Using Bitcoin-Backed Loans to Acquire Stablecoins (DAI)

Borrow against Bitcoin to access DAI liquidity without selling.

Introduction

One of the most common challenges for Bitcoin holders is how to access liquidity without selling their BTC. In times of volatility, borrowing against Bitcoin to obtain stablecoins like DAI can provide immediate purchasing power while preserving long-term upside.

By using a Bitcoin-collateralized loan to mint or acquire DAI, borrowers gain stability in the short term and retain exposure to Bitcoin’s long-term appreciation.

Risks and Mitigations

Collateral volatility

Use conservative loan-to-value ratios and keep extra BTC on hand.

Stablecoin de-peg

Diversify or convert to fiat quickly if needed.

Smart contract or platform risk

Choose audited protocols and spread exposure.

Interest rate fluctuations

Fix rates when possible and monitor governance decisions.

Why This Works

Preserves Bitcoin upside: The borrower never sells their BTC, keeping exposure to long-term appreciation.

Access to liquidity: Immediate spending power in a stable medium, suitable for expenses or investments.

Self-repaying potential: If Bitcoin appreciates faster than interest, the collateral’s value growth can offset the debt.

Decentralized stability: DAI is governed by a decentralized system, aligning with Bitcoin’s ethos.

Example Scenario

A borrower deposits $20,000 worth of BTC into a collateralized loan.

They borrow $5,000 worth of DAI at a 25% LTV.

Over 2 years, BTC doubles in value to $40,000.

The debt in DAI remains $5,000 plus interest, dropping the LTV to about 12.5%.

The borrower repays easily, reclaims their BTC, and the appreciation effectively covers the loan cost.

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