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Lending with cBTC
Learn about lending possibilities on Cardano.
Lending in the context of cryptocurrency refers to the practice of providing your digital assets to others in exchange for an interest rate. The key issue that arises when it comes to lending Bitcoin (BTC) directly is its design as a decentralized digital currency.
BTC operates on its own blockchain and doesn't have inherent smart contract capabilities like some other blockchain platforms like Cardano and Ergo. Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They enable a variety of functionalities, including lending and borrowing, which was previously not possible using the Bitcoin network.
On Caradno however, you can use cBTC collateral for lending. When you lend cBTC, it is locked up in a smart contract that ensures the borrower repays the borrowed amount plus interest. If the borrower fails to repay, the collateral cBTC can be liquidated to recover the lender's funds.
In summary, you can't directly lend Bitcoin on most blockchains, including the Bitcoin blockchain itself, because Bitcoin's native blockchain doesn't have built-in smart contract capabilities. However, by wrapping Bitcoin and creating a tokenized version like cBTC on a blockchain platform that supports smart contracts, you enable lending and borrowing through these smart contracts. This is why you can use cBTC on platforms like Cardano as collateral for lending, while still retaining the value and representation of the original Bitcoin assets.