Bitcoin-backed borrowing is booming. Thanks to Liquity v2, new protocols like Alpen and Asymmetry are offering cheaper, censorship-resistant loans — no bank required. But there's a catch: Most DeFi paths require wrapping BTC, which can trigger taxable events. That may be the last real edge that custodians like Strike still hold.

— Macauley

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Why hasn’t DePIN succeeded?

Dmitriy Berenzon: The issues have generally been twofold. One is that you needed to get to parity to your centralized counterparts on the demand side, and I think that's having very basic SLAs. Nobody buys decentralization for the sake of it. They buy lower costs, resilience, and there’s been a learning process from many DePIN projects.

The other issue has been this disconnect between private investor interest and value accrual on the equity side. A lot of DePIN projects have a foundation, and then they have an Opco or a Devco that pays the network, but then they receive fiat payments from their customers. So the value flow is not really fully there yet. A lot of it stems from concerns around securities laws. I think a credible commitment to value accrual in the token is something that liquid markets are looking for.

The rise of Bitcoin-backed stablecoins

The long-awaited relaunch of Liquity v2 this month — after an unfortunate bug scuttled the first deployment — marked a major step forward for decentralized, censorship-resistant borrowing. However, it’s limited to ETH, stETH and rETH as collateral.

To expand collateral options, “friendly forks” are encouraged. Two promising new Bitcoin-backed stablecoins are launching with Liquity’s tech: Alpen Labs’ Bitcoin Dollar (BTD) and Asymmetry’s USDaf.

Built around Liquity’s battle-tested, governance-free model, v2 brings improved capital efficiency and user-set interest rates in addition to new collateral types. Importantly, it extends the original protocol’s strict censorship minimization ethos to new blockchains, including Ethereum and Bitcoin layer-2s, through licensing agreements.

Bitcoin lending has historically been dominated by custodial platforms like BlockFi, Celsius and Ledn, where users surrendered their BTC in exchange for dollar liquidity — often at the cost of transparency, flexibility or sometimes, well, solvency. The latest option, presented in Las Vegas at Bitcoin2025, is from Bitcoin payments company Strike, which offers Bitcoin-backed loans at interest rates between 9-13% — typical for custodial lenders.

Compared to centralized services, the DeFi alternatives offer much better terms.

Asymmetry’s offering, which is live on Ethereum mainnet, accepts tBTC, wBTC and cbBTC at max LTVs above 80%, with borrowing rates currently between 4.2% and 7.1% APR.

Alpen’s BTD, while not yet live on mainnet, aims to do the same using native BTC collateral (eventually via BitVM bridges) in a zero-governance zk rollup, according to CEO Simanta Gautam.

“We’re building a Bitcoin-native, censorship-resistant stablecoin — not another wrapped token or federated bridge,” Gautam told Blockworks.

The BTD will be immutable from day one, and will launch with no governance token or admin keys — much like Liquity itself. That’s unusual among Liquity v2 forks, which typically promise tokens to Liquity’s own BOLD stablecoin liquidity and stability providers.

Even non-Liquity options like Mezo, which launched mainnet this week, offer Bitcoin-backed loans at 1% fixed interest — though users give up custody and flexibility to take advantage. The MUSD stablecoin is only useful via integrated partners in the Mezo Market.

The clear advantages of the decentralized model are capital efficiency, lower interest rates and potentially the elimination of custodial risk. For advanced users looking to allocate new capital to bitcoin, there’s little reason to use a custodial lender.

But there’s one major caveat: tax treatment.

In most jurisdictions, converting native BTC into a non-native version (like LBTC or tBTC) is treated as a taxable disposal. So while borrowing itself is not taxable, the act of moving BTC into a DeFi protocol may trigger a capital gains event. That’s where custodial lenders like Strike and Xapo still hold an edge — by allowing BTC to remain untouched while serving as collateral, they preserve favorable tax treatment for long-term holders.

There’s a third category emerging that may offer a middle ground: Babylon’s native Bitcoin staking, which locks BTC for yield but doesn’t create a derivative or require asset exchange. It’s still early, but that model could offer both yield and tax efficiency — without giving up self-custody. On the other hand, it’s not a stablecoin you can spend elsewhere, and the BTC income may be subject to tax like any other.

Sure, custodians also offer simplicity and customer support, and many BTC holders are simply not comfortable managing private keys or assessing smart contract risk. But for the majority of crypto-native users, those factors are far outweighed by the better terms, higher LTVs and greater transparency offered onchain.

As the infrastructure matures — and trust-minimized bridges like BitVM gain traction — the most attractive option for Bitcoin-backed borrowing may soon be the one that best aligns with Bitcoin’s own principles: decentralized, censorship-resistant and user-controlled.

If BTD can be minted against bitcoin in a native BitVM bridge, one could make a strong argument that the tax treatment should be the same as it is with a custodial lender like Strike. That might be the best of both worlds, but we’re not quite there yet.

— Macauley Peterson

Blockchain tech altering the global economy is no longer a distant hope. With the market projected to grow almost 600% over the next five years, it’s safe to say the blockchain revolution is well underway.

The latest report from Blockworks Research and OKX shows how blockchain is a new alternative, shifting the landscape for 4 major industries: financial services, technology, consumer goods, and entertainment. 

These data-driven insights on the future of blockchain are a must-read for degens and empire builders alike.

Reallocate-to-earn:

Nudge, a new app backed by Coinbase Ventures and Brevan Howard, will pay you simply to reallocate your existing tokens in DeFi.

Here’s an example: On Nudge’s USDC page, you can currently swap from ETH or most stablecoins to USDC and enjoy a 36.5% APY from participating protocols (with Nudge points), provided you hold that token for at least a week.

You will still incur the protocol or market risks of whatever token you’re reallocating to, so the usual caveats of DYOR remain. But using Nudge does not pile on additional smart contract risks — your tokens do not get custodied or held in a Nudge vault. So if you were going to sell your ETH for USDC anyway, Nudge provides a nice risk-neutral additional layer of incentives for yield farmers to take advantage of.

I asked the Nudge team if their product worsens the nature of mercenary capital in DeFi, and here’s what founder and CEO Markus Maier said:

“Nudge lets users keep custody, exposes an open marketplace for incentives and makes every reward explicit. If a project genuinely creates value, it will outbid the rest and turn short-term liquidity into long-term alignment — without trapping funds. Mercenary capital isn’t a scourge; it’s the lifeblood of an efficient crypto economy.”

— Donovan Choy