Bitcoin maximalists have waited patiently as decentralized finance, or DeFi, has had its moment in the sun. It’s not that bitcoin isn’t a part of the DeFi movement. It is, through products like wrapped BTC, for instance. Now that Lightning Labs has announced a pool of its own, however, Bitcoin’s DeFi profile is on the rise.
According to the announcement, Lightning Pool is “a non-custodial, peer-to-peer marketplace for Lightning node operators to buy and sell channels.” They define channels as capital obligations that are “a cross between a traditional fixed-income asset and an internet bandwidth peering agreement.” Basically, Lightning Pool gives users the ability to “lease liquidity, earn returns and stack sats,” or “earn a yield on bitcoin by selling access to liquidity on Lightning.”
If it sounds familiar, that’s because yield farming is a popular tool in the DeFi toolbox that took the market by storm in Q3 with the rise of coins like COMP. It similarly rewards users for being market makers in a given protocol by providing liquidity in exchange for yield. Yield farming has also sent ETH gas fees into the stratosphere.
Lightning Labs CEO Elizabeth Stark explained in a tweet that Lightning Pool gives users “the ability to earn interest in real BTC without giving up custody of funds,” calling it a “game-changer” and saying it “improves the Lightning experience.”
Miners in the Wings
To start, Lightning Labs is targeting businesses and node operators with the pool who can now set their attention on their customers instead of losing sleep about liquidity. Next, the company has its sights set on miners. Ryan Gentry, who is in business development at Lightning Labs, told BeInCrypto,
“It’s primarily geared towards routing node operators, merchants, and wallets… anybody that’s sending and receiving BTC on the Lightning Network today. I would LOVE to get miners on board, and expect that this will provide a new incentive for exchanges to integrate Lightning and get more traders/speculators on board as well but not the primary target for this first release.”
Currently, the income model for Bitcoin miners is two-pronged, comprised of creating new coins and earning transaction fees. According to ByteTree CEO James Bennett on a Coinscrum episode, fees climbed to nearly 25% of the miner revenue equation last week, representing a yearly high.
Move Over DeFi?
𝕂𝖔𝖆𝖑𝖆 (@LightningK0ala) November 2, 2020
Danny Scott, CEO of UK bitcoin exchange CoinCorner, similarly cheered the development, calling it an “actual use case for yield farming.” Scott told BeInCrypto that the Lightning Network is already part of the exchange’s payment gateway for merchants and that it is “coming shortly to exchange/wallet.”
While the crypto community is celebrating the latest opportunity for earning yield, the BTC price remains stuck in negative territory and has shed more than 2% in the last 24-hour period.