You've wrapped your Bitcoin into cbBTC. Now what? Since launching in September 2024, cbBTC has grown to capture 25% of the wrapped Bitcoin market. This piece skips the basics (see our cbBTC beginner's guide for those) and focuses on where to actually deploy cbBTC across DeFi protocols, step-by-step yield strategies, and when native Bitcoin lending through Chainflip offers a better path.
Where cbBTC Shines: Protocol-Specific Workflows
Aave V3: Borrow Against cbBTC
Aave V3 supports cbBTC on Base and Ethereum mainnet, with Arbitrum deployment also available. The workflow is straightforward: deposit cbBTC as collateral, borrow stablecoins against it, and maintain your Bitcoin exposure while accessing liquidity.
Typical LTV sits around 70-75%, meaning $10,000 in cbBTC lets you borrow roughly $7,000-$7,500 in USDC. You'll pay variable interest on the borrowed amount, which fluctuates based on pool utilization.
Compound Finance: Earn Supply Yield
Compound supports cbBTC lending and borrowing, allowing you to earn yield by supplying cbBTC to the protocol. Borrowers pay interest to access your cbBTC, and you collect a portion of that as the supplier.
Supply yields vary with demand. During high-utilization periods, rates climb. During quiet markets, they compress. Check current rates before committing.
Morpho: Institutional-Grade Lending
Morpho has emerged as a major cbBTC destination. Over $1 billion in cbBTC-backed loans have been originated through Morpho, with over $1.3 billion in USDC borrowing collateralized primarily by cbBTC. This makes it one of the largest venues for Bitcoin-backed DeFi lending.
Uniswap and DEX Liquidity Provision
Providing liquidity to cbBTC pairs (cbBTC/ETH, cbBTC/USDC) on Uniswap or other DEXs earns trading fees. The trade-off is impermanent loss risk: if cbBTC's price moves significantly relative to the paired asset, you may end up with less value than holding both assets separately.
Concentrated liquidity positions amplify both fee earnings and IL risk. Wide ranges reduce IL but capture fewer fees. Match your range to your market thesis.
Step-by-Step: A cbBTC Yield Strategy
Here's a practical workflow for earning yield on cbBTC through Aave on Base:
Bridge cbBTC to Base (if not already there) via the Coinbase app or a cross-chain bridge
Connect your wallet to Aave V3 on Base
Supply cbBTC to the lending pool
Optionally borrow USDC against your cbBTC position
Deploy borrowed USDC to a stablecoin yield strategy
This creates a layered yield stack: you earn supply interest on cbBTC while potentially earning additional yield on borrowed stablecoins. Watch your health factor. If cbBTC drops, your position moves toward liquidation.
cbBTC vs Native BTC: Use Case Comparison
Not every Bitcoin DeFi activity requires wrapping. Here's when each path makes sense:
Borrowing Against Bitcoin
cbBTC route: Wrap BTC to cbBTC, deposit on Aave/Compound/Morpho, borrow stablecoins. You face custodial risk (Coinbase holds the backing BTC), gas costs for wrapping and transactions, and potential taxable events from the wrap itself.
Native BTC route: Chainflip Lending accepts native Bitcoin as collateral directly. Deposit BTC from your Bitcoin wallet, borrow USDC or USDT on Ethereum. No wrapping, no taxable conversion event, no centralized custodian holding your backing asset. Chainflip offers up to 80% LTV with utilization-based rates.
Verdict: For borrowing, native BTC through Chainflip removes the wrapping step and custodial dependency. If you already hold cbBTC, using it on Aave or Morpho avoids unwrapping friction.
Earning Yield on Bitcoin
cbBTC route: Supply to Compound or Aave to earn variable lending yield. Yields depend on borrower demand for cbBTC specifically.
Native BTC route: Chainflip's Boost lets you provide single-sided BTC liquidity and earn swap fees without impermanent loss risk. Alternatively, supply stablecoins to Chainflip's yield strategies and earn optimized returns.
Verdict: cbBTC lending yield is straightforward but requires trust in Coinbase custody. Native BTC options preserve your asset's original form.
Liquidity Provision
cbBTC route: LP on Uniswap, Curve, or other DEXs. You'll need to pair with another asset and accept IL risk.
Native BTC route: Provide liquidity on Chainflip to earn from the protocol's cross-chain swap volume (over $8.56B all-time). BTC pairs directly with other assets in Chainflip's AMM pools.
Verdict: Both involve LP mechanics. cbBTC gives access to Ethereum's deep DEX ecosystem. Native BTC on Chainflip avoids the wrap but trades in a smaller (growing) market.
Cross-Chain Swaps
cbBTC route: In Q3 you can swap cbBTC through Chainflip to access native assets on other chains. If you're holding cbBTC and want SOL, DOT, or native ETH, Chainflip routes it without requiring you to unwrap first.
Native BTC route: Swap native BTC directly through Chainflip to any supported asset. No wrapping needed at any point.
Verdict: Chainflip supports both paths. Use whichever matches what you're already holding.
When to Choose Each Path
Choose cbBTC when:
You already hold cbBTC and want to avoid unwrapping costs
You need access to Ethereum-native DeFi protocols that don't support native BTC
You're comfortable with Coinbase custodial risk
Choose native BTC when:
You want to borrow without wrapping or creating a taxable event
You prefer decentralized custody secured by validators rather than a centralized custodian
You're starting from native BTC and want the simplest path to DeFi access
Both paths have legitimate use cases. The practical question is what you're holding now and what friction you're willing to accept. For a deeper look at why DeFi needs native Bitcoin and the trade-offs of wrapped alternatives, that piece covers the structural arguments.
cbBTC has carved out a significant role in Bitcoin DeFi. Understanding exactly where to deploy it, and when native BTC offers a cleaner path, lets you make the choice that fits your actual situation rather than defaulting to whatever's familiar.
Resources
Swap - Start swapping native assets
Lending - Borrow against native Bitcoin
Blog - Product updates and announcements
Chainflip Scan - Track swaps and network activity
Website - Explore Chainflip
Earn with Chainflip:
Boost - Earn fees by providing single-sided liquidity with no IL risk
Stablecoin Strategies - Deposit stablecoins and earn optimized yields
Provide Liquidity - Supply assets to Chainflip's liquidity pools
Stake FLIP - Delegate FLIP and earn staking rewards
Find us:
Can I use cbBTC as collateral on Chainflip?
No. Chainflip Lending accepts native Bitcoin on the Bitcoin chain as collateral, not wrapped versions like cbBTC or wBTC. If you hold cbBTC, you can swap it through Chainflip, but borrowing requires native BTC.
What's the main advantage of using cbBTC in DeFi vs native BTC?
cbBTC gives you direct access to Ethereum-native protocols like Aave, Compound, and Uniswap without needing specialized infrastructure. The trade-off is custodial risk (Coinbase holds the backing BTC) and potential tax implications from wrapping.
Which DeFi protocols support cbBTC?
Major protocols include Aave V3 (on Base, Ethereum, and Arbitrum), Compound Finance, and Morpho. DEXs like Uniswap support cbBTC liquidity provision. The ecosystem continues expanding as cbBTC adoption grows.
Is wrapping BTC to cbBTC a taxable event?
In many jurisdictions, wrapping BTC may be treated as a taxable disposal. Consult a tax professional for your specific situation. Native BTC lending on Chainflip avoids the wrap entirely, potentially sidestepping this issue.
Can I swap cbBTC to native assets on other chains?
Yes. Chainflip supports cbBTC swaps to native assets across supported chains including Bitcoin, Ethereum, Solana, Polkadot, Arbitrum, and more. This lets cbBTC holders access native assets without manually unwrapping first.
