• Sun. Aug 14th, 2022

How to Stake (Packaged) Bitcoin: A Beginner’s Guide

ByHazel R. Lang

Jul 9, 2022
Source: Adobe/Angelov

The Bitcoin (BTC) network uses a proof-of-work (PoW) consensus protocol to secure the network, which means network participants can earn mining rewards (if they choose to mine digital currency), but they cannot earn staking rewards. natively.

Luckily, for BTC holders who want to earn staking rewards on their bitcoin investment, you can tokenize your coins into Wrapped Bitcoin to earn staking rewards in the Ethereum (ETH)-based DeFi ecosystem.

Read on to learn how to stake bitcoins (in token form) and start earning staking rewards on your “digital gold.”

What is Wrapped BTC and how does it work?

Wrapped Bitcoin (WBTC) is a tokenized version of BTC on the Ethereum network. WBTC integrates BTC in the decentralized financial ecosystem of Ethereum by complying with the ERC-20 standard.

WBTC was launched in 2019 by BitGo, Kyberand ren and is currently the largest wrapped token by total market capitalization.

WBTC allows Ethereum applications to integrate an ERC-20 token backed by genuine BTC reserves. Simply put, you can wrap your BTC and lend WBTC through DeFi lending protocols, use it as collateral for a crypto loan, or deposit it in an Automated Market Maker (AMM) to earn liquidity mining rewards. .

WBTC is backed 1:1 with BTC through a transparently verifiable “proof of reserve” system. In other words, WBTC is pegged to the value of BTC in a ratio of 1:1 and therefore reflects the price movements of BTC.

Wrapped Bitcoin is run by a Decentralized Autonomous Organization (DAO) made up of multiple members who hold a multisig contract to add or remove WBTC merchants and custodians.

To deposit BTC and WBTC mint, you have to go through a process that involves merchants and custodians. Upon receiving a request from a user, the merchant initiates a transaction by sending your BTC to a custodian to mint a corresponding amount of WBTC. The WBTC is sent to the user and the custodian locks the BTC in a digital vault.

If you want to exchange your WBTC for BTC, the merchant initiates a burn transaction and authorizes custodians who release a corresponding amount of BTC to the merchant’s address. The WBTC is destroyed by the custodian and you will receive your BTC from the trader.

Now let’s look at two staking options for WBTC that allow you to earn staking rewards using (tokenized) bitcoin.

How to Stake (Packaged) BTC to Earn Stake Rewards

There are basically two ways to earn rewards by staking your tokenized bitcoin holdings. You can stake your WBTC on a centralized exchange or in a decentralized protocol.

Strictly speaking, our two examples are not staking in the sense of proof-of-stake (PoS). Instead, they both involve depositing Wrapped Bitcoin to earn yield, thus acting as a de facto form of staking.

Betting on a centralized exchange

You can stake your WBTC on a centralized exchange (CEX) to earn staking rewards.

For example, you can access Binance Earn and provide liquidity in Binance Liquidity Pools. Binance Liquidity Pools allow you to earn transaction fees and interest on your WBTC.

To get started, you’ll need to log in to your Binance account and click “Earn”. Scroll down and click on “Liquidity Farming”.

Go to the Liquidity Farming page and search for WBTC.

Add cash by clicking on the “Add” option in the transactions column.

In this case, WBTC/ETH is a dual liquidity pool. Continue betting the WBTC amount and calculate the total return. Once satisfied, submit your order by clicking “Add Cash”.

If you are an existing Binance user, this is arguably the easiest way to earn rewards for staking your WBTC tokens. However, you should keep in mind that Binance is a centralized exchange and you are trusting a third party with your funds.

Stake Wrapped BTC in a DeFi protocol

Alternatively, you can stake your WBTC in a DeFi protocol like Curve.

Curve.fi allows users and other decentralized protocols to trade ERC-20 tokens through liquidity pools. Curve.fi offers relatively low fees and low slippage and offers liquidity provider rewards.

You can deposit your WBTC into a Curve contract. In return, you will receive the corresponding Liquidity Provider (LP) tokens. You can then stake your LP tokens to earn a return on your tokenized BTC holdings.

To learn more about generating crypto income on Curve.fi, check out our guide: DeFi Unlocked: How to Earn Crypto Investment Income on Curve Finance.

Although the native staking of BTC on the Bitcoin network does not work, any Bitcoiner can turn their coins into WBTC and participate in various centralized and decentralized platforms to earn yield on their digital gold.
Learn more:
– DeFi suffers from too much centralization, what can be done?
– 5 Ways to Earn Sats in the Bitcoin Lightning Network Economy

– 5 Risks You Should Know Before Using Centralized Crypto Lending Platforms
– 7 winterproof crypto blockchain jobs on demand

– How to Earn Passive Income Using NFTs: 4 Ways That Already Work
– How to Buy a House with Bitcoin: A Guide for the Crypto Rich

– Top 5 Use Cases for Wrapped Tokens
– 10 non-crypto ways to make money in crypto

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