Borrow Against Your BTC Without Selling

Bitcoin holders often want to access cash without selling their coins. By using a process called wrapping, you can deposit your Bitcoin with a custodian and receive a corresponding token on another network, such as Ethereum. This token represents your original asset, allowing you to use it as collateral in lending applications to borrow stablecoins while still keeping your exposure to Bitcoin price movements.

This system relies on trust in the custodian to hold the underlying Bitcoin securely. Companies like Coinbase, BitGo, and Circle offer these services, each with different methods for minting and redeeming tokens. When you use these tokens as collateral, you must maintain a certain value buffer because the lending protocol will automatically sell your collateral if the price of Bitcoin drops too far. This can lead to the very loss of holdings you were trying to avoid.

Market competition is heating up as providers work to make their tokens more useful and reliable. A key factor for users is how easily a token can be redeemed for actual Bitcoin. While wrapping does not create new Bitcoin, it does introduce third party risks. Always check the specific terms of the provider and the rules of the lending platform before moving your funds into a wrapped arrangement.