How to use DeFi to earn passive income with your Bitcoin

By Mat Di Salvo

It’s the ultimate dream: earning money with little to no effort.  Or even better—doing it with cryptocurrency. 

Tech entrepreneur, author, and Bitcoin proponent Andreas Antonopoulos revealed the best way to earn passive income with Bitcoin. But, of course, it carries some risks. 

The best way, he said in a livestream Q&A broadcast over the weekend, is with the buzziest of buzzwords in the crypto space today: DeFi (that’s “decentralized finance,” for the uninitiated).

DeFi is working to revolutionize traditional banking services by creating new ones that run on the Ethereum blockchain and cutting out the need for middlemen typically seen with banks. The idea is that everyone—including those typically without access to such services—will be able to borrow, lend and save. 

Antonopoulos explained that you can “put your capital to work” through DeFi. In particular, you can utilize a DeFi platform to lend and earn interest with Bitcoin that would otherwise just be sitting around—with MakerDAO being the best platform to do so. 

MakerDAO is the second biggest DeFi platform. It has two tokens, MKR and Dai. The Dai token Antonopoulos referenced is a stablecoin, pegged to the US dollar, used for lending. 

When a loan is taken out on MakerDAO, Dai is created. It’s the currency users borrow and pay back. 

“Passive income is when you put your capital to work, and that carries some risks,” said Antonopoulos. “Another option is using a DeFi contract. Here, you could convert your Bitcoin to Ether or directly into Dai and put it in a platform where you could lend out that Dai.”

But he added that moving from the Bitcoin platform to the Ethereum platform carries risks: “You’re going to be moving from Bitcoin to an Ethereum-based platform, and the security isn’t quite equivalent. Ethereum has advantages and flexibility and it pays a small price in security as a result.

“You expose yourself to a variety of new risks. You may have increases in the gas price, which leads to other cascade problems. And all of those things can cause you to lose some or all of your invested capital,” he said.

“It’s almost impossible to guarantee that a smart contract doesn’t have bugs, and how those bugs interact with underlying platform risks, again, you are taking a big risk there—a much bigger risk than simply holding,” said Antonopoulos—adding that he himself has managed to “generate a side capital” from using such DeFi platforms. 

Despite the risks, Antonopoulos said that using DeFi is probably the best way to earn money from Bitcoin holdings when previous tried and tested method aren’t working any more:

“You can pull your Bitcoin out and convert it and buy a thousand altcoins and watch them all crash by 98% and wonder why your day trading strategy hasn’t worked,” he said. 

If you’ve got enough Bitcoin sitting around to risk losing an investment, DeFi may just be the option for you. 

If not, you’re probably going to have to stick with the boring but relatively less risky HODLing method—and hope Bitcoin pushes past that $10,000 mark this year.

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