I recently detailed my seven-year journey to secure a mortgage with my Bitcoin. That journey solved a precise challenge: deploy the hardest collateral on earth to secure a roof for my family, without surrendering the private keys that guarantee sovereignty.

In doing so, I left behind a legacy system that mistranslates Bitcoin and proved that self-custodied sats can fund real-world goals. Homeownership became another milestone on the path to freedom, secured by my keys under my control.

The Bank's Bitcoin Capture Strategy Through Mortgage Mechanisms

On June 26, 2025, FHFA director William Pulte issued a formal directive to Fannie Mae and Freddie Mac (the largest mortgage financiers in the U.S.) to propose ways to treat cryptocurrency as a valid asset for mortgage reserves.

On the surface, this seems good, but buried within was a poison pill, a clause so restrictive that it inverts the very purpose of Bitcoin: only assets “evidenced and stored on a U.S.-regulated centralized exchange” would be considered.

This single sentence is the linchpin of the entire strategy.

Your cold storage hardware wallet is disqualified. Your multi-signature vault does not count. The only bitcoin that is "good enough" for the legacy financial system is bitcoin that you have first surrendered to a third-party custodian like Coinbase or Fidelity Digital Assets.

The Threat of Rehypothecation

The insistence on custody is rooted in enabling rehypothecation – when banks and brokers use assets posted as collateral by their clients for their own purposes. This typically involves creating more credit from that single asset.

Once you deposit Bitcoin with a custodian, you don’t own your BTC onchain anymore – you hold an IOU. The BTC then becomes an entry in the exchange's private database, and this database entry—this promise—can be endlessly recycled: lent to a hedge fund, re-pledged for another loan, stacked into a chain of claims tied to the same coin.

This is the modern digital equivalent of fractional-reserve banking.

The history of cryptocurrency is littered with centralized custodians that blew up thanks to, at least in part, rehypothecation. Mt. Gox, QuadrigaCX, Celsius, FTX, and BlockFi are all stark reminders of what happens when we give up control.

Regulation, Re-Centralization, and the Cantillon Effect

This strategy of using the language of safety and regulation as a weapon for control is not new. Framed as consumer protection, these rules favor institutions that meet strict compliance standards – typically large, centralized custodians.

This effectively channels the flow of capital, defining "legitimate" Bitcoin as "custodial" Bitcoin, thereby capturing the asset and forcing it back into a framework that the legacy institutions can monitor, control, and ultimately, manipulate.

This regulatory capture creates a powerful, self-reinforcing loop. As the FHFA mandate forces more bitcoin into custodial accounts for mortgage eligibility, the assets under custody and trading volumes of these regulated exchanges swell. This increased scale makes them appear more liquid, more standard, and "safer", further cementing their legitimacy while making non-custodial, sovereign paths seem niche, complex, or even reckless by comparison.

Let’s be clear. The same institutions that:

• Froze accounts in 2008

• Funded the inflationary crises that devalue our paychecks

• Called Bitcoin a scam for over a decade

…now want to hold your crypto for you.

The legacy system is laying a trap: dangle access to credit, then force you to give up control. But Bitcoin was never meant to be absorbed into that machine.

If the threat is rehypothecation, the answer is self-custody. If the problem is centralized control, the answer is sovereign infrastructure.

That’s where Mezo comes in.

Mezo: The Bitcoin platform that gives you sovereignty

What is Mezo?

Mezo is built to let you bank on yourself—no intermediaries, no compromise. This platform brings to life Hal Finney’s 2010 vision of a world where Bitcoin is the ultimate settlement layer, with financial instruments built on top of it.

Where traditional finance demands custody, control, and compliance, Mezo offers a clean alternative:

TradFi: Hand over your Bitcoin → Trust a custodian → Hope they don’t lose it → Maybe get a loan

Mezo: Hold your own Bitcoin → Prove it onchain → Borrow with confidence → Stay in control

With Mezo live, you can deposit your self-custodied BTC and borrow against it. You’ll mint MUSD, our 100% Bitcoin-backed stablecoin, at 1-5% fixed APR. This is where Mezo is fundamentally different from other lending platforms. Most platforms rely on a limited pool of pre-deposited dollars that you borrow from. Mezo doesn't have a pool. Instead, the protocol acts like a digital mint: when you supply Bitcoin as collateral, it generates brand-new, fully-backed MUSD.

This "supply-side" liquidity model is what makes our Bitcoin loan terms possible:

• Low, Fixed Interest Rates: To reward early adopters, Mezo is launching with a special 1% introductory fixed rate.

• High Capital Efficiency: Access loans up to 90% of your Bitcoin's value (LTV), far exceeding the industry standard.

You can fund your down payment or save for retirement all while your pristine collateral remains yours.

When it comes to Mezo vs. the banks, the choice is clear:

The Final Boss Revealed

They're betting you'll forget. Forget 2008. Forget the bailouts. Forget the money printer. Forget why Satoshi built the escape hatch in the first place.

They're betting that when you see that perfect house, when the mortgage application sits before you, when they promise to make it easy—you'll quietly slide your Bitcoin into their vaults. After all, it's just for the down payment. Just for compliance. Just this once.

The banks revealed themselves. They're not adopting Bitcoin—they're trying to adopt you back into their cage. They're the final boss.

Your keys. Your coins. Your move.

Mezo is live. Borrow against your BTC today.

Mezo is for anyone who believes money should serve people. Your Bitcoin can finally work without selling it. Borrow MUSD at a 1-5% fixed rate and keep your Bitcoin exposure. Available now at mezo.org.

Bitcoin is bigger than everything else combined. Although slightly below its peak, it maintains a $1.7T market cap and accounts for more than 60% of the value of all cryptocurrency assets.

This makes unlocking Bitcoin DeFi the opportunity of the decade. A mere 0.2% of Bitcoin’s total market cap is used in DeFi compared to 35% for Ethereum. That’s a 150x opportunity equivalent to $500B, greater than the combined market caps of the next three largest assets (ETH, USDT, XRP).

If you ask us, the question is when Bitcoin will flip Ethereum DeFi TVL, not if.

BOB

BOB is a unique Hybrid Layer-2 that fuses Bitcoin’s security and capital with Ethereum’s versatility and DeFi ecosystem - creating the safest and best place to earn yield on your Bitcoin.

BOB’s mission is to put Bitcoin at the heart of DeFi, bringing about this flippening within the next 12-24 months. As blockchain builders, it’s our job to address these risk factors with new technology and implementation approaches - and that’s exactly what BOB’s unique hybrid L2 model has been designed to do.

Living the dream

If it was possible to use Bitcoin in quality DeFi applications without needing to compromise on security, censorship resistance, or any of the things that make Bitcoin the largest and most secure digital asset, then we wouldn’t have any barriers to entry and BTC DeFi TVL would likely already far outstrip that of ETH and other chains.

However, as we all know, this can not be the case. Whatever an asset is, whether a Renaissance painting, gold and silver, or your Bitcoin, as soon as you move it out of secure storage, you must accept a certain level of risk in the pursuit of utility and importantly, yield.

If our ultimate dream situation isn’t quite possible, then what’s the next best thing? What about trustless deposits from the layer-1, bringing your BTC onto a smart contract chain without needing to trust any third party or multisig bridge. Then once it’s on the L2 and being used in DeFi, we’d want to be sure that all transactions are secured by and finalised on Bitcoin. And finally, if we want to bridge out to other ecosystems, those bridges should also be secured by Bitcoin. Ultimately, if we want people and institutions to feel more comfortable using their BTC in DeFi, every step of the process should be secured by Bitcoin itself.

This is exactly what BOB’s Hybrid L2 has been designed to deliver: mitigate these perceived risks and provide the ideal home for Bitcoin DeFi.

The Hybrid L2

The unique Hybrid model makes this possible by combining the best of Bitcoin and Ethereum: Bitcoin as the best known, most secure and censorship resistant asset, fused with the versatility, ease of use and innovative DeFi apps of Ethereum.

Bitcoin security - BOB is becoming a Bitcoin Secured Network (BSN) with Bitcoin finality provided by billions of dollars of Babylon staked Bitcoin. Every DeFi transaction on BOB, and every bridging action to other smart contract chains will be secured by Bitcoin.

Ethereum applications - As well as being a BSN, BOB is simultaneously an Ethereum rollup on the OP Superchain, providing fast cheap transactions and access to the full range of innovative DeFi applications such as Uniswap and Aave. BOB already has a TVL of $250M+ (6th largest rollup on L2beat) and an ecosystem of 100+ applications.

Trustless BTC deposits - Using a BitVM powered bridge design, users can deposit and withdraw BTC to and from BOB as long as Bitcoin is secure and there is at least one honest node in the network. This is much safer than existing BTC multisig bridges. This is bridging, reimagined for Bitcoin DeFi, powered by BitVM and ZK proofs.

Ease of use - It’s easier to access Bitcoin DeFi on BOB with best in class bridging between BOB, Bitcoin and Ethereum. And BOB Earn lets you deploy directly into Bitcoin LSTs, Uniswap, Euler and many more top tier DeFi apps with just a single click.

BitVM

BOB uses BitVM to power a trust-minimized Bitcoin bridge, allowing people to deposit and withdraw BTC from the Hybrid L2 without needing to trust a 3rd party. Before BitVM, this was not possible, and almost all existing Bitcoin bridges are trusted multisigs. Only now, for the first time in Bitcoin’s history, do we have a blueprint for achieving this in practice. This technical paper was co-authored by BOB co-founder Alexei Zamyatin.

BitVM allows you to execute programs on Bitcoin in an optimistic manner. The execution happens off-chain and disputes are then resolved and enforced on-chain. This gives BitVM bridges a far superior security model. The L2 verifies Bitcoin, Bitcoin verifies the L2. BTC deposits cannot be stolen as long as there is a single honest node in the network. This node can even be the depositor themself.

BOB’s BitVM bridge implementation has been designed specifically for Bitcoin Secured Networks in collaboration with Babylon and Fiamma. By taking advantage of the Bitcoin finality provided by Babylon Bitcoin staking, the BOB BitVM bridge inherits Bitcoin security without needing to address the complex issue of high Bitcoin Data Availability costs.

Bitcoin Secured Network (BSN) Growth Flywheel

BSNs are the best place to use Bitcoin liquid staking tokens (LSTs). As well as receiving Bitcoin security from billions of dollars of Babylon staked Bitcoin, they are able to offer the best yield potential, thanks to a strong flywheel effect.

The more BTC LSTs people use in DeFi on BOB, the more fees are generated, which are shared with the Bitcoin stakers. This means more yield for LSTs, which then attracts even more stakers and LSTs to BOB, and so on and so on.

What is the risk/return for yield on your Bitcoin?

Different retail and institutional groups will have a different point at which the desire for yield outweighs perceived risk. It’s a classic adoption S-curve, where the early entrants take the biggest risks for the highest potential rewards, effectively acting as guinea pigs that prove out the technology and give the majority the confidence to jump onboard.

With the hybrid model providing Bitcoin security to Ethereum dapps, BOB’s mission is to put Bitcoin at the heart of decentralized finance, moving the industry along the s-curve towards an explosion in adoption and the TVL flippening. It won’t happen immediately as we need to build trust in the new technology. But when it happens it will feel like it happens all at once.

BOB 1-click DeFi is available in the Earn section of the BOB app. Take Bitcoin DeFi positions with a single transaction, for example earning yield for supplying Bitcoin LSTs to lending and borrowing platforms, or deposit into a Hybrid BTC vault to earn 4% BTC yield plus additional DeFi incentives from the BOB Rise DeFi campaign. That yield can then be multiplied several times by loop leveraging with Euler, only using Bitcoin assets to minimise the risk. This is a key part of the Hybrid L2 promise: Bitcoin DeFi with Ethereum-quality applications.

2025 is going to be the year for Bitcoin DeFi.

ETH will never flippen Bitcoin, but Bitcoin DeFi may flippen ETH DeFi.

Learn more about BOB: Website | Twitter | Discord | Telegram

Unleashing the Bitcoin Renaissance

Bitcoin DeFi has exploded onto the crypto scene over the last year. While it’s something I’ve been writing about for the last 3 years, it took the 2023 Ordinal boom + a flood of capital into L2s earlier this year to wake everyone up to what is the biggest opportunity in crypto.

People forget that Bitcoin isn’t just the largest crypto asset in the space, it’s bigger than everything else combined. When DeFi on Bitcoin is unlocked, it will unleash a wave of innovation, interest, and ultimately utility for Bitcoiners. The chart below highlights that opportunity.

This is also why I joined Asymmetric to be the Co-GP of the Bitcoin DeFi Venture Fund to invest in the category and support Bitcoin builders. While Asymmetric only invests in primarily early stage deals, we are excited to see the larger and more mature L2s lead the Bitcoin DeFi charge. One of those is Stacks.

You might have heard about their recent Nakamoto Upgrade and upcoming sBTC launch. In this newsletter I’m going to explain why both are so important to both Stacks, and Bitcoin.

Nakamoto Upgrade: What is it and why is it important?

Nakamoto is a recent hard fork on the Stacks network designed to bring many benefits.

The Stacks network used to have the following issues:

• Slow blocks: Historically, because Stacks blocks have been anchored 1:1 to Bitcoin blocks, slow block times and transaction times have been one of the biggest pain points for Stacks users and developers.

• Forking: Stacks forks are not tied to Bitcoin forks, allowing cheap reorgs. Also Stacks forks happened due to poorly-connected miners

• MEV: Bitcoin MEV allowed Bitcoin miners to disrupt the Stacks mining process

What Nakamoto fixes:

• Fast blocks: The time taken for a user-submitted transaction to be confirmed will now take on the order of seconds, instead of tens of minutes.

• Bitcoin finality: Stacks is now secured by 100% of Bitcoin hashpower. Once a transaction is confirmed, reversing it is at least as hard as reversing a Bitcoin transaction. The Stacks blockchain no longer forks on its own.

• MEV Resistance: This proposal alters the sortition algorithm to ensure that Bitcoin miners do not have an advantage as Stacks miners. They must spend competitive amounts of Bitcoin currency to have a chance of earning STX.

(A more detailed and technical description of the Nakamoto Upgrade is available to read here)

This alignment with Bitcoin's security model further establishes Stacks as the leader among secure, scalable Bitcoin L2s. This is a big part of the promise of building on Bitcoin, the world’s most robust, battle-tested blockchain.

Note that even Satoshi was interested in merged mining ideas (ex: Namecoin) and contributed to how it might work. Rootstock carried that idea forward a bit, and now with Stacks Nakamoto you get an improved iteration of the idea: 100% Bitcoin hash power securing transaction ordering and block record or L2/Sideechain with no consent from Bitcoin miners and always at 100% hashpower capacity. Previous iterations of merge mining run a rates lower than 100%. .

sBTC: a more secure Bitcoin bridge

In the next couple weeks, Stacks will release sBTC, a non-custodial 1:1 Bitcoin-backed asset that operates as an open-network, decentralized 2-way peg solution to bring Bitcoin into Stacks with as little counterparty risk as possible. This has been a vision for years, and you’ve probably heard something about it over the past few months. As a refresher, here’s what to expect from this long-awaited bridged Bitcoin:

• sBTC unlocks Bitcoin’s full potential as a programmable, productive asset for decentralized applications

• With sBTC, building on Bitcoin is faster, cheaper, and easier – without compromising security and user experience

• sBTC features an elite Signer network featuring industry leaders like Bitgo (securing $10B in WBTC), Blockdaemon, Kiln, Luganodes, Copper, Figment, and many more.

Here are the timelines and milestones that are coming up soon:

To launch sBTC, an allocation cap of 1,000 - 3,000 Bitcoin will be reserved for early supporters who will earn ~5% APY paid in sBTC. Of course you can then take your sBTC and deploy it into various DeFi applications to earn additional yield (note that all yield comes with risk!).

On December 16th, 2024 sBTC will go live. Users will be able to deposit Bitcoin via sBTC.tech. However, it’s first come first serve, interest can be submitted here.

You might ask, so where does this yield come from? It’s primarily incentive yield from Stackers who want to subsidize/incentivize the early bootstrapping of sBTC.

Conclusion

As Bitcoin DeFi continues to grow, it becomes harder for crypto folks and Bitcoin puritans to ignore. Big upgrades to popular Bitcoin L2s like Stacks help Bitcoin builders to create Bitcoin DeFi applications that push the sector forward.

HODL,
Dan Held

Satoshi published the whitepaper on 10/31/2008. Right at the moment of peak despair during the 2008 financial crisis. Trust had been lost in a world that ran on trust.

But why October 31st? Why that date specifically? It certainly wasn’t because Satoshi was a fan of halloween, it must have had a deeper meaning. With all of his actions, Satoshi demonstrated a careful precision.

Satoshi had been working on Bitcoin for at least a year and a half before publishing the whitepaper.

“I believe I've worked through all those little details over the last year and a half while coding it, and there were a lot of them. The functional details are not covered in the paper, but the sourcecode is coming soon” - Satoshi Nakamoto

On August 18, 2008 Satoshi registers registers Bitcoin.org through anonymousspeech.com.

Satoshi was ready and waiting to hit the send button throughout 2008. What was so special about October 31st?

Out with the old, in with the new

I believe that Satoshi published the Bitcoin white paper on 10/31 as a hat tip to the ancient Gaelic festival of “Samhain” which was also the date in which Martin Luther nailed his 95 Theses to a church door. Both represent an end of the old and the beginning of the new.

Samhain represented the end of harvest season and the beginning of winter.

The early Catholic church, in an attempt to gain believers, adopted some of the festivals such as Samhain, and in 835 created “All Saints Day” to coincide on 10/31. This is what we call “Halloween” or “All hallows’ eve” a major holiday in the Catholic world.

On October 31, 1517 Martin Luther nailed his 95 Theses onto the doors of the Castle Church (dedicated to All Saints). Luther was outraged by the idea that sinners would be able to reduce their sins through payments or unpaid work. Under the Pope, these were considered part of the church treasury, which allowed those in power to continue their lavish lifestyle at the expense of the masses. Luther undermined the authority of the Pope through his 95 Theses, starting a process of reformation. Luther’s ideas became very popular, spreading around the world through the newly invented printing press changing the course of the world forever.

Similarly, Satoshi was outraged at the massive breach of trust by existing financial institutions:

“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.” — Satoshi Nakamoto

Satoshi used 40 years’ worth of technological advancements and combined them to create Bitcoin. Bitcoin’s blockchain enabled it to be accessible and transmittable to anyone in the world, just as the printing press enabled the spread of Martin Luther’s ideas.

Both Satoshi and Luther carefully chose October 31st to announce their ideas, symbolizing death and renewal. Both saw the imprisonment of people by these legacy systems and suggested ousting the existing authority as the solution to the problem.

Bitcoin marks the end of fiat and the beginning of a new monetary standard. Let us go forth boldly, and build a new world.

“The present is theirs; the future, for which I really worked, is mine.” - Nikola Tesla

HODL,
Dan

Bitcoin’s future has been radically altered in the past 18 months. 

Some people call this period the “orange wave” or “Bitcoin Season 2” or even the “Bitcoin Renaissance.” All these names refer to one thing: an explosion of development, investment, and utility and broader attention paid to the Bitcoin brand and ecosystem. What started with inscriptions and runes has spilled over to new offchain products, onchain scaling solutions, and more. 

In this new era of Bitcoin history, a unique approach to scaling the Bitcoin-native economy has been in development since early 2023. Called the Spiderchain, this protocol being developed by Botanix Labs is defined by its focus on simplicity and security while following an ambitious roadmap with the singular goal of supporting a decentralized financial system running on Bitcoin.

Most readers of this newsletter may have never heard of the Spiderchain let alone know what they can do with it. The purpose of this note is to answer both of those questions, so keep reading. 

The Basics of Bitcoin’s Spiderchain

In short, the Spiderchain is a new primitive network for rapidly expanding the simplicity, security and scalability of a second-layer ecosystem built directly on Bitcoin. A series of successive, randomized and decentralized multisigs secure all assets moved from the Bitcoin base layer. Every Bitcoin block is associated with a new multisig created between a set of random participants (called Orchestrators) from the Spiderchain. This growing chain of multisigs can be seen as a sort of web that safeguards all bitcoins moved to the Spiderchain. 

A key facet of the Spiderchain primitive is the ability to bring the Ethereum Virtual Machine (EVM) software layer to the Bitcoin ecosystem. Bitcoin – a monetary protocol – is universally recognized for its strong Lindy Effect that strengthens with each new block. Similarly, the EVM is a Lindy software layer that supports billions of dollars in capital, millions of users, and thousands of applications. But the problem is all of this exists on the wrong blockchain – it should be on Bitcoin. Bringing all the EVM-based liquidity, users, applications, and developers to the EVM-equivalent layer on Bitcoin (i.e., the Spiderchain) will have a powerful growth effect for Bitcoin. 

From the opening to the whitepaper by Botanix Labs, the Spiderchain’s purpose is described as: 

“With Bitcoin as the most decentralized and secure bottom layer, the second layer will open the doors to the composability, ecosystem and capabilities of Ethereum smart contracts.”

The Spiderchain also introduces an encryption system that is novel to the world of cryptocurrency but old hat to the world of cryptography – forward security. Being forward secure means that participating users in a network can refresh their keys across epochs (i.e., new sets of randomized multisigs with each block) in a way that any instance of compromise that threatens the current secret keys leaves all prior encrypted keys secure. If Block 100 is compromised, for example, Blocks 1 through 99 are unaffected. This is a powerful tool for any cryptocurrency network but especially for a second-layer protocol because security actually is a higher priority on a Layer 2 compared to the base layer (but that’s a topic for another article).

Sharing his own thoughts on security and the Spiderchain, Jameson Lopp published a blog article that concluded with: 

“At a high level, I think that Spiderchain make sense when the conditions are as described in the whitepaper. The million bitcoin question is how well the system can hold up to edge cases and adversarial conditions.

Scaling Bitcoin and building a robust Bitcoin-native decentralized finance (DeFi) ecosystem has been a challenge for many years. Part of the reason for the idea of the Spiderchain was to avoid creating something completely new and instead to adopt something the market already uses and is familiar with (e.g., the EVM) and bring those network effects to Bitcoin. What makes this even better is that the Spiderchain can run on Bitcoin Core as it exists today – no new token is needed, no new BIP is needed, no other blockchain is needed. 

In a blog post that shares an overview of the purpose of the Spiderchain, the Bitfinex team wrote: 

“The primary motivation behind Spiderchains is the significant growth of decentralised finance applications on platforms like Ethereum, which are largely absent on Bitcoin.”

But this begs the question, “What can you do on the Spiderchain?”

What Can You Build on the Spiderchain? 

The short answer to this question is anything that has been built on Ethereum or any Ethereum layers can be quickly copy-pasted to run on the Bitcoin-native EVM layer being built by Botanix Labs. In fact, any application that finds demand from users outside of Bitcoin should be brought back to run on Bitcoin. That’s the vision for the Spiderchain. Bitcoin should eat everything. 

The longer answer comes with some examples. Bitzy, for example, is a Spiderchain-native decentralized exchange platform for Bitcoin users to engage in markets for other assets without having to leave Bitcoin for another blockchain. Vertex is another trading platform that has deployed on several other networks outside of Bitcoin, and now they are coming to Bitcoin through the Spiderchain. 

Beyond these two examples, there are collectibles, staking protocols, stablecoins, and much more that are in development and testing on the Spiderchain testnet. For more information as the progress continues, join the Botanix Labs team on X or Discord. 

I first invested in Mezo as an angel in January, then Asymmetric invested in their latest round led by Pantera.

Below are my quick thoughts on Mezo, and why I believe in the team and their ability to build some of the key pillars of “BitcoinFi” (Bitcoin DeFi).

Why is DeFi on Bitcoin important?

Bitcoin is the largest asset in the crypto ecosystem. It’s so large that it’s larger than everything else *combined.* For good reason, it’s the best store of value asset in the world.

Bitcoin, being the best store of value in the world, makes it a pristine piece of collateral. Collateral is a core component of DeFi. Being able to borrow dollars using your Bitcoin as collateral, using Bitcoin to be staked as collateral on other Proof of Stake chains, or to secure Bitcoin L2s, etc.

What is Mezo? 

Mezo is Bitcoin’s economic layer. The term “Bitcoin L2” is thrown about quite a bit, so they decided to more simplistically define who they are as an “Economic Layer” 

With Mezo, the goal is to unlock more utility from your Bitcoin with various DeFi applications, such as:

• Lending and Borrowing: Lend your BTC to earn interest or borrow against it to access liquidity for other investments. This includes borrowing Bitcoin-backed stablecoins, allowing you to spend fiat while saving your Bitcoin

• Yield Farming: Participate in yield farming strategies to maximize your returns on BTC

• Decentralized Trading: Trade on native DEXs

• Derivatives: Access Bitcoin-based, on-chain derivative products

How is tBTC related to Mezo?

One of Thesis’ first BitcoinFi products was a decentralized Bitcoin bridge called tBTC over 5 years ago. This bridge is being used by Mezo and other Bitcoin L2s like @BOB. A bridge allows for you to take your Bitcoin from the Bitcoin base layer and bridge it or port it to another chain. 

Unlike centralized solutions like wBTC, which rely on a single custodian and are susceptible to counterparty risk and regulatory concerns, tBTC employs a decentralized custody model.

This means that your Bitcoin is not held by a single entity but rather distributed among a network of stakers within the Threshold network. This approach significantly reduces the risk of theft or loss, as no single point of failure could be exploited.

Team 

I’ve known Matt Luongo, the CEO of Thesis, for almost 9 years. He’s a seasoned builder who understands what it takes to execute, win, and build. And he has surrounded himself with a sharp folks. This is the right team to build a Bitcoin economic layer. Here’s their track record:

- Fold (2014): spend Bitcoin and earn rewards
- tBTC (2020): permissionless Bitcoin bridge
- Keep (2020): privacy layer for public chains

Realizing the Future of Bitcoin DeFi

BitcoinFi represents the future of Bitcoin, transforming it from a passive store of value into a dynamic, yield-generating asset. By leveraging the strengths of tBTC and Mezo, users can participate in various financial activities and products while maintaining the security and value of their BTC holdings. It brings us closer to fulfilling the vision of Bitcoin as the reserve currency for a new, decentralized financial system.

If you want to learn more, click the Mezo link below

Mezo

Runes are more interesting than you realize 

You may have heard about Casey Rodarmor’s “Runes”, the hot new fungible token standard that he’s implementing in the same client he used to launch Bitcoin Ordinals. It’s Casey’s idea that is in direct response to the clear market demand for fungible tokens on Bitcoin, but improves and solves some of the issues many Bitcoiners (including Casey) have with the existing standards such as BRC-20. Casey launches his Runes token standard on the halving in April – at blockheight 840,000. It could be a giant boost in fees to Bitcoin miners at the very moment they need it the most!

Most Runes speculators are primarily concerned with farming aidrops for the anticipated launch and have little to no understanding about how the protocol works.

However, for those who understand a little bit about them, come down the Runes Rabbithole with me.

Beginner: Runes work within Bitcoin’s UTXO model

Most Runes degens know this basic differentiation between Runes and BRC-20s. “They are better for Bitcoin than BRC-20s” is generally true in that it’s good practice not to proliferate the UTXO set on Bitcoin (more UTXOs can make it harder/more expensive to run a node). Inscriptions have doubled the size of the UTXO set in just the past year and the majority of those are forever useless- they are “dead” BRC-20 mint & transfer inscriptions

Runes operations (the mint, transfer equivalents) do not create a leftover useless UTXO. This is a very simple strict improvement over BRC-20. I’ve learned the hard way that the market doesn’t particularly care about technical improvements so I’m glad that the market is hyped about Runes even if it’s for speculative reasons and hopefully it results in a general improvement on the network!

Medium: Runes light wallets through SPV-proofs – does Runes improve the indexing problem?

BRC-20 is an account-based model, meaning your balance is tied to your Bitcoin address. In Runes, your balance is tied to your UTXO set. This means that instead of having to validate the entire state of all BRC-20s in order to get your individual balance, you only need to validate just the UTXO that you own and it’s ancestors (previous UTXOs it “descends” from). This means that you could theoretically have very light Runes clients, even combining this with “utreexo” which is an interesting technique for a Bitcoin Core light client that could be run on a mobile device.

This has pretty big implications for the state of indexing Runes, although I haven’t fully thought down this path. Basically, I believe it would allow a lot of users to self-verify their Runes transactions, meaning that the problem of “decentralized indexer” that has plagued the BRC-20 ecosystem has dramatically improved. The proof of Runes state is more easily verifiable for the end-user, perhaps even on their own lightweight device.

Medium: Runes are probably compatible with Layer 2s/Bitcoin scaling

Because Runes is UTXO-model-based, this actually sets it up incredibly well for interoperability with many Bitcoin “Layer 2s” like Lightning or Statechains like MercuryLayer. Theoretically, a scaling solution that uses Bitcoin’s UTXO model would be natively compatible with Runes.

We know that Bitcoin fees are going much higher. In such a scenario, it can get really expensive really quickly to quickly transact directly on Bitcoin’s L1. Imagine that it becomes economically irrational to mint or transfer smaller BRC-20 amount on L1, then the volume for this fungible token trading would want to move elsewhere. Scaling solutions natively compatible with Bitcoin’s UTXO model would have a significant design advantage over the existing scaling models for BRC-20 such as the Black / White module system proposed by Unisat.

Deep: Runes pay your Bitcoin transaction fees

Rijndael proposed a wild idea in the latest Gwart Show episode where you could theoretically get someone to pay your Bitcoin transaction fees in return for getting your Runes. Rijndael theorized the idea that if you had a transaction with 2 outputs where 1 is the Bitcoin payment and the other output contains a Rune but the Rune output is “anyone can spend”, then someone could child-pays-for-parent the entire transaction in order to “get” the Rune. In such a scenario, you could make the transaction with low or “no” fees, and someone else pays for your transaction in order to take the Rune. This essentially makes the Runes pay for your Bitcoin transaction.

This idea would likely be classified under “MEV” which is a hot rising topic in Bitcoin-land. It could have some very interesting effects on Bitcoin’s incentive structure.

Crazy idea: Covenants + Runes

There are various Covenants proposals gaining steam, such as OP_CAT or OP_CHECKTEMPLATEVERIFY (“CTV”). These proposals can allow users to “share” UTXOs. Runes being UTXO-compatible could take advantage of some of these proposals. Let’s imagine just 1 of these concepts integrated with the Runes standard.

Introducing the “Gumball Machine” for Runes:

This is just a back-of-the-napkin idea. With covenants like CTV, a user could pre-fund a transaction for a Runes transfer which lets anyone “buy” Runes from the covenant. 2 inputs where the first input is the covenant, 2nd input is the user’s payment, and we remove the signature requirement for the transaction so anyone can spend it. Then the 2 outputs are: 1rst output is the Runes transfer OP_RETURN which sends some Runes to the “payer” (the 2nd input) and the remainder of the Runes to the second output. The 2nd output is a recursive covenant to the original transaction covenant (I may be using incorrect terminology). In this way users can spit out Runes entirely on-chain kinda like a gumball machine. There’s way more ideas down this rabbithole but I will write about those down the road ;)

If you think the “Runes Gumball Machine” idea is cool then you should look into Covenants in general. I particularly recommend OP_CHECKTEMPLATEVERIFY, but maybe get started visiting the “BIP Land” page from the Taproot Wizards Quantum Cats collection!

Conclusion

In the words of Casey Rodarmor: “The world of fungible tokens is a near and totally irredeemable pit of deceit and avarice.” Most of you readers will wish you had just bought Bitcoin instead.

Trade accordingly.

• CB Spears

Why Bitcoin DeFi?

I first wrote about Bitcoin DeFi nearly three years ago. Readers might remember these posts (here, here, and here) in The Held Report.

When I left Kraken in the middle of 2022, I knew that DeFi on Bitcoin was the future. This was even before Ordinals had become thing.

Bitcoin is larger than all the other chains combined, with $1T in value waiting to be unlocked with DeFi. This is the biggest opportunity that will ever exist in crypto.

Unlocking DeFi in Bitcoin brings about more adoption from both newcoiners and existing crypto folks from other blockchains.

Bitcoin DeFi is the future, and I’m excited to push the space forward!

Cheers,
Dan

The Bitcoin ETF should be approved today, and the rumor is that it will be available to trade tomorrow.

But why is the Bitcoin ETF such a big deal?

Friction

The ETF reduces friction almost to 0. No need to ACH/wire money into Kraken, no need to KYC/AML, no need to understand how an orderbook works, no need to be proficient in key management or security.

Retirement accounts

While you could previously buy Bitcoin in self directed IRA, the process difficult and the fees expensive. Now tens of trillions of dollars can flow into the Bitcoin with a few button clicks.

Institutional Investors

The ETF legitimitizes Bitcoin, and allows institutions to hold it through their existing services. And financial advisors can now add Bitcoin to a portfolio with ease. Because Bitcoin isn’t correlated with many traditional assets and has high volatility, adding it to your portfolio (say 1%), will give you a better Sharpe Ratio. It’ll become a no brainer addition to your long term asset management strategy.

Derivatives and Hedging

When the ETF launches options trading will be enabled, anyone can hedge their existing Bitcoin position with calls/puts, or you can bet on price direction.

Solving the Unit Bias problem

As we’ve seen with Doge, Shiba, and other memecoins, a large supply number makes people feel more wealthy when they own XXXX vs 0.XXX. Humans think in whole numbers, not decimals.

The Bitcoin ETF share price can be any arbitrary value. For example: $1. Retail will pile in because they can own hundreds or thousands of “Bitcoin shares.” Most folks today don’t know you can buy part of Bitcoin. They think it’s “too expensive” at $45,000 vs looking at the market cap.

Closing Thought

When a tsumani of buying meets a fixed supply, the price is only going one direction.

It may not happen right away, it may not happen in 1-2 months, but I’m confident the next 6-18 months are going to be a wild ride.

HODL,

Dan Held

Why Bitcoin DeFi?

I first wrote about Bitcoin DeFi nearly three years ago. Readers might remember these posts (here, here, and here) in The Held Report.

When I left Kraken in the middle of 2022, I knew that DeFi on Bitcoin was the future. This was even before Ordinals had become thing.

My thoughts from that article then summarize how I still feel now:

“Bitcoin is what I care about. Nothing changed there,” said Held, who has been in the space for over ten years. In his view, the stakes are rising for Bitcoin as the narrative in the crypto industry shifts towards decentralized finance (DeFi) from centralized finance (CeFi), and as market participants “find more meaning building on top of DeFi.”

The crypto industry, and Bitcoin, is at an inflection point, he said. “I think there’s going to be this renaissance in the Bitcoin DeFi world. Right now, DeFi is not synonymous with Bitcoin, and most people think those two words don’t really go together.”

Why do I care about DeFi on Bitcoin?

Because I care about adoption, which needed for Bitcoin to achieve it’s status as the world money and supports it’s decentralization.

It is undeniable that Bitcoin’s primary user acquisition method has been through the speculative cycles of 2013, 2017, 2021, and now-2025. This is the objective reality, no matter how uncomfortable it is. Come for the speculation, stay for the sound money.

Through DeFi, we unlock more speculative use cases, which I believe will bring about more adoption.

I saw this firsthand at NFT NYC where holders of Ethereum NFTs were now thinking in an Ethereum standard due to their exposure through NFTs. They had no idea how Ethereum worked, but that doesn’t matter as they are now believers. Funnily enough most Bitcoin holders have a tenuous grasp of the protocol (In 2017-2018 the Bank of Canada's survey found that only 53% of Bitcoin owners knew that Bitcoin's supply was fixed).

Regarding topics, my content will be L2 and application agnostic. I want to see all the Bitcoin layer 2’s blossom as each one has it’s own unique design and game theoretic tradeoffs.

The future of The Held Report

For the time being, I’m going to keep The Held Report free and just write when I feel like it. But I may switch paid back on again if I feel I can produce enough writing for the value.

Stay tuned for my next article, which is my long form thesis for Bitcoin DeFi: Casino Games: why speculation is the primary user acquisition method for money.

Cheers,
Dan Held

Overview of CBDCs

CBDC stands for “Central Bank Digital Currency”, a digital fiat currency issued, controlled, and run by a central bank.

In other words, CBDCs are not just digital representations of fiat currencies, like the money held in online bank accounts. Because the money is issued by Central Banks, CBDCs enable consumers to have direct relationships with Central Banks, rather than relying on commercial banks to serve as intermediaries between the two.

Proponents of CBDCs emphasize their benefits: now cash transactions can take place digitally, instantly, and at a very low cost. Intermediaries who currently steward cash transactions, particularly across borders are removed, dramatically lowering friction and costs for consumers. However, the same benefits are already available with cryptocurrencies not issued by governments for example, with Bitcoin, a stateless currency whose value floats freely in a 24-hour market, or stablecoins, whose value is pegged to that of a fiat currency. 

How to impose a CBDC

“We’re doing it for compliance”

CBDCs enable Central Banks to have direct insight into the identities of transacting parties and can block, confiscate, or censor any transaction. Indeed, government demands to have visibility into every financial transaction conducted with state-issued currencies is a chief driver behind the quiet push to eliminate physical cash in countries around the world.

Elimination of Physical Cash

In order to enact CBDCs, they will need to ban physical cash. This enables them to have complete control over the economy. Also, they can disincentivize holding digital cash by imposing “penalty” (negative) interest rates on balances over a certain amount. After all, if too many people rush to demand cash (hard money) at once, commercial banks will be deprived of funding and may dramatically reduce their lending if they can’t find other sources of capital.

Structural Problems with CBDCs

Scope Creep

CBDCs would inherently cannibalize the commercial financial system. If consumers placed all their funds in an account with the central bank, then it would hurt commercial banks’ ability to attract depositors and perform their natural function of offering loans/mortgages and other banking activities.

JPMorgan strategist Josh Younger estimates that 30% of commercial banks’ funding base could leave from checking accounts to CBDC accounts. 

He recommends keeping a low cap limit on CBDC accounts, approximately $2,500, in order to minimize the impact of this transition (Like the Bahamas have done). Most households have less than $1,000 in their checking account, so that would meet the needs of most lower-income households. Any cap on account limits could easily be raised or outright eliminated by a future Congress.

But make no mistake, our government would nationalize the banking industry with the creation of a CBDC.

Governments are poor at execution

Whether it be social welfare programs, military conflicts, or regulations, governments have time and time again proven to be poor allocators of capital as they have no incentive to do it efficiently. A CBDC would be no different. 

In a eye opening thread posted by “@arbedout” he details the journey of USPS’ 1980’s service “E-COM (Electronic Computer Original Mail)” which reads as an absurd tale of the USPS’ journey to develop their version of electronic mail.

The USPS wanted to expand the scope of the physical postal service to the digital world. Between 1969 and 1976, 21+ studies were produced exploring various ways to enabling the Post Office to handle electronic mail.

The Postmaster General "described the adoption of electronic transmission of mail as the 'obvious next step for the Postal Service.”

"For over a century, the monopoly over letters had provided a stable foundation upon which postal service rested, but now, new information and communication technologies made the monopoly porous."

This sounds eerily similar to CBDCs. 

Despite understanding that e-mail represented a threat to the USPS, and even though they had all the resources and stakeholder alignment, they fundamentally misunderstood their customer. 

No one wanted to use the product. They literally printed out the e-mails and then mailed them locally. Who would want to send e-mails to the Post Office then have them print the e-mails out and send them via regular physical mail!?

E-COM was actually the second try at “mail sent electronically.” Over a decade earlier, in 1972, they had partnered with Western Union vai “Mailgram” a similar service which would enable users to send messages via Telex to be printed and send via physical mail.

Privacy 

In a recent CBDC hearing, Rep. Tom Emmer (R-MI) highlighted the huge privacy issues with a CBDC: 

"Any attempt to craft a central bank digital currency that enables the Fed to provide retail bank accounts and mobilizes the CBDC rails into a surveillance tool, able to collect all sorts of information on Americans, would do nothing but put the United States on par with China's digital authoritarianism."

Centralized Risk

There have been egregious breaches of sensitive information held by the government including spy secrets/exploits (in which the US government allowed business and citizens open to exploit by them and other governments), military secrets, and financial infrastructure. 

Can we trust The Fed to perfectly protect our most sensitive information? That there will never be a breach? Because if there was a breach, we’re talking about every single transaction of yours permanently displayed for the world to see. 

Authoritarian Control 

When certain politicians complain that “we’re behind China” in implementing a CBDC, it’s quite a weird statement. It’s akin to saying “we’re behind China with building concentration camps.” 

CBDCs are inherently authoritarian, which is probably why China is pursuing them. Thus, a strong argument could be made that a CBDC will actually slow down China's desire to be a global reserve currency. What country would want to use it, when they could instead hold dollars that aren't spying on it?

Finally, here’s what a CBDC could do: 

• Tax individual transactions based on income level, race, or religion

• Force citizens to spend money on specific items or under a certain duration 

• Censor transactions due to statements on social media (social credit score)

Alternatives to CBDCs

Fiat currencies are already highly digital

Digital dollars and other fiat currencies are created and used today through the commercial banking system. People deposit their fiat-denominated holdings at a commercial bank (ex: Bank of America) and then transact electronically using a variety of digital payment rails like ACH, Fedwire, and Swift. Commercial banks, in turn, use digital record-keeping to track their ledger balances with Central Banks.

Stablecoins

Some also worry about how Stablecoins might threaten the US Dollar and/or compete with a CBDC. Historically, the Fed has supported innovation in the private sector, and as part of that Stablecoins could extend the use of the dollar by making transactions cheaper across borders and between businesses. 

Worries about stablecoins destabilizing the US economy are misplaced. As Quarles again said eloquently: 

“the concern that stablecoins represent the unprecedented creation of private money and thus challenge our monetary sovereignty is puzzling, given that our existing system involves—indeed depends on—private firms creating money every day.”

There are certainly risks to stablecoins being partially backed, and structurally unsound, but there are various ways that can be remedied through audits and other transparency measures.

Bitcoin

The highly surveilled and controlled world of digital money suggests that a meaningful alternative must be private, uncensorable, and free. These are characteristics of bitcoin: a global cryptocurrency issued by a protocol rather than by a bank. Bitcoin was launched to preserve a space for individual economic freedom in a world where economic life increasingly takes place on the world wide web–and where surveillance and censorship are easy to implement. Bitcoin provides all of the purported benefits of CBDCs for end users (instant, low-cost or even free transactions, domestically and across borders; final settlement) but without built-in surveillance and transaction control, and without the ability to control Bitcoin’s monetary policy. For these reasons, it presents an important alternative to both CBDCs and digital dollars.

Conclusion

As Quarles eloquently stated, utility in the US Dollar doesn’t come from technology, it comes from the trustworthiness of our government, economy, and monetary policy. 

Stablecoins are an extension of that trust utilizing a new innovative technology: the blockchain. Stablecoins hold great promise to further the demand for US Dollars, promote innovation at the corporate and individual level, and allow the free market to work as intended. 

Ultimately, I believe Bitcoin is the money that most resembles the attributes that CBDCs strive for with efficiency, trust, and privacy.

As US citizens, what do we want? Do we want to be like China and allow our government to have complete control over every action? Over every payment? Over every aspect of our lives? All for the dubious claim of innovation or efficiency?

Or do we want to embrace the core cultural values of America: freedom, risk-taking, property rights, and equality? 

To CBDC or not CBDC, that is the question.

Full Whitepaper

Ethereum generally dominates the conversation when it comes to discussing platforms for launching an NFT.

Perhaps that’s rightfully so. NFT projects that flirt with the mainstream, like CryptoKitties or Bored Ape Yacht Club, are Ethereum-based, and that doesn’t even scratch the surface of the thousands of other lesser-known projects also hosted…

Read more

Bitcoin is rife with implications for the first world, but the truth of this technology is that it’s for everyone.

It’s for rich folks with names like Brian Armstrong and Ray Dalio. But it’s just as much for Mama Rosa, the El Salvadoran beachside snack vendor who has accepted Bitcoin as payment for her business since 2019.

As a technology for ev…

Read more

Voyager is a centralized exchange that launched as a mobile app in 2017, offering over 100 cryptocurrencies available for zero-fee trading. It also offered monthly interest payments to those who held beyond the threshold amount pertaining to that cryptocurrency.

These rates ranged fr…

Read more

I couldn't be more bullish on the company that Jesse Powell has built. I'll never forget being able to work with such talented individuals.

Looking ahead, I’m going to be spending more time building and investing in Bitcoin DeFi, starting with Trust Machines.

The mission of Trust Machines is to build the largest ecosystem of Bitcoin applications and grow the Bitcoin economy.

I’ve joined as a marketing partner, where I’ll be helping build and scale Trust Machines' marketing efforts.

Trust Machines has an awesome team which I’m thrilled to work with:

• Muneeb Ali (Co-founder)

• JP Singh (Co-founder) 

• Aubrey Strobel (Comms partner)

• Rena Shah (Leading Ops) 

• Asiff Hirji (Advisor) 

And many more I don’t have space to include! 

Why Bitcoin DeFi and why now? 

Bitcoin is a pristine piece of collateral with the most credible monetary policy on earth. 

Building trust minimized applications is critical for Bitcoin to further absorb mindshare and use cases in the space. 

Defining DeFi

Ask anyone what DeFi means and you’ll get a dozen different answers.

DeFi to me represents using smart contracts to unlock some sort of financial tool or primitive. This can be as simple as Lightning to something more complex like Stacks or DLCs. 

Skepticism

I know many Bitcoiners are skeptical of DeFi. Rightfully so. There have been many false promises, scams, and fraud.

But just because there have been many mistakes, failures, and scams doesn’t invalidate the entire sector. 

After all, Bitcoin was the origin for many DeFi apps:

• NFTs: First launched on counterparty

• Yield: JoinMarket

• DAOs: First talked about on the BT forums

This is a return back to experimentation.

Projects

Here are some active projects that I personally find fascinating:

Lightning 

@lightning has created Lightning Pool. 

Summary: An order book for lightning liquidity (or a channel marketplace) done in a non-custodial manner (note: there is a coordinating server).

Read more: Lightning Pool

DLCs (Discrete Log Contracts)

Summary: Two parties can bet on a certain outcome based on x/y/z condition being met. For example, what the price of Bitcoin might be tomorrow.

Companies working on it:

• @AtomicFinance (Options on Bitcoin) 

• @Suredbits (Oracle as a service) 

Stacks

Summary: Smart contract layer on top of Bitcoin with the ability to create smart contracts that work on Stacks and Bitcoin simultaneously (where you only have to interact with the Bitcoin blockchain)

Companies working on it:

• @ArkadikoFinance

• @consoledao

• @ZestProtocol

RSK 

Summary: Smart contract platform via sidechain. Its engine is a forked version of the EVM (Ethereum Virtual Machine), and the RVM (RSK Virtual Machine.

Companies working on it: 

• @sovryn 

JoinMarket (CoinJoins) 

Summary: earn a yield by mixing your coins with others.

Really excited to see a much more usable GUI developed which @dergigi, @giacomozucco, and others are working on!

Read more👇

• Github

• Telegram group

Conclusion

While all of my consulting availability (on Marketing) is nearly filled, please reply to this e-mail if you need help with your marketing efforts.

Or if you’re building something I should check out in the DeFi world, let me know!

HODL,
Dan Held

Free subscriber? Click the link below to subscribe to the once a week paid report!

Subscribe now

If you’re a paid subscriber, check the top of this e-mail for the link to your voting form. I’m not a financial expert. Consult an expert before engaging in financial decisions.

(Ad) Ledn

Your Bitcoin bank for borrowing, lending, and mortgages

Ledn - Get a Bitcoin mortgage or borrow against your Bitcoin using it as collateral.

Sign Up

Background

Coinbase is one of the top exchange and brokerage platforms in crypto.

Recently there has been a series of bankruptcies from lending/borrowing platforms like Voyager, Celsius, etc.

Because of that, people are now looking at major exchanges for the next thing to go “bust” (several of the minor ones could go bust).

H…

Read more

A Journey Into the Unknown

My reflections on the important role hodlers play in developing Bitcoin’s network (and other cryptocurrency networks).

“In the beginning of a change the patriot is a scarce man, and brave, and hated and scorned. When his cause succeeds, the timid join him, for then it costs nothing to be a patriot.” …

Read more

BlockFi is a financial platform that allows retail traders to lend their crypto to earn a yield, or borrow against their crypto to get a fiat loan.

The company was founded in August 2017 by two people, Zac Prince and Flori Marquez in New Jersey. They raised their first round of $1.5M seed funding in February 2018, but rapidly grew over the years, raising over $1.3B in funding total as of late 2021.

Contagion

Early 2022 wasn’t great for BlockFi, as they were fined $100M by the SEC for violating the Securities Act of 1933 and the Investment Company Act of 1940. Per the terms of their settlement with the SEC they had to discontinue interest accounts for new customers.

But the worst was yet to come. In mid-May, Luna/Terra imploded causing a cascading liquidation/bank run across the crypto ecosystem. This led to some counterparties who had borrowed from Celsius, BlockFi, Voyager, etc to default on their loan payments.

When the large hedge fund, 3AC (Three Arrows Capital), blew up it left many counterparties in the red such as Celsius, Voyager, BlockFi, Blockchain.com, and Genesis.

Celsius halted withdrawals first. And is now entering into a potential bankruptcy.

Then Voyager, which had a $600M loss with 3AC, halted withdrawals as well.

Genesis, the most mature and sophisticated lending desk in the space, is rumored to have eaten a $500M - $1B loss. Basically, they had made so much money over the years that they could “plug” the hole.

As panic spread, retail depositors clamored to get their money out of these services. While BlockFi met all withdrawal requests and were planning a new round at a $1B valuation, they soon realized an immediate capital infusion was necessary.

FTX came to the rescue with a $400M revolving credit facility and an option to purchase BlockFi for $25 - $250M depending on performance goals.

The risks and rewards of lending Bitcoin

Lending/borrowing is one of the oldest and fundamental forms of finance.

When you lend out your Bitcoin, the return you earn is compensation for the risk you are taking with your capital. People lend their Bitcoin in order to stack more Bitcoin (especially with compounding returns) or live off the return.

Taking risk isn’t a bad or good thing. It’s inherent for any investment. An investor hopes they have appropriately sized the risk relative to the return. Risk captures the essence of capitalist/entrepreneurial.

“Risk is what's left over when you think you've thought of everything.” - Carl Richards

When you lend your coins you have to trust that the service evaluated counterparty risk properly, which includes: financials of borrower, collateral requirements, custody, etc.

Your keys, your coins.

Is the return that lending services provide worth it? This is subjective and up to each person to decide.

My thoughts

Over the last 2.5 years, I’ve personally experimented with different lending services in the crypto space. Here’s a spreadsheet I update once a month with my latest holdings.

To date, I’ve had $0 in losses.

This is due to me:

• Critically examining my counterparties: I only have my coins at Genesis, Ledn, and Anchorage (They have a great blog post on how they had $0 in losses). I also marked Voyager, Celsius, and others as red/don’t use due to glaring mismanagement issues. Also, if a lending platform provides a yield higher than market rate they are either A/ Taking on more risk or B/ Subsidizing the rate. There is no way around this.

• Staying up to date with the market: by monitoring counterparties, one could have easily avoided getting their funds frozen. For example, there were a handful of red flags from Celsius months before they went under.

Finally, I want to admit that I underestimated the stupidity and risk-taking behavior of these retail lenders (I mainly work with institutional only). While I thought they would have worked with the slightest tinge of maturity with their loan book, many decided to basically act as glorified hedge funds. We should actively push for more transparency (Like Ledn with “proof of reserves”), accountability, and integrity.

HODL,
Dan Held

Free subscribe? Click the link below to subscribe to the once a week paid report!

Subscribe now

If you’re a paid subscriber, check the top of this e-mail for the link to your voting form. I’m not a financial expert. Consult an expert before engaging in financial decisions.

About Celsius

Celsius is one of the biggest lending and borrowing platforms in crypto, and last weekend it froze withdrawals.

Read more

“[The] word to “pay" is derived from the Latin "pacare," meaning originally to pacify, appease, or make peace with (through the appropriate unit of value customarily acceptable to both sides)” -University of Exeter

The history of war is closely intertwined with the history of money: technology drives its change.

From sticks an…

Read more