Bitcoin DeFi May Be Unstoppable, What Does It Look Like?

One of the quietest yet best-funded bitcoin companies in the world is gearing up to enter the 2020 decentralized finance (DeFi) bull run.

In July the DG Lab conglomerate, which like Ethereum powerhouse ConsenSys includes both an investment arm and an adjacent software company, open sourced its proposal for self-sovereign derivatives trading on the Bitcoin blockchain, using the Lightning Network.

These contracts turn bitcoin, the asset itself, into programmable money capable of a wider variety of functions.

This offers a stark contrast to the typical DeFi approach so far, which relies on “wrapped” representations of bitcoin or exchange platforms. The Silicon Valley startup cLabs recently acquired DeFi firm Summa, which spearheaded the bitcoin-on-Ethereum approach. Now it looks as though DG Lab, founded in 2015, is the leading incumbent exploring DeFi opportunities for Bitcoin.

Read more: These Bitcoin Users Want DAI and DeFi – Here’s How They Plan to Get It

“I’ve been working on a proposal to integrate DLC [Discreet Log Contracts] and channels into the Lightning Network,” DG Lab researcher Ichiro Kuwahara said of his recent work. “We can establish many contracts without broadcasting transactions on the blockchain.”

This software uses the Lightning Network to execute business logic without clogging up the base-layer blockchain. The hottest trend among Bitcoin veterans these days is imagining DeFi functionality applied to the bitcoin currency through such layers. There are many opinions on how to approach this opportunity, from DLC to soft forks.

Competition

Not everyone agrees on how to use Lightning for smart contracts.

Bitcoin veteran Jeremy Rubin, who launched his Judica startup this summer, believes Blockstream’s Liquid Network, which companies like Crypto Garage use to experiment with such smart contracts, overcomplicates the construction.

“I think we can do it much simpler. … It’s solvable on-chain but can be done in…

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