I wound down my short position on the lending/borrowing dApp after I realized I didn’t have the stomach to trade shorts, yet. It is nice to know this technique for shorting onchain is a thing though. But this on-chain strategy got me thinking and I researched other defi strategies.

Today I learned of one called Borrow to Lend or B2L. The process is simple; lend an asset then borrow that same asset. The reason why one would want to do this is the interesting part. Since the lending borrow of the same asset mitigates any risk of price divergence, the profit to gain from the action is in the APR rates offered by the platform. Let's say lending WBTC offers 5%, and borrowing WBTC has a 2% interest accrual. In this case, if one was to B2L they would earn 3% on their capital.  In my case, I am using the BOB ecosystem and I noticed that there's a platform offering a lending APR of 0.49% as of writing this for tBTC and offers 0.39% to the borrower for borrowing WBTC! This is because there is an oversupply of WBTC in relation to how much is being borrowed. I went ahead and lent out my tBTC and then borrowed some WBTC and currently have a 0.69% APR on my B2L position. This essentially means I am gaining yield for using my BTC! Awesome!

I will have to monitor this because the risk is that the WBTC borrowing APR will flip negative once more users borrow WBTC. I imagine this will happen when more shorting activity increases.  Another risk is the tBTC and WBTC price difference. Both are not equal in price to BTC, and neither are the same to each other. There is a difference of around 100$ per BTC. This I am not concerned for I am confident this gap will close over time.

I wound down my short position on the lending/borrowing dApp after I realized I didn’t have the stomach to trade shorts, yet. It is nice to know this technique for shorting onchain is a thing though. But this on-chain strategy got me thinking and I researched other defi strategies.

Today I learned of one called Borrow to Lend or B2L. The process is simple; lend an asset then borrow that same asset. The reason why one would want to do this is the interesting part. Since the lending borrow of the same asset mitigates any risk of price divergence, the profit to gain from the action is in the APR rates offered by the platform. Let's say lending WBTC offers 5%, and borrowing WBTC has a 2% interest accrual. In this case, if one was to B2L they would earn 3% on their capital.  In my case, I am using the BOB ecosystem and I noticed that there's a platform offering a lending APR of 0.49% as of writing this for tBTC and offers 0.39% to the borrower for borrowing WBTC! This is because there is an oversupply of WBTC in relation to how much is being borrowed. I went ahead and lent out my tBTC and then borrowed some WBTC and currently have a 0.69% APR on my B2L position. This essentially means I am gaining yield for using my BTC! Awesome!

I will have to monitor this because the risk is that the WBTC borrowing APR will flip negative once more users borrow WBTC. I imagine this will happen when more shorting activity increases.  Another risk is the tBTC and WBTC price difference. Both are not equal in price to BTC, and neither are the same to each other. There is a difference of around 100$ per BTC. This I am not concerned for I am confident this gap will close over time.