DeFi won’t be long without unlocking Bitcoin’s $ 250 billion treasure chest


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Decentralized funding is a fairly new, nuanced concept for the mainstream audience. At its core, DeFi promises a revamped global financial system equipped with savings, loans, and inventive revenue opportunities that enable innovative financial products without a central gatekeeper. Since January 1, that promise has been fulfilled with demand totaling more than $ 11 billion, up more than 1,550% in value since the start of the year.

DeFi applications require the on-chain logic of smart contracts. Nowadays there is a lot of experimentation in the Ethereum ecosystem with the JavaScript-like language Solidity and early work for DeFi applications.

Connected: Programming languages ​​used in blockchain, explained

As we’ve seen Ethereum-backed projects like Uniswap, Aave, and Compound advocating the DeFi space, the community is beginning to show signs of a demand for solutions that include Bitcoin (BTC).

Bitcoin is the largest digital asset by market capitalization, but remains largely a passive asset. In order to actively provide Bitcoin in DeFi products, custodians like BitGo have started tokenize Wrapped Bitcoin (WBTC). Wrapped Bitcoin takes the value of Bitcoin and combines it with the programmability of Ethereum, so investors can get additional returns on their Bitcoin investments without cashing out. In the past two months alone, more than $ 1 billion worth of WBTC has been added to the Ethereum network, indicating a demand for Bitcoin as an actively used financial asset.

Put Bitcoin into DeFi orbit

Bitcoin is the strongest sovereign blockchain and is well on its way to becoming the world’s first truly sovereign currency. Bitcoin has the most robust blockchain security and most popular name recognition. Currently, the use of BTC in DeFi is at a very early stage.

There are two ways Bitcoin can be used in DeFi products: wrapped representations of BTC can be used on separate blockchains (like WBTC on Ethereum), or native smart contracts can get into the Bitcoin blockchain itself. Creating DeFi products directly on Bitcoin makes sense in practice, but is difficult due to Bitcoin’s limited scripting language and concerns about scalability. Bitcoin has traditionally been viewed as a medium of exchange and a store of value. However, the recent move from Bitcoin to Ethereum as a packaged asset signals market demand for BTC in DeFi. In doing so, people find unique, albeit unnatural and potentially dangerous ways of doing this.

Bitcoin’s limited scripting language has long been seen as a feature rather than a bug as it keeps the base blockchain secure. Smart contract logic can be added via Bitcoin via sidechains like Liquid, connected chains like Stacks, or merged-mined chains like RSK. Moving BTC from the main Bitcoin chain to such neighboring chains can be easier and safer than spending packaged assets on separate chains.

Bitcoin as active capital

To fully fill this void, Bitcoin must go through the process of converting from a passive asset to an active, return-generating asset. One hurdle is the tribal nature of cryptocurrency users. Many bitcoiners do not recognize wrapped bitcoin as bitcoin. In my opinion, this is because Bitcoiners and the Ethereum community share different philosophies.

Ethereum created a culture that celebrates experimentation and testing in production. However, daring experimentation is not a trait that bitcoiners share. Bitcoiners are naturally cautious, sane skeptics who are careful not to lose their assets. Wrapped Bitcoin is one of several DeFi innovations that create danger by blending these two philosophies. Integrating a valuable asset like Bitcoin into a smart contract like an ERC-20 token that shares the security features of Ethereum can be an uncomfortable concept for Bitcoin holders. There should be a safer solution to getting BTC into orbit from DeFi.

When we see the opportunity to build on Bitcoin, we see a future where Bitcoin continues to be the king of blockchains. As DeFi continues to grow, it is entirely possible that Bitcoin will remain the focus for crypto, and that smart contracts around Bitcoin will inherently unlock innovation and Bitcoin capital of $ 250 billion.

The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Muneeb Ali, a Ph.D. The Princeton University graduate is the co-founder of Blockstack, a project to build a user’s own Internet. He is also the CEO of Blockstack PBC, a not for profit that has raised more than $ 75 million to develop the core protocols for Blockstack.