Last month we reflected on the insolvency of centralized crypto exchanges in the midst of this bear market while DeFi apps demonstrated their unprecedented resiliency and commitment to decentralized values. After publishing that newsletter, a few people asked me if the centralized exchanges I’ve previously recommended to them are ‘safe’. The short answer is ‘Probably, but centralized exchanges are not a long term solution for storing your crypto assets’. The long answer(with step by step instructions) is below. Let’s dive in.

Let’s be real: A recession is coming and/or might already be here. Saving with inflationary fiat currencies is a waste of time/energy/hope(we’ve been over this). The American Empire is on its way out, China is poised to take over, and there’s plenty of financial uncertainty afoot.

We’re all looking for a reliable haven to store our funds/assets and earn passive income at the same time(if you’re not, I recommend it). Great news: Bitcoin has more or less been accepted as a gold equivalent store-of-value. Ethereum is close behind, though the speculation of what will happen after the merge makes it a bit more of a risk investment—unless you’re really bullish on ETH.

Here’s the trouble: Several crypto exchanges and trading firms recently went insolvent and declared bankruptcy or experienced some other sort of ‘Where’d all the money go?’ catastrophe. Many users who bought and held Bitcoin, Ethereum, or other crypto assets on these exchanges were left with little to nothing or are just waiting around for their funds to be released.

Why did this happen?

To make a long story short: many crypto exchanges are basically just traditional banks who deal in crypto instead of fiat. Banks don’t hold your money in a safe for you until you claim it. They take the money you deposit, reinvest it, and pay you a bit of interest as a ‘thank you’ for donating your money to allow them to make more money. When you are ready to have your money back, the bank looks at your balance sheet and collects the money from one of their own investments or accounts before giving it ‘back’ to you.

Many crypto exchanges are doing a version of this with their ‘earn’ accounts(link): They take user’s deposited crypto and reinvest it(usually through staking or leveraging on DeFi apps). The ones that recently ran into trouble did a really bad job and made poor investment choices. But it begs the question: what’s the difference between crypto/DeFi and TradFi(traditional finance)?

I can deposit BTC to something like Crypto.com’s earn account and collect interest on it, but I have no control over what crypto.com does with the BTC I purchased and no guarantee it will be available when I’m ready to cash in/withdraw. It’s a bank in crypto clothing. Getting the funds back is entirely dependent on the trading strategies and habits of the exchange you give your crypto to.

But wait…isn’t blockchain tech supposed to be free of this kind of thing? Weren’t Bitcoin and Ethereum supposed to take money out of the hands of a few big players and put it back into the hands of the common retail investor with no middle man? What gives?

The issue is that many crypto exchanges aren’t on-chain. Their transactions happen off chain on their own private servers. The crypto you buy is just a balance on a spreadsheet that demonstrates what amount of the exchange’s on-chain crypto is actually yours. Whenever you decide to withdraw your funds to your own on-chain wallet, that is the first time the crypto actually leaves the wallet of the exchange and lands in your personal, self-sovereign wallet.

Using ‘earn’ accounts and parking your funds on a crypto exchange are not viable solutions for decentralizing your finances. Thankfully, there are on-chain, self sovereign methods to earn crypto on every blockchain—even the notoriously non-programmable Bitcoin blockchain.

Let’s start with the birthplace of programmable money: Ethereum.

Rather than just deposit your ETH to an ‘earn’ account on the exchange you use(no transaction fees, usually) you instead need to find an app on the Ethereum blockchain(or a Layer 2), connect your wallet, and deposit your funds. This app could be something like Aave or Compound(collateral loan apps). It could also be something like Lido or Rocket Pool(staking delegation apps). Lastly, you could set up a node and stake 32 ETH(pretty expensive and complex if you’re just starting out). All of these require transaction fees(which are incredibly cheap at the time of writing) and a bit of knowledge about how to perform on chain actions on Ethereum.

APY ranges from ~1% to ~5% across all of these methods. This is great: Ethereum is expected to go up in value and you can earn interest on that value-accruing asset while keeping it entirely decentralized. What a win!

Bitcoin is trickier…as in…not possible. This is a problem, because Bitcoin is probably the safest investment in the crypto space. Multiple institutions hold BTC and it’s widely accepted as the new gold. If there’s any crypto you’d do well to be buying during this bear market, it’s Bitcoin.

But Bitcoin isn’t programmable. This means that it’s impossible to build any apps on the Bitcoin blockchain. All users can do is buy, sell, trade, or complete peer to peer transactions with their BTC. The only known ways to earn interest on Bitcoin are to deposit it with a centralized exchange OR ‘wrap’ your BTC and deposit the wBTC token on apps like Aave or Compound. The former is—as previously mentioned—essentially TradFi and the latter is even riskier than using centralized exchanges: Wrapping tokens basically means you’re depositing your token with a bridge app and getting a representation of your token in return(wBTC). This is all fine and well until the bridge gets hacked, which happens a lot.

For lack of a better phrase, this sucks. The only way to get more Bitcoin is to buy it. You can’t earn interest on what could arguably become the best investment you’ll ever make long term.

This is where Stacks comes in. Stacks is a layer 1 blockchain that runs in parallel with the Bitcoin blockchain. To make things simple: Stacks deploys its own smart contracts while using the security of Bitcoin’s chain to validate its own records/security. I don’t speak code, but you can read more about the technical aspects here.

Stacks has its own token(STX) that is used to pay for transactions on the Stacks blockchain(similar to ETH on Ethereum). The reason Stacks provides an interest earning solution to Bitcoin is because it’s a proof-of-stake chain(sort of, read more here) that pays out rewards in native BTC. Users can ‘Stack’(stake) their STX to earn native BTC rewards on-chain.

This means there IS a way to earn interest on BTC that doesn’t involve being dependent on centralized crypto exchanges or vulnerable bridges who could potentially lose all your money.

So how do you do it?

There are, ironically, crypto exchanges that accept STX deposits and will pay you in Bitcoin(an average of 10% APY). But at #OnCrypto we want to get away from centralization. Running your own STX node pays out rewards, but it’s pretty expensive and requires some set up to designate a BTC address for reward deposits. The entry cost is in the neighborhood of 100,000 STX. Even though STX is trading around 50 cents CAD, that’s still a big upfront cost.

An excellent alternative that’s still on-chain and decentralized is Xverse. Xverse is a Stacks native on-chain wallet that also enables delegated stacking*.* This means you can transfer STX to your Xverse wallet and immediately deposit it to start earning interest with zero BTC address set up in a completely decentralized environment.

The minimum deposit required to delegate stacking on Xverse is 100 STX. In case you missed it, STX is trading at ~50 cents CAD these days. And the average reward APY on Xverse is 8% in BTC. As a bonus, you get exposure to STX price movement the whole time(the ATH during the last bull market was somewhere around $3.00 CAD/token).

And, because Stacks is a programmable chain, there’s plenty of DeFi apps in the works that provide other on-chain, interest bearing opportunities.

A recession is coming in hard and fast. Decentralization is(I believe) good for humanity, and Bitcoin/crypto is a tool to empower the sovereignty of the individual in an increasingly centralized world. Everyone should be able to access BTC and earn interest on their investment. Stacking STX is an excellent method to achieve this without compromising on decentralization.

See you next month.

—

#OnCrypto has one mission: on-board as many people as possible to the ever expanding ecosystem of cryptocurrency and blockchain tech. This isn’t my mission just because I think it’s cool or fun(though it is those things). It has a lot more to do with seeing this as a potentially massive improvement on quality of life for all people. If you’d like to learn more about the crypto space and you do better with one-on-one training and consulting, shoot me a message.

Disclosure: I hold all the assets mentioned in this newsletter and use the majority apps mentioned(with the exception of Compound and Rocketpool). I am not being compensated for promotion: simply highlighting ideas/products that I think are worth pursuing.

Last month we reflected on the insolvency of centralized crypto exchanges in the midst of this bear market while DeFi apps demonstrated their unprecedented resiliency and commitment to decentralized values. After publishing that newsletter, a few people asked me if the centralized exchanges I’ve previously recommended to them are ‘safe’. The short answer is ‘Probably, but centralized exchanges are not a long term solution for storing your crypto assets’. The long answer(with step by step instructions) is below. Let’s dive in.

Let’s be real: A recession is coming and/or might already be here. Saving with inflationary fiat currencies is a waste of time/energy/hope(we’ve been over this). The American Empire is on its way out, China is poised to take over, and there’s plenty of financial uncertainty afoot.

We’re all looking for a reliable haven to store our funds/assets and earn passive income at the same time(if you’re not, I recommend it). Great news: Bitcoin has more or less been accepted as a gold equivalent store-of-value. Ethereum is close behind, though the speculation of what will happen after the merge makes it a bit more of a risk investment—unless you’re really bullish on ETH.

Here’s the trouble: Several crypto exchanges and trading firms recently went insolvent and declared bankruptcy or experienced some other sort of ‘Where’d all the money go?’ catastrophe. Many users who bought and held Bitcoin, Ethereum, or other crypto assets on these exchanges were left with little to nothing or are just waiting around for their funds to be released.

Why did this happen?

To make a long story short: many crypto exchanges are basically just traditional banks who deal in crypto instead of fiat. Banks don’t hold your money in a safe for you until you claim it. They take the money you deposit, reinvest it, and pay you a bit of interest as a ‘thank you’ for donating your money to allow them to make more money. When you are ready to have your money back, the bank looks at your balance sheet and collects the money from one of their own investments or accounts before giving it ‘back’ to you.

Many crypto exchanges are doing a version of this with their ‘earn’ accounts(link): They take user’s deposited crypto and reinvest it(usually through staking or leveraging on DeFi apps). The ones that recently ran into trouble did a really bad job and made poor investment choices. But it begs the question: what’s the difference between crypto/DeFi and TradFi(traditional finance)?

I can deposit BTC to something like Crypto.com’s earn account and collect interest on it, but I have no control over what crypto.com does with the BTC I purchased and no guarantee it will be available when I’m ready to cash in/withdraw. It’s a bank in crypto clothing. Getting the funds back is entirely dependent on the trading strategies and habits of the exchange you give your crypto to.

But wait…isn’t blockchain tech supposed to be free of this kind of thing? Weren’t Bitcoin and Ethereum supposed to take money out of the hands of a few big players and put it back into the hands of the common retail investor with no middle man? What gives?

The issue is that many crypto exchanges aren’t on-chain. Their transactions happen off chain on their own private servers. The crypto you buy is just a balance on a spreadsheet that demonstrates what amount of the exchange’s on-chain crypto is actually yours. Whenever you decide to withdraw your funds to your own on-chain wallet, that is the first time the crypto actually leaves the wallet of the exchange and lands in your personal, self-sovereign wallet.

Using ‘earn’ accounts and parking your funds on a crypto exchange are not viable solutions for decentralizing your finances. Thankfully, there are on-chain, self sovereign methods to earn crypto on every blockchain—even the notoriously non-programmable Bitcoin blockchain.

Let’s start with the birthplace of programmable money: Ethereum.

Rather than just deposit your ETH to an ‘earn’ account on the exchange you use(no transaction fees, usually) you instead need to find an app on the Ethereum blockchain(or a Layer 2), connect your wallet, and deposit your funds. This app could be something like Aave or Compound(collateral loan apps). It could also be something like Lido or Rocket Pool(staking delegation apps). Lastly, you could set up a node and stake 32 ETH(pretty expensive and complex if you’re just starting out). All of these require transaction fees(which are incredibly cheap at the time of writing) and a bit of knowledge about how to perform on chain actions on Ethereum.

APY ranges from ~1% to ~5% across all of these methods. This is great: Ethereum is expected to go up in value and you can earn interest on that value-accruing asset while keeping it entirely decentralized. What a win!

Bitcoin is trickier…as in…not possible. This is a problem, because Bitcoin is probably the safest investment in the crypto space. Multiple institutions hold BTC and it’s widely accepted as the new gold. If there’s any crypto you’d do well to be buying during this bear market, it’s Bitcoin.

But Bitcoin isn’t programmable. This means that it’s impossible to build any apps on the Bitcoin blockchain. All users can do is buy, sell, trade, or complete peer to peer transactions with their BTC. The only known ways to earn interest on Bitcoin are to deposit it with a centralized exchange OR ‘wrap’ your BTC and deposit the wBTC token on apps like Aave or Compound. The former is—as previously mentioned—essentially TradFi and the latter is even riskier than using centralized exchanges: Wrapping tokens basically means you’re depositing your token with a bridge app and getting a representation of your token in return(wBTC). This is all fine and well until the bridge gets hacked, which happens a lot.

For lack of a better phrase, this sucks. The only way to get more Bitcoin is to buy it. You can’t earn interest on what could arguably become the best investment you’ll ever make long term.

This is where Stacks comes in. Stacks is a layer 1 blockchain that runs in parallel with the Bitcoin blockchain. To make things simple: Stacks deploys its own smart contracts while using the security of Bitcoin’s chain to validate its own records/security. I don’t speak code, but you can read more about the technical aspects here.

Stacks has its own token(STX) that is used to pay for transactions on the Stacks blockchain(similar to ETH on Ethereum). The reason Stacks provides an interest earning solution to Bitcoin is because it’s a proof-of-stake chain(sort of, read more here) that pays out rewards in native BTC. Users can ‘Stack’(stake) their STX to earn native BTC rewards on-chain.

This means there IS a way to earn interest on BTC that doesn’t involve being dependent on centralized crypto exchanges or vulnerable bridges who could potentially lose all your money.

So how do you do it?

There are, ironically, crypto exchanges that accept STX deposits and will pay you in Bitcoin(an average of 10% APY). But at #OnCrypto we want to get away from centralization. Running your own STX node pays out rewards, but it’s pretty expensive and requires some set up to designate a BTC address for reward deposits. The entry cost is in the neighborhood of 100,000 STX. Even though STX is trading around 50 cents CAD, that’s still a big upfront cost.

An excellent alternative that’s still on-chain and decentralized is Xverse. Xverse is a Stacks native on-chain wallet that also enables delegated stacking*.* This means you can transfer STX to your Xverse wallet and immediately deposit it to start earning interest with zero BTC address set up in a completely decentralized environment.

The minimum deposit required to delegate stacking on Xverse is 100 STX. In case you missed it, STX is trading at ~50 cents CAD these days. And the average reward APY on Xverse is 8% in BTC. As a bonus, you get exposure to STX price movement the whole time(the ATH during the last bull market was somewhere around $3.00 CAD/token).

And, because Stacks is a programmable chain, there’s plenty of DeFi apps in the works that provide other on-chain, interest bearing opportunities.

A recession is coming in hard and fast. Decentralization is(I believe) good for humanity, and Bitcoin/crypto is a tool to empower the sovereignty of the individual in an increasingly centralized world. Everyone should be able to access BTC and earn interest on their investment. Stacking STX is an excellent method to achieve this without compromising on decentralization.

See you next month.

—

#OnCrypto has one mission: on-board as many people as possible to the ever expanding ecosystem of cryptocurrency and blockchain tech. This isn’t my mission just because I think it’s cool or fun(though it is those things). It has a lot more to do with seeing this as a potentially massive improvement on quality of life for all people. If you’d like to learn more about the crypto space and you do better with one-on-one training and consulting, shoot me a message.

Disclosure: I hold all the assets mentioned in this newsletter and use the majority apps mentioned(with the exception of Compound and Rocketpool). I am not being compensated for promotion: simply highlighting ideas/products that I think are worth pursuing.