Bitcoin educator Andreas Antonopoulos says there are risks behind any current method of earning steady income with one’s Bitcoin holdings, but DeFi offers one of the few ways to do so without “giving your money to other people.”
In a livestream Q&A on Antonopoulos’ YouTube channel on June 27, he said decentralized finance (DeFi) contracts were one way for Bitcoin (BTC) owners to generate passive income without relinquishing custody of their coins. “Passive income” refers to money earned using methods that require little-to-no effort.
According to Antonopoulos, investors could convert their BTC into Ethereum (ETH) or a stablecoin like Dai (DAI), then lend it out on a platform where the token can earn interest. However, he said carrying out such trades on Ethereum-based platforms was “quite risky” in terms of security, smart contracts with bugs, and the platform itself:
“Ethereum may have problems. It may have bugs. The consensus algorithm may have failures. 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.”
Lending and borrowing crypto can be a risky bet due to the high volatility of digital currencies, with a large number of crypto-backed loans used for margin trading. However, the volume of these loans reached $8 billion last year, and may continue to attract investors.
Though Antonopoulos mentioned other methods for getting investors’ coins to work for them, nearly every way to do so meant relying on a custodial exchange. The Bitcoin educator said such investments carried the risk of theft or mismanagement.
Bitcoin HODLers, on the other hand, do not earn dividends or interest on their investments — or anything — until they finally decide to cash out. Antonopoulos says HODLers hope for appreciation, but “what goes up, can come down.”
The Bitcoin educator says the same is true for crypto day traders: “You can pull your Bitcoin out and convert it, buy 1,000 altcoins, and then watch them crash by 98%.”