Bitcoin owners seeking liquidity in stablecoins don’t need to sell their BTC. Instead, they can secure a stablecoin loan using bitcoin as collateral.
This guide explores bitcoin-collateralized loans, their mechanics, and how to leverage the Zero protocol on Sovryn. We’ll also cover how to earn yields by providing liquidity to the protocol.
What Are Bitcoin-Collateralized Loans?
Bitcoin-collateralized loans allow borrowers to use BTC as collateral to secure a loan, typically in fiat or stablecoins.
Key Features:
- Overcollateralization: Borrowers lock more BTC than the loan’s value (e.g., 110% collateral ratio).
- Non-custodial: Decentralized protocols like Sovryn’s Zero ensure full control over assets.
- Zero Interest: Some platforms (e.g., Sovryn) charge only a one-time fee, eliminating recurring interest.
👉 Discover Sovryn’s Zero Protocol
How Bitcoin-Backed Loans Work
Centralized vs. Decentralized Platforms
| Aspect | Centralized (CeFi) | Decentralized (DeFi) |
|----------------------|-----------------------------|--------------------------------|
| Loan Type | Fiat | Stablecoins |
| Collateral | Custodial | Non-custodial |
| Interest Rates | Variable | Fixed/0% |
Process:
- Deposit BTC as collateral.
- Receive a loan (e.g., USDT/USDC).
- Repay loan to reclaim collateral.
- Fail to repay? Collateral is liquidated.
Benefits and Drawbacks of BTC Collateral
✅ Advantages
- No BTC Sale: Retain ownership while accessing liquidity.
- Fast Processing: Funds available within minutes.
- Global Access: Few geographical restrictions.
❌ Limitations
- Volatility Risk: BTC price swings may trigger liquidation.
- Platform Variations: Compare fees and terms carefully.
How to Get a 0% Interest Loan on Sovryn
Step-by-Step Guide:
- Switch to Rootstock (RSK): Ensure your wallet is on RSK.
- Bridge BTC to RBTC: Use Sovryn’s bridge for RSK-compatible BTC.
- Deposit Collateral: Lock 110% of the loan value in RBTC.
- Borrow Stablecoin: Receive zero-interest stablecoins.
For Lenders:
- Stability Pool: Earn 5% APR in SOV tokens by providing liquidity.
- Staking SOV: Additional rewards for long-term holders.
FAQs
Can I get a loan with bitcoin as collateral?
Yes! Platforms like Sovryn offer BTC-collateralized loans with 0% interest—just pay a one-time fee.
How much can I borrow against my BTC?
Sovryn requires a 110% collateral ratio. For example, to borrow $1,000, lock $1,100 worth of BTC.
What happens if BTC price drops?
If collateral falls below 110%, the loan is liquidated to repay lenders.
Final Thoughts
Bitcoin-collateralized loans combine liquidity with HODLing. Sovryn’s Zero protocol stands out with:
- 0% interest loans.
- Transparent, non-custodial terms.
- Earning opportunities for lenders.
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