Your Bitcoin holds value, but using it for daily expenses often means selling—giving up your position in the world’s best asset. Mezo changes this. Mezo allows you to live bank-free, off your Bitcoin, without ever having to sell it.

Before Mezo, getting cash for your Bitcoin often meant navigating a complicated and unpredictable landscape. Most lending platforms use algorithmic interest rates that change based on market demand. When lots of people want to borrow, rates can spike unexpectedly, making it difficult to manage your costs.

Bitcoin lending has grown from experimental protocols to a $130 billion market. But here's what matters: you can now borrow against your Bitcoin at rates as low as 1% fixed, or earn yield without selling a single satoshi.

This guide breaks down exactly how rates work, who controls them, and how to navigate this market efficiently—including how Mezo's bank-free platform creates a circular Bitcoin economy where your BTC works harder.

The Mechanics Behind Rate Formation

Utilization curves drive most DeFi rates. When few people borrow from a lending pool, rates stay low to attract borrowers. When the pool gets crowded (i.e., 80% borrowed), rates spike to encourage repayments. This creates a self-balancing system that responds to real-time market demand without human intervention.

Oracle inputs determine when liquidations happen. Platforms using DLCs (Discreet Log Contracts) rely on price oracles to determine if a loan is safe. If the BTC price drops and a position falls below its minimum collateralization ratio, the oracle triggers liquidation automatically. For example, Lava’s loans are priced via oracles.

The type of collateral you're using fundamentally alters the rate dynamics you'll experience. The emergence of yield-bearing collateral represents perhaps the most significant innovation in rate formation since the invention of automated market makers. Assets like stBTC and SolvBTC allow users to earn staking or restaking yields on their Bitcoin while simultaneously using it as collateral. This dual productivity creates a new equilibrium where lenders can offer more competitive rates since the collateral itself generates returns, while borrowers benefit from reduced net borrowing costs after accounting for their staking yields.

The rate spectrum today:

• Conservative lending: 5-8% APY
• Yield-optimized strategies: 15-30% APY
• Ordinals/Runes lending (Liquidium): Up to 380% APY
• Best borrowing rates: 4.75% for stablecoins against BTC

Compare this to early 2024's double-digit rates across the board. Competition and capital efficiency have compressed spreads dramatically.

Assessing the Landscape

The Bitcoin lending ecosystem has reached unprecedented scale in 2025, with Total Value Locked (TVL) exceeding $130 billion across all DeFi protocols and the Bitcoin-specific lending market projected to reach $45.6 billion by 2030. This explosive growth reflects a fundamental shift from experimental protocols to institutional-grade infrastructure, with institutional participation jumping from 26% in 2024 to 48% in Q1 2025.

Two things define this market today: where your BTC actually sits and how the USD peg is enforced. If you want native custody with minimal trust, DLC lenders on Bitcoin L1 (e.g., Lava) and L1 minters (e.g., Shell sUSD) keep collateral in UTXOs and use oracle-triggered settlements or mint/burn mechanics.

Mezo’s MUSD is a BTC-backed CDP, designed for predictable cost (e.g., fixed 1%) and over-collateralized safety with automated liquidations. In practice, that gives a straightforward “borrow-against-BTC” path: deposit BTC (via tBTC, 1:1 backed), mint MUSD, spend or deploy it, and keep upside on the BTC you posted.

Compared with utilization-curve pools that spike during stress, a fixed-rate CDP simplifies cash-flow planning while preserving self-custody and avoiding wrapped-asset rehypothecation.

CeFi vs DeFi

In DeFi protocols, rates emerge from transparent, algorithmic mechanisms. Pool-based platforms like Zest Protocol and Avalon Finance implement Aave v3-style automated rate models.  Peer-to-peer platforms like Liquidium take this even further, enabling pure market-driven price discovery where individual lenders and borrowers negotiate terms directly.

This stands in stark contrast to centralized finance approaches, where rates are set by committees, risk teams, or individual decision-makers. The distinction matters because it determines not just pricing but also counterparty risk and transparency.

When THORChain offered native Bitcoin lending with 0% interest, no liquidations, and no expirations—all backed by their native RUNE token—it seemed too good to be true. It was. When RUNE's value collapsed relative to BTC and ETH, the protocol accumulated $210 million in unserviceable debt, forcing a complete suspension of lending operations in January 2025. This catastrophic failure exemplifies the dangers of opaque economic models and the rehypothecation risks inherent in using volatile protocol tokens as collateral.

Native Bitcoin solutions using DLCs represent an attempt to capture the best of both worlds. They eliminate bridge risks and wrapped asset dependencies while maintaining user control of private keys throughout the lending process, though your collateral will sit in a multisig contract. Yet these benefits come with trade-offs. The transparency that makes DeFi protocols auditable also makes them targets. In 2024 alone, $2.2 billion was lost to hacks and exploits—a 21% increase from the previous year. Private key compromises accounted for 43.8% of these thefts, including the record-breaking $1.5 billion ByBit hack in February 2025.

Institutional platforms like Core Chain, which has attracted over $1 billion in TVL, are attempting to bridge this divide by implementing institutional-grade security and compliance frameworks while maintaining algorithmic transparency. They leverage Bitcoin's mining hash power for security through their Satoshi Plus consensus mechanism, creating a hybrid model that appeals to traditional finance players entering the space.

Navigating the Mezo and The Circular Bitcoin Economy

Mezo takes a different path. Instead of complex yield strategies or volatile governance tokens, the platform focuses on one clear value proposition: borrow MUSD at 1% fixed rates against your Bitcoin. No variable rates that spike during volatility. No liquidation surprises from oracle manipulation.

Here's how the circular economy works:

1. Deposit BTC (via tBTC, the 1:1 backed gateway asset)
2. Mint MUSD against your collateral
3. Use MUSD for spending, trading, or yield generation
4. Earn through Vaults while maintaining your Bitcoin position
5. Repay when ready, keeping all BTC price appreciation

The bank-free architecture means you control your keys throughout. No permission needed to access your wealth. No bank hours, no credit checks, no geographic restrictions.

Ready to bank on your terms?

Mezo is built for Bitcoiners who want to maximize the value of their BTC, without giving up control. You can borrow MUSD at just 1% fixed interest against your Bitcoin, maintain full custody of your keys, and never worry about bank restrictions or surprise liquidations. It’s a simple, bank-free way to access liquidity while keeping all your BTC upside intact.

For a step-by-step introduction, check out the Borrow guide to see how you can mint MUSD against your BTC collateral. When you’re ready to put it into action, head over to Mezo’s Explore page to start borrowing and discover Mezo’s Vaults, Pools, and other BitcoinFi opportunities.

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*References to expected yields, APY, or other performance metrics are based on current performance and protocol parameters. Actual returns may be subject to change due to market conditions, protocol governance decisions, and other risk factors. Users are responsible for carrying out their own due diligence before choosing a Vault, and for monitoring any changes made to the Vault over time, particularly those subject to a time lock.