How to Earn Interest on Bitcoin: A Beginner's Guide to Bitcoin Lending

Discover how you can earn interest on Bitcoin, what risks Bitcoin lending entails, and how you can passively earn Bitcoin rewards using your Xverse wallet.

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Daniel Bowden


May 3, 2023

If you are holding Bitcoin, you may want to consider ways in which you can make it productive by earning interest. Unlike fiat currency held in a traditional bank account, simply holding bitcoin in a wallet account doesn’t earn interest. However, you can earn interest on your bitcoin by depositing your coins in Bitcoin lending platforms or protocols. 

Read on to discover how you can earn interest on bitcoin, what risks Bitcoin lending entails, and how you can earn Bitcoin rewards using your Xverse wallet. 

Can You Earn Interest on Bitcoin? 

Bitcoin’s protocol doesn’t pay interest natively. You cannot simply hold your bitcoin in a wallet and expect it to accrue interest over time like fiat currency does in a traditional bank account. 

However, the market has created opportunities to earn interest on your bitcoin. One of the most popular ways to do this is by lending out your bitcoin to other market participants. 

Bitcoin lending platforms have become increasingly widespread in recent years, offering bitcoin holders the ability to earn interest on their holdings by connecting borrowers and lenders. 

While Bitcoin lending is an excellent way to earn investment income on your bitcoin, it is not without risks. Therefore, bitcoin holders need to do their due diligence and carefully evaluate the lending platform or protocol they are considering using before depositing funds. 

What is Bitcoin Lending? 

Bitcoin lending allows holders to lend their Bitcoin to other users to earn interest. The concept is similar to traditional lending, where a lender lends money to a borrower and charges interest on the loan given. However, Bitcoin lending typically offers higher interest rates than traditional savings accounts or bonds.

The interest rates offered by Bitcoin lending platforms vary depending on the duration of the loan, the borrower's collateral, and the overall market conditions. Always remember that the interest rate can also be equated with a sort of risk barometer. The higher the interest rate to earn, the higher the risks involved with this particular lending contract.

One of the key advantages of bitcoin lending is that it allows borrowers to access borderless funding without having to go through the traditional banking system. This can be beneficial, especially for individuals or businesses that may not have access to traditional banking services, those who want to borrow privately, or those who prefer to avoid the fees associated with using a bank and its lending services.

As lending platforms for Bitcoin have become more sophisticated and lenders have grown more willing to earn interest on their bitcoin, the demand for Bitcoin lending protocols as increased as it offers a way for bitcoin holders to earn interest on their holdings which would otherwise be sitting idle in their wallet. 

Centralized vs. Decentralized Bitcoin Lending

Let’s take a look at the two different types of bitcoin lending: centralized and decentralized

Centralized Bitcoin Lending

In centralized Bitcoin lending, a third-party provider facilitates transactions between lenders and borrowers. 

Centralized Bitcoin lending functions similarly to how lending works in the traditional world of finance. They set the interest rates as well as terms of the loans to intermediate between borrowers and lenders. Investors may opt for centralized Bitcoin lending since it offers a more structured and (somewhat) regulated lending process. 

Let’s look at the pros and cons of centralized Bitcoin lending. 


  • There is a structured and (somewhat) regulated lending process.
  • Once the registration process is done, using centralized Bitcoin lending platforms is straightforward. 


  • Centralized Bitcoin lenders have control over your bitcoin, which means you can lose all your funds in the case of a platform hack or a company bankruptcy. 
  • Often requires borrowers to go through a lengthy KYC onboarding process.
  • Centralized lending platforms may charge high fees for their services, which reduces the return on investment for lenders.

Decentralized Bitcoin Lending

Decentralized Bitcoin lending operates on a peer-to-peer basis without the need for a centralized entity to connect lenders and borrowers. Instead, decentralized lending relies on smart contracts to facilitate the lending process, enforcing the terms of the loan and repayment schedule.

The main advantage of decentralized Bitcoin lending is that it doesn't rely on a third party that controls the lending process while holding onto user funds. Moreover, decentralized Bitcoin lending typically also offers greater flexibility in terms of interest rates and loan terms, meaning that interest rates are more dynamic.

Again, there are also pros and cons to decentralized Bitcoin lending. 


  • Users retain control of their bitcoin - no third-party asset custody involved. Lending is trust-minimized as smart contracts are used to enforce loan terms and repayment schedules.
  • Greater flexibility in terms of interest rates and loan terms.
  • Provides a degree of privacy and pseudonymity to users.
  • Typically higher interest rates compared to traditional savings accounts or bonds.


  • The lack of regulation means that lenders may have limited legal recourse in the event of a protocol hack or operational error leading to a loss of funds. 
  • Decentralized Bitcoin lending platforms may have lower liquidity, making it more difficult for lenders to find borrowers. 
  • Relatively new and untested technology, which can pose risks and challenges, especially smart contract risk.

It’s important to note that decentralized native Bitcoin lending is still in its infancy, with only a handful of providers in beta. Currently, decentralized Bitcoin lending solutions exist mainly on blockchains like Ethereum or layer-2 protocols like Stacks and Rootstock using tokenized bitcoin. 

Tokenized bitcoin refers to native bitcoin locked in a smart contract and deployed in the form of bitcoin tokens on a different blockchain. 

An example of tokenized bitcoin would be Wrapped Bitcoin (WBTC) on Ethereum, where the tokenization process involves locking up Bitcoin in a custodian, which then mints the equivalent amount of WBTC on the Ethereum blockchain. Another example would be sBTC on Stacks, which uses a trustless peg design where users convert BTC to sBTC on Stacks 1:1 by sending BTC to a threshold-signature Bitcoin wallet controlled by a decentralized group called "stackers" who are economically incentivized to process peg-ins/outs. sBTC is minted on the Stacks layer while remaining secured by Bitcoin, as Stacks follows Bitcoin finality.

Where Can You Earn Interest on Bitcoin? 

Now, let’s take a look at where you can earn interest on your bitcoin holdings. 

Centralized Bitcoin Lending Platforms

Centralized Bitcoin lending platforms are owned and operated by a single entity, usually a company or organization. These platforms offer Bitcoin lending services to their customers, typically deploying a user-friendly interface that allows borrowers to apply for loans and lenders to invest their bitcoin. The lending platform acts as an intermediary between lenders and borrowers and earns a commission on the transactions done between the lending and borrowing party.

Some of the most well-known centralized Bitcoin lending platforms include: 

  • Unchained Capital
  • YouHodler
  • Hodl Hodl
  • Salt Lending

Decentralized Bitcoin Lending Platforms 

Decentralized bitcoin lending platforms are run by smart contracts that automatically execute lending agreements between borrowers and lenders. There is no intermediary involved in the lending process. Examples of decentralized lending protocols targeting Bitcoin lenders include: 

  • Atomic Finance
  • Sovryn
  • Zest Protocol

While decentralized Bitcoin lending platforms offer a more distributed and arguably more secure way of earning interest on your Bitcoin, they can be more complex and less user-friendly than their centralized counterparts. 

Earn Interest on Bitcoin: Here’s How It Works! 

Centralized Lending

The process of lending your Bitcoin and earning interest is similar on most centralized Bitcoin lending platforms. In this step-by-step guide, we will use YouHodler as an example to show you how to lend your Bitcoin and earn interest.

  1. Sign up for YouHolder: Go to YouHodler's website or download the YouHodler wallet app and create an account by providing your email address and password. 
  1. Complete KYC: Once you are logged in, you will be asked to complete a KYC (Know Your Customer) verification process, which involves uploading your identification documents and phone number. The KYC process may take up to several hours to complete. Once you are approved, you will be able to deposit your bitcoin. From the dashboard, click on ‘Wallets’ and choose Bitcoin.
  1. Deposit bitcoin: Now click on ‘Deposit’ to transfer your bitcoin from your wallet to YouHodler. Open Xverse, access your Bitcoin wallet and paste the YouHolder account wallet address into the Send function. Confirm the transaction and send your coins. 
  1. Start earning interest: Once your bitcoin arrives in the YouHolder account wallet, you will start earning interest automatically. The interest rate is 3% APY, and it is calculated and compounded every week. Note that you will be required to deposit a minimum of $100 USD equivalent worth of bitcoin into your YouHodler bitcoin account to start earning interest.
  1. Withdraw to take lending profits: You can withdraw your bitcoin anytime without any fees or penalties, according to the platform.

YouHodler offers a convenient way to earn interest on your Bitcoin, provided you are comfortable with handing over temporary control of your funds to a third party.  

Decentralized Lending

Alternatively, you could lend bitcoin in the decentralized finance (DeFi) markets if you prefer to put your trust into a protocol as opposed to a centralized lending platform. 

The process of lending bitcoin in most decentralized bitcoin lending platforms is similar. In the following step-by-step example, we are going to see how you can earn interest by lending bitcoin using the Zest Protocol - a Bitcoin native lending protocol.

Note: It is important to note that the Zest Protocol is still in private beta, so the specific features and requirements for lending bitcoin may vary once the platform is fully launched.

  1. Request early access: As of now, Zest Protocol is in private beta, so the first step would be to request early access by visiting their website and filling out the relevant information, then wait for confirmation.
  1. Connect your Xverse wallet: Next, connect to the lending protocol using the Xverse browser extension or using the Xverse mobile app.
  2. Input the amount of bitcoin you would like to lend: After connecting your wallet, you can input the amount of bitcoin you would like to lend to Zest protocol.
  3. Review and confirm: Before lending your bitcoin, review the loan terms and confirm that you are comfortable with the risk and potential returns of the loan. Be sure to read the terms of service to understand how lending works and what your rights and obligations are.
  4. Receive interest and repayments: While your bitcoin is being lent out, you'll receive interest payments on a regular basis. Once the loan period is up, you will be able to withdraw your principal amount plus interest.

Note that the specific steps and requirements for lending bitcoin on a decentralized lending platform may vary depending on the platform and the type of loan being offered. 

Earning Interest in Bitcoin Is Not Risk-Free: Bitcoin Lending Risks Explained

If you're considering earning interest on your bitcoin by lending it out, it's important to understand that this strategy comes with risks. Here are the most common risks to be aware of.

Volatility Risk

Bitcoin is a volatile asset, and its value can fluctuate rapidly. If the price of bitcoin drops significantly while your bitcoin is being lent out, you do not have access to your bitcoin, cannot sell it and may end up losing money.

Regulatory Risk

The regulatory landscape for Bitcoin is still evolving, which means that there may be changes to the legal status of Bitcoin lending in the future. These changes may affect your investment negatively and pose a risk.

Interest Rate Risk

The interest rate you receive for lending out your bitcoin may change over time, which could impact your overall returns. How much interest you can earn on bitcoin depends on the supply and demand in the Bitcoin lending market.

Insurance Risk

Bitcoin lending platforms are typically not insured. Therefore, if the platform fails or is hacked, you could lose all your bitcoin.

Operational Risk

Bitcoin lending platforms are not immune to technical glitches or hacks, which could result in the loss of your bitcoin. Decentralized Bitcoin lending platforms are especially subject to smart contract risks.

Bankruptcy Risk

In the case of bankruptcy of a centralized lender (as we have witnessed with Celsius and BlockFi), you could lose all your bitcoin because the lending platform has control over your bitcoin’s private keys.  

Is Earning Interest on Bitcoin Worth the Risks? 

Earning interest on bitcoin can be a way to generate passive income, but it also involves risks that you should be aware of before deciding to invest.

With centralized platforms, you are entrusting your bitcoin to a third-party entity that has control over your assets. If the platform is hacked or goes bankrupt, your bitcoin may be lost. On the other hand, decentralized platforms may offer more control over your assets, but they also come with the added risk of smart contract vulnerabilities and other technical issues. 

Moreover, the lack of regulation and oversight in the cryptocurrency lending space increases the risk of bad practices and fraudulent activities. 

In summary, earning interest on Bitcoin can be a way to generate passive income, but it comes with risks that should be carefully considered. It's essential to research lending platforms, understand the risks involved, and only deposit what you can afford to lose.

Earn Bitcoin Rewards By Stacking Stacks

If you think the risks of earning interest on your bitcoin are too high and you don’t want to put them into a lending platform or protocol, you can stack Stacks (STX) in a stacking pool to earn rewards paid in bitcoin. 

Stacking STX refers to participating in the Stacks consensus mechanism as a validator. It involves locking up a certain amount of STX tokens for a specified period to participate in the consensus mechanism and help validate transactions on the Stacks blockchain, which operates on a Proof-of-Transfer (PoX) mechanism.

In return for stacking STX, validators earn Bitcoin rewards, which are paid out in proportion to the amount of STX they have locked. The more STX a validator locks, the higher their chances of being selected to validate transactions and earn Bitcoin rewards. 

By stacking with Xverse, users can earn an average of 7.4% APY (at the time of writing). In addition, Xverse does not charge any transaction fees.

Stacking STX is passive way for users to earn bitcoin rewards while still holding onto their BTC. Unlike Bitcoin lending, stacking STX doesn’t involve depositing BTC into a third-party platform, and users retain control over their STX tokens throughout the stacking process.

Download Xverse today to start stacking STX to earn Bitcoin rewards. 


Does Bitcoin pay interest?

Bitcoin itself doesn’t pay interest natively as it is a cryptocurrency. However, you can earn interest on bitcoin by depositing it into lending platforms or smart contract-based protocols.

What is the interest rate on lending bitcoin?

The interest rate on bitcoin varies depending on the lending platform or protocol you choose. Interest rates can vary from less than 1% to close to 10% APY, depending on the platform and the market conditions.

Where can you earn the most interest on bitcoin?

There is no one-size-fits-all answer to this question, as the interest rates on bitcoin can vary greatly depending on the lending platform or protocol you pick. Some of the most popular platforms for earning interest on bitcoin include Nexo, YouHolder, and Sovryn. 

Can you stake bitcoin to earn interest?

Bitcoin itself cannot natively be staked to earn interest. However, you can use tokenized bitcoin to earn interest in decentralized lending pools on other blockchains, such as Ethereum, Rootstock, and Stacks.

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