testing and evaluating various defi (decentralised finance) and opfi (open finance) projects. This includes lending and borrowing markets, decentralised exchanges, automated market making, smart contract wallets, and tools for measuring and monitoring return on investment. All enabled by blockchain technology, with decentralised, opensource and audited smart contracts. These systems are interoperable and composable.

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