How to trustlessly earn interest on Bitcoin using NebliDex and Compound
October 21st, 2019

Using NebliDex, you can now earn interest on your Bitcoin without having to use a centralized gateway or put your funds into a centralized portal.

Compound, an Ethereum-based DeFi platform, allows users to earn variable interest through its decentralized smart contract. Interest has historically ranged from 5% - 20% APR on the platform and is compounded every Ethereum block rate, which is about 15 seconds. Lenders put in cryptocurrency and borrowers can use those funds for margin trading and other purposes. Compound requires that borrowers back their loans with collateral cryptocurrency to protect lenders from default and it now supports an Ethereum token called wrapped Bitcoin (wBTC) that is designed to be pegged 1:1 with actual Bitcoin. Lenders can now trustlessly put wBTC into the Compound protocol to earn interest on loans.

What is wBTC and how does it related to BTC?
Wrapped Bitcoin (wBTC) is an ERC20 token designed to be pegged 1:1 with actual Bitcoin. Similar to USDC or USDT, a custodian (currently BitGo) holds Bitcoin and produces wBTC as a result for each Bitcoin held. Merchants collect Bitcoin from traders, send it to the custodian who then holds the BTC and sends wBTC back to the merchant to be used in its place. The process is the same vice-versa. This assures that 1 WBTC = 1 BTC. Audits on wBTC are continuously performed for full transparency. Unfortunately, merchants that transfer BTC to wBTC are centralized parties that collect user information. This is where NebliDex shows the most utility.

Because NebliDex is decentralized and uses atomic swaps to trade, there is no need to collect user information and trades can be performed without trusting a centralized merchant. Simply set up a order to trade with other users. This guide will show you how using the Android mobile client.

1. Download the app on Google Play store
Grab the NebliDex mobile client from the Google Play store or you can download the APK directly from the website. The source code is available so you can build from source if you prefer to do so.

Loading screen on opening Android client

2. Deposit BTC into your wallet
NebliDex doesn't use any proxy tokens. Deposit Bitcoin into your trading wallet by sending BTC to your client wallet. Because this exchange is decentralized, all coin information, including the private key, is stored locally on your phone. There is no exchange wallet. Make sure you have sufficient NebliDex tokens (NDEX) as well because these tokens are used to pay trading fees to the exchange relayers known as Critical Nodes. You can obtain these tokens on NebliDex. You will also need a bit of ETH to interact with ETH smart contracts.

The wallet page

3. Go to the WBTC/BTC market
View open orders and match them if desired or you can make the market by creating your limit order.

The WBTC/BTC market

4. Post your limit order
Post a limit order at your chosen price and wait for it to be filled by another trader. Make sure to select a minimum match amount if you are not satisfied by the defaults.

Post limit order

4. Wait for order to be filled
Now you must wait for another user to fill your order. The better the price, the quicker it will take to fill your order. Once your order is matched, the NDEX fee will be charged and your client will perform an atomic swap with the other trader.

5. Withdraw to Compound
Once your trade has been settled/completed and you have wBTC, you can now withdraw to any wallet you want. There is no processing time, no lags. The exchange is software so it executes a withdrawal transaction immediately to the blockchain. In this case, withdraw to a browser wallet, such as MetaMask, to interact with the Compound DeFi protocol and begin to earn interest! If you want to go back to Bitcoin, do these steps in reverse.

Compound Protocol