BitcoinFi 101: Borrow Against Your BTC Without Trusting a Counterparty
Three things every Bitcoin holder should know about self-custodial 0%-interest borrowing — and why this is the most underrated shift in crypto right now.
#1 — The CeFi era is over and the BitcoinFi era has started
Here's a quick history of Bitcoin lending in three sentences.
2018-2021: A wave of CeFi platforms (Celsius, BlockFi, Voyager, Genesis) offered Bitcoin holders the ability to borrow stablecoins against their BTC, or earn yield by depositing it. Adoption was massive.
2022: Almost every single one of those platforms collapsed. Customer Bitcoin was lost, frozen, or trapped in bankruptcy proceedings. The CeFi lending category was discredited approximately overnight.
2024 onward: A new category — self-custodial, on-chain, code-enforced Bitcoin lending — has been quietly maturing as the actual replacement. People are calling it BitcoinFi.
The defining feature of BitcoinFi is that no human is trusted. The borrower's Bitcoin is locked in a smart contract whose rules are public and auditable. The protocol team can't seize the collateral, can't pause withdrawals, can't redeploy the BTC into something risky. The position lives or dies by code.
If you got burned in 2022 — or if you watched friends get burned and are still wary of the whole category — this is the replacement that addresses the actual structural problem with the old one.
#2 — "0% interest" is real in BitcoinFi for a reason that doesn't apply to CeFi
Most people hear "0% interest" and reach for their skepticism reflex. Fair instinct, wrong category.
Here's why it works.
A CeFi lender takes your Bitcoin, lends it out somewhere, and pays you a portion of what they earn. They have to charge interest because they have to make money on the spread. That spread is also the reason every CeFi lender that promised yield in 2021 had to take aggressive risks with the underlying collateral — they were locked into a business model that required perpetual yield.
A BitcoinFi protocol works completely differently. There's no lender. You lock Bitcoin into a smart contract. The contract mints a stablecoin against your collateral. The stablecoin is yours to use. When you want your Bitcoin back, you return the stablecoin and the contract unlocks the BTC.
Nobody is "lending" the stablecoin. It's minted on demand against the collateral you posted. There's no spread for the protocol to extract because there's no third party in the chain.
The protocol covers its costs through:
A small one-time fee at borrow.
A redemption mechanism that keeps the stablecoin pegged.
Liquidations that close undercollateralized positions before they damage the system.
That's it. There's no business model that requires a recurring interest rate. So 0% is not a teaser — it's a consequence of the architecture.
#3 — What this changes in practice
Let me describe the shift the way a long-term Bitcoin holder would experience it.
Before BitcoinFi: You hold BTC. You need cash. Your options are (a) sell and trigger a tax event, permanently shrinking the position you built, or (b) give your Bitcoin to a CeFi lender and hope they're still solvent in twelve months. Both options break a rule of self-custody. There's no third option.
After BitcoinFi: You hold BTC. You need cash. You deposit your BTC into a smart contract. You mint stablecoins against it at a comfortable collateralization ratio. You use the stablecoins for whatever you needed cash for. When you have the funds, you repay the stablecoin and your Bitcoin unlocks. You never sold. You never lost custody. You never gave anyone the ability to seize your collateral.
The difference is the difference between renting dollar liquidity from your Bitcoin and transferring ownership of your Bitcoin to get dollar liquidity. CeFi forced the second. BitcoinFi allows the first.
This is structurally what a long-term holder has wanted from Bitcoin's product layer for ten years. It just took until now for the on-chain primitives to be mature enough to deliver it.
Quick FAQ
What if the protocol gets hacked? Smart-contract risk is real. Mitigation: use protocols that have multiple independent audits, an active bug bounty, and meaningful production history. Read the audit reports. They're public.
What if Bitcoin crashes? Liquidation risk is real. Mitigation: don't borrow at the maximum allowed ratio. Leave headroom — borrow at 25-40% loan-to-value rather than the absolute maximum, and you can survive a major drawdown without being closed out.
Is this taxable? In most jurisdictions, taking a loan against an asset is not a taxable event the way selling is. Talk to your accountant about your specific situation.
What can I do with the minted stablecoin? Whatever you do with any other stablecoin. Bridge it. Spend it. Convert it to USD on a centralized exchange. It's just a stablecoin.
How is this different from MakerDAO / Sky? MakerDAO pioneered single-collateral on-chain borrowing on Ethereum (its borrowing positions are called Vaults), but it accepts a basket of collateral types and never natively supported Bitcoin. BitcoinFi protocols like Money Protocol take the same self-custodial design philosophy and build it specifically for Bitcoin holders on Bitcoin-aligned infrastructure.
Where to look next
If this is the first time you're seeing the BitcoinFi category, the place to start is reading the documentation of one of the protocols that's actually shipped a working product. Money Protocol is a good entry point — its design implements the core BitcoinFi thesis (0% interest, self-custody, permissionless access, rule-based liquidation, composable stablecoin output) and the protocol docs explain the mechanics in detail.
The bigger picture is simpler than the mechanics make it sound: holding Bitcoin and using Bitcoin shouldn't be mutually exclusive. For a decade they were. They aren't anymore.
That's the shift.
Learn more: Bitcoin Liquidity — Borrow BTC at 0% Interest at moneyprotocol.co
