Ordinal Lending: How to Secure an Ordinal-Backed Bitcoin Loan

Learn how to secure a BTC loan with your Bitcoin Ordinals on a decentralized Ordinal lending protocol in this step-by-step guide.

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DeFi
,
Bitcoin
,
Ordinals
,

Author(s)

Elizabeth Olson

Published

May 13, 2024

Besides collecting and trading Bitcoin Ordinals, you can also use them as collateral to access BTC loans. 

In this guide, you will learn about Ordinal lending, how it works, and how to secure an Ordinal-backed bitcoin loan.

What Are Bitcoin Ordinals? 

Bitcoin Ordinals, also referred to as Ordinals inscriptions or digital artifacts, are non-fungible digital assets created by inscribing data onto individual satoshis on the Bitcoin blockchain.   

Birthed out of the emergence of Ordinal Theory, Ordinals elicited a lot of excitement from the Bitcoin community upon launching in January 2023, creating a thriving market for inscriptions, ranging from Bitcoin art and PFP collections to rare and uncommon satoshis and more. 

In addition to being able to buy Bitcoin Ordinals as a collector, you can also use your Ordinals inscriptions as collateral on a protocol like Liquidium to access bitcoin loans, further expanding the utility of Ordinals within the Bitcoin ecosystem. 

What Is Bitcoin Ordinal Lending?

Bitcoin Ordinal lending refers to depositing your Ordinal inscriptions as collateral on an Ordinals lending platform to receive bitcoin (BTC) loans. This unique DeFi product is offered by Liquidium, allowing investors to borrow BTC against their inscriptions. 

The Ordinal inscription is locked in a discreet log contract (DLC) as collateral until the entire loan is repaid plus interest. This interest is earned by the investors who lend their BTC to borrowers. 

Liquidium is a peer-to-peer Ordinal borrowing & lending protocol on the Bitcoin blockchain, bringing DeFi to layer-1 Bitcoin, thereby helping to grow the network’s utility. 

Liquidium is currently open for V 0.3 beta testing for the first 1,500 wallets on a first come, first serve basis. The team is looking to gather as much feedback as possible before public access.  

How Does Bitcoin Ordinal Lending Work? 

Bitcoin Ordinal lending entails borrowing bitcoin against your inscription. The Bitcoin Ordinal acts as collateral for the loan and is locked in a non-custodial escrow wallet until the loan, inclusive of interest, is fully repaid. Locked Ordinals are inaccessible to borrowers, lenders, and Liquidium throughout the loan period.

In the case of Bitcoin Ordinal Lending on Liquidium, lenders and borrowers are brought together on a single P2P lending and borrowing marketplace where they can lend and borrow BTC. The platform consists of dozens of popular Ordinals collections sourced from the Magic Eden API. As a result, borrowers can easily find the inscription they own and use it as collateral in a loan.

On the other hand, lenders have the freedom to choose the digital artifact they would like to back the loan they provide. They are also required to create an offer with the amount they would prefer to lend. Lenders are directly competing with other lenders for maximum efficiency for borrowers.

The lender then waits for a borrower to select their offer. Once this happens, the lender signs and broadcasts the transaction to the Bitcoin network to start the loan. Liquidium takes a 20% fee from the interest generated by the BTC loan.

Borrowers are expected to repay the total loan amount plus interest. Failure to do this leads to the loss of the Ordinal inscription as it is instead transferred to the lender to cover the loan default. 

When repaying the loan, the borrower must confirm and sign the transaction to broadcast it to the network. Borrowers get their Bitcoin Ordinal back after repaying the entire loan.

Lending and borrowing on Liquidium is facilitated by DLCs and partially signed Bitcoin transactions (PSBTs). 

A DLC is a type of Bitcoin smart contract that automatically executes when predetermined conditions are met. A PSBT is a Bitcoin standard that conveys unsigned transactions, allowing two or more parties to sign the same transaction.

How to Deposit Ordinals to Receive Bitcoin on Liquidium Using Xverse

You can use your Xverse Ordinals wallet to deposit your Ordinals as collateral on Liquidium and obtain a BTC loan.

Here’s the step-by-step process of how to go about it:

  • Start by downloading and setting up the Xverse Chrome extension wallet. If you already have this wallet set up, enter your password to unlock it. Check that your Ordinal inscription is stored in Xverse before proceeding.
  • Subsequently, fund your Xverse wallet with BTC. You will use these funds for transaction fees. You can buy BTC directly within your Xverse wallet thanks to the fiat on-ramp integration with MoonPay and Transakt. 
  • Click the “Borrow” button at the top of the homepage.
  • Connect your Xverse wallet by clicking the “Connect” button.
  • Click “Approve” to permit Liquidium to draw payment from your BTC address and access the inscription stored in your Xverse Ordinals wallet.
  • Next, sign the message to confirm that you are allowing Liquidium to connect to your Xverse wallet.
  • Once you are done, scroll through the list of Ordinals collections on the platform.
  • Subsequently, select your inscription’s collection by clicking “Borrow.” Ensure that the collection has an offer before hitting the borrow button.
  • A screen will pop up indicating the loan amount, duration, and interest. 
  • You will also see the amount you must repay and how much the transaction will cost. Choose your preferred network fee package and click “Borrow.” 
  • The borrowed amount will be sent to your Xverse Bitcoin wallet, and your inscription will be locked. That means you can only access it once you have fully repaid the loan.
  • As an added V 0.3 feature, you are now also able to borrow straight out of the offerbook for maximum efficiency.

And that’s how you can secure a bitcoin loan by putting up your Bitcoin Ordinal as collateral. 

Xverse: Your Gateway to Ordinals and Bitcoin Web3

Xverse is a non-custodial Web3 wallet for the Bitcoin ecosystem that enables you to securely store, manage, display, send, receive, and trade Bitcoin Ordinals on a wide range of Ordinals marketplaces. The market-leading wallet also supports BTC, Stacks assets, and BRC-20 tokens.

Explore the brave new world of Ordinals today by downloading Xverse on your phone or adding the browser extension wallet to Google Chrome. 

FAQs

What are Ordinals on Bitcoin? 

Ordinals are non-fungible digital assets created directly on the Bitcoin blockchain by inscribing individual satoshis (sats) with images, text, or audio. Inscribing involves attaching data to an individual sat. Inscriptions are made on sats numbered in the order in which they are mined.

While Ordinals are “non-fungible tokens,” they differ from traditional NFTs because all their metadata is stored on-chain.

Where can you deposit Ordinals to borrow BTC?

You can use your Ordinals to borrow BTC on Liquidium, a P2P lending marketplace built on the Bitcoin blockchain. The platform allows borrowers to access liquidity by locking up their Ordinals in a smart contract. 

On the contrary, investors can earn interest by lending their BTC to borrowers. If their loan isn’t completely repaid by the end of the loan period, they get the borrower’s inscription.

Liquidium takes a 20% fee from the interest a loan has generated.

How much are Bitcoin Ordinals worth?

The cost of a Bitcoin Ordinal will vary from collection to collection. Nevertheless, the average price of sold Bitcoin Ordinals, according to Dapp Radar, ranges between $50 and $25,000. The collections above the $1,000 mark include Ordinal Maxi Biz (OMB), Pixel Pepes, The Final Pattern, Bitcoin Wizards, BTC Machines, Bitcoin Bears, and Apes on Bitcoin. 

TwelveFold is the most expensive Ordinals collection sold at an auction. The Yuga Labs collection raised $16.5 million via an auction held in March 2023. The highest bid was 7 BTC, worth over $150,000 at the time.    

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