When it comes to the idea of earning a yield on your Bitcoin, one should always trend towards the side of caution; it’s been well documented that trying to lend out Bitcoin to earn a spread using a custodian ended pretty badly, with Billion Dollar businesses like Celsius, BlockFi and Voyager going tits up in spectacular fashion.
Many investors are still licking their wounds and waiting for the return of their funds 3 years later. While the business model was flawed, it taught everyone about the dangers of rehypothecation and the value of hodling.
Hodling might feel like you’re doing nothing, but why do you need to do anything if you’re receiving a CAGR that outperforms most index funds? When you have an incentive like that, there’s little need to go out and risk your Bitcoin to capture a few basis points.
Earning on your Bitcoin
But what if the incentive to hold doesn’t appeal to you or you’re looking for income opportunities? What’s available, what’s the risk, and what’s the catch?
Well, honestly, precious little; if you’re in the low-risk camp, you could look into selling liquidity on Lightning Channel marketplaces, providing liquidity for coin mixing protocols like Join Market or supporting submarine swaps between layers.
While the first two options have been around for some time, the market for swapping liquidity has only begun. Boltz Pro, a new Bitcoin swap service by Boltz Exchange, has officially launched, offering users a seamless and secure platform to exchange Bitcoin across different layers and earn a fee for their troubles.
The platform focuses on non-custodial swaps to provide users with unparalleled flexibility and efficiency when swapping their BTC.
What is Boltz?
- Cross-Chain Swapping: Effortlessly swap Bitcoin between various blockchains, including Bitcoin, Lightning Network, Liquid Network, and other supported chains.
- Competitive Rates: Benefit from highly competitive exchange rates, minimizing slippage and maximizing your returns.
- Enhanced Security: Boltz Pro prioritizes user security with robust security measures, including multi-signature transactions and advanced security protocols.
- User-Friendly Interface: The platform boasts an intuitive and user-friendly interface, making it easy for both novice and experienced traders to navigate and execute swaps. Â
Earning Fees by Providing Liquidity:
Boltz Pro offers an opportunity for users to earn fees by providing liquidity to the platform’s liquidity pools. Contributing funds to these pools facilitates smooth and efficient swaps for other users.
In return, a user can earn a portion of the swapping fees generated within the pool. Â
Today we are launching Boltz Pro, a non-custodial way to earn sats with swaps on Boltz 🫰
— Boltz – Non-Custodial Bitcoin Bridge (@Boltzhq) December 30, 2024
Tl;dr: users earn sats for swapping in a specific direction based on the current liquidity situation of our wallets.
Get started here:👉 https://t.co/hGJBwdhba3 👈 pic.twitter.com/0HUNpv4qFl
Why Would Boltz Want To Pay Anyone For Swaps?
Balances of Boltz wallets and Lightning channels are constantly in motion as users swap between the supported layers and blockchains. As directional money velocity increases, so do liquidity requirements for Boltz to reliably have enough capital on all layers to serve swaps.
For instance, a peg-in of mainchain Bitcoin into Liquid takes around 17 hours, and the peg-in capital can’t be used otherwise during that time; hence, it has a significant opportunity cost associated with it.
So, instead of trying to keep spare capacity available, which would also be dead capital if never used, the Boltz team thought it would be better to attract market liquidity with a fee incentive.
The base case for Boltz Pro revolves around letting users earn that swap fee when they move funds through Boltz in a favourable direction at a specific moment when funds within Boltz’s capacity reach an imbalance.
How Does This Fee Market Work in Practice?
Let’s say Boltz is running low on mainchain Bitcoin because significantly more volume went from Lightning -> Bitcoin than vice versa, exhausting their on-chain wallet.
Boltz would then signal to the market that they need funds and set the dynamic fee of Boltz Pro to a negative, e.g., 0.15% for Bitcoin -> Lightning swaps.
This means that users receive 0.15% more of the amount on Lightning than what they sent in mainchain Bitcoin into the swap. Once enough volume moves in this direction, and the Boltz Bitcoin wallet is refilled, the Boltz Pro swap fee will return to regular pricing.
The opportunity to earn is dynamically available based on our liquidity situation.
Why Launch Pro as a Separate Product?
Boltz Pro is available to anyone and fairly easy to use via the web app at http://pro.boltz.exchange, this is experimental feature and the Boltz team does expect most participants to be professionals in the long run due to the following constraints.
Given the 0.15 BIPs, offering only certain sizes of swaps would make sense since there are still blockchain fees to be paid on the main chain or side chains like Liquid or Roostock.
It would be pointless to earn a 0.15% fee on small amounts if your on-chain fee is higher than what you’re earning from the swap. Therefore, Boltz plans to enforce higher minimum swap amounts, restricting to only larger swaps that are profitable.
While the fees are available to anyone, the size of swaps does make Boltz Pro unsuitable for everyday payments – only very specific directions at specific moments will provide an earning opportunity, and we are looking to incentivize reliability –
Due to the niche appeal, Boltz Pro would likely attract professional Lightning node runners who are converting some inbound liquidity rather than the average user with some spare Sats.
Additionally, they do not want to confuse the average retail user currently using Boltz, as the team still wants to see if there is a market before integrating Boltz Pro tighter into the existing Boltz product suite and building out tools.
Benefits of Providing Liquidity:
- New Income Stream: Earn consistent income from the trading fees generated within the liquidity pools.
- Capital Appreciation: Benefit from potential increases in the value of the assets within the liquidity pool.
- Limiting Capital Exposure: Instead of Boltz having to top up their wallets and provide more capital, they can maintain a smaller capital base.
- Support the Ecosystem: Contribute to the growth and development of the Boltz Pro ecosystem.
Is There More To This Fee Market?
Your guess is as good as mine, but we can be sure someone will try it. We’ve already seen an alternative version of the Boltz exchange launched in September of 2024 that supports multiple Boltz backends, called Swap Market.
The swap market allows other liquidity providers to set up swapping pools and compete on costs and liquidity considerations; adding a fee incentive for smaller swaps might not be out of the question for these alternative swap providers.
If we consider the massive reduction in fees due to Liquids discounted confidential transactions rolling out and Swap Market pushing L-BTC/L-USDT pools too,
https://swapmarket.github.io/usdt
Then, we could definitely see a market emerge with liquidity providers looking to risk their capital for swap fees, as we’ve seen in altcoin DEFI with automatic market makers like Uniswap.
AMMS are not new to Liquid either; TBDEX has been around for some time and is avaialble as an app on Umbrel and Start9, and it may gain traction as users look to explore a fee market for liquidity within the Bitcoin ecosystem.
No free lunches in Bitcoin
Before diving in, remember that Boltz Pro is an experimental product, testing its ability to address liquidity needs efficiently while evaluating market demand. If there is demand for this product, Boltz has plans to develop tools for Lightning node operators to monitor and automate swap opportunities.
Bitcoin Nodes Becoming Yield Farmers
Running a Bitcoin node has largely been a labour of love; you do it because you want added privacy and want to verify the chain yourself and support the network, but what if node runners are more than that?
What if they are economic actors supporting the network not for virtue’s sake but for-profit stake? Wouldn’t that make running a node more appealing and make the cost of spinning one up less of a grudge purchase?
Perhaps! But this will all come down to the LINER income nodes can net over time. Combining routing fees, selling liquidity, and swap market fees might give Lightning nodes a healthier return on the capital they deploy within Lightning.
Boltz Pro advancements in swapping BTC across various blockchains could also encourage node runners to run Liquid Nodes or Roostock nodes and provide liquidity to interfaces like Jam. By providing liquidity for all these protocols or networks; users can support this innovative platform’s growth and generate passive income while contributing to the broader DeFi ecosystem.
