How to earn 5.7% yield on your freshly bought bitcoin with minimal risk using Binance.
One of the most revolutionary aspects of Defi is that people can now earn yields on the coins they hold. If you are new to Defi, things might seem daunting at first, but I am here to guide you start from simple yields to complicated yields that cost lots of gas.
For my first post, we will look into a safe way to earn yield on bitcoin. Bitcoin in Defi community is referred as a “pet rock”. This means that unlike stocks or businesses, bitcoin does not produce any yields. Now, lets apply some Ce-De-Fi sauce on top to earn yield!
Prerequisite : some BTC.
- Open binance and click [Login/Register] at the top left-hand corner.
If you haven’t signed up for binance, click here.
2. Follow the instructions and insert the email address and password you’ll use for your account. Click on [Register].
3. After clicking on [Register], you’ll see a sliding verification code. Drag the slider to complete it.
4. Once you have completed the jigsaw, we’ll send a confirmation email to the address you’ve specified. Please check your inbox to confirm your registration within 10 minutes.
5. For your own account security, it is highly recommended you to enable the two-factor authentication (2FA) after your first login.
* You may need to complete KYC and 2FA authentication for higher balances.
6. After you signed up on binance, click on liquid swap.
Liquid swap is a CeFi AMM model for Binance users. One of the key advantages for using Liquid swap is you don’t have to pay for gas every time you make a transaction, which is the case on ethereum. It would be hard to pay 100 dollars just for the transaction fee when you only invested 1000 dollars in cryptocurrency. If you want to learn more about liquid swap, click here.
7. Out of all these pools, what we want to focus on is the BTC/WBTC pool. User provides BTC/WBTC liquidity in exchange for perpetual fee that happens on binance platform. Right now, the rate is 5.8% annually. This means that if you provided 100,000 USD worth of bitcoins for liquidity, you would earn 5800 dollars in bitcoin yearly on top of the bitcoin appreciation. Rather than leaving bitcoin on a regular exchange earning nothing, why not provide liquidity for maximum gains on cryptocurrency?
For using Liquid Swap, here are some definitions you should know:
- Add: provide liquidity for the liquidity pools
- Redeem: remove your tokens from the liquidity pools
- Dual token pool: consists of dual tokens
- Price (internal price): The swap price between the pair in the pool, and the final price depends on the proportion of the pair in the liquidity pool and is calculated by a formula.
- Acquired share: the expected acquired share after adding liquidity.
- Pool share ratio: the acquired share to the total pool share.
For additional information, please refer to binance document here.
Now you might ask, “Well, what are the risks?”
There really aren’t much risk with BTC/WBTC pool. Two minor risks involved.
- Binance platform(aka trusted-third party risk) itself. Binance is the industry leader in crypto exchange and proved to be resilient against hacks or thefts by backing customer’s funds with SAFU fund since 2018. To learn more, click here.
- Impermanent Loss can happen in AMA model, but since value of WBTC is equal to BTC, this is not possible. To learn more about Impermanent loss, click here.
This strategy is very low risk and low return in DeFi space, but is suitable for someone who are willing to hold bitcoin for a decent time frame and want to accumulate interest on their bitcoins.
Afterall, it is much better return than 0.1% bank deposit on USD.
If you haven’t signed up for binance yet, click here.
