Supply-side: non-custodial Bitcoin yields
So far, we have seen two basic ways bitcoin holders can lend out their BTC: through centralized lending platforms, and through wrapped bitcoin through established DeFi venues. To differentiate the following options from Stroom’s offering let’s elaborate:
In option one, bitcoin holders lend out their bitcoin on centralized lending platforms, which also includes exchanges e.g. Binance, Kraken (around 0.5% APR estimates). In the past, we have seen notable collapses such as Celsius (gave up to 17% APY on BTC and filed for bankruptcy), BlockFi (filed for bankruptcy) or Voyager (also filed for bankruptcy). Lessons learned: The APY is simply not worth the (hidden) risk. Irresponsible rehypothecation is probably the biggest but not the only risk, others include theft through hacking and rug-pull scams.
Option two, the decentralized route, involves wrapping the native bitcoin e.g. using the most liquid wrapped version WBTC. Providing WBTC to decentralized lending markets on e.g. Aave or Compound gives holders 0.05% APY or 0.02% APY, respectively. Apart from low yield, the demand for WBTC depends mostly on market sentiment for leveraged trading.
With these two options laid out, let’s compare them with the offering of Stroom for bitcoin holders. Similar to WBTC, Stroom bridges the gap between the Bitcoin network and Ethereum to allow bitcoin liquidity to be used in a wide range of financial markets. However, the major distinction is that BTC provided to the Stroom protocol will give you a yield-bearing liquid staking token lnBTC on the Ethereum side. The yield is profit from routing fee revenue by actively using the supplied BTC when routing payments by the Stroom-enabled routers.
In summary, Stroom enables a third option: By providing BTC to Stroom, bitcoin holders can easily participate in the growing channel liquidity market in the Lightning Network. The yield-bearing liquid staking token lnBTC is as composable as WBTC, and can therefore also act as e.g. collateral/security in financial derivatives, but has an intrinsic yield component that WBTC lacks. The result: more (diversified) yield for the BTC holders.