The decentralized finance (DeFi) ecosystem continues to attract billions of dollars from cryptocurrency enthusiasts. Though the term “decentralized finance” could certainly apply directly to Bitcoin in and of itself, the growth of the DeFi industry lately refers to an umbrella of projects, mostly based on Ethereum smart contracts, that support cryptocurrency-based lending, prediction markets or other financial services.
While the emphasis on Ethereum may make it seem as if Bitcoin and DeFi don’t mix, some intriguing initiatives to merge the two do exist. However, those services will require some modifications to make them more appealing to those who use Bitcoin.
The State Of DeFi Services For Bitcoin
As the world’s leading cryptocurrency, everyone has to ask themselves if bitcoin can even benefit from newer DeFi applications. More specifically, can Bitcoin benefit from innovations being forged by the DeFi projects that the market seems to currently favor? With options such as yield generated on cryptocurrency lending and borrowing offering some potential, it seems worth exploring. But integrating BTC into these decentralized finance use cases has proven challenging.
Thanks to projects like RSK, DeFiChain and Sovryn, it is now possible for Bitcoin users to access decentralized finance solutions. There’s also Liquid by Blockstream, a sidechain that one can use to obtain L-USDT assets with bitcoin holdings and explore DeFi through services like Hodl Hodl. Through this platform, users are able to lend and borrow cryptocurrency in a non-custodial way: borrowers deposit bitcoin as collateral, which is repaid once the borrowed money is paid back in full.
As innovative or appealing as these services may appear, some still require users to wrap their bitcoin holdings (through “wrapped bitcoin,” users create an ERC-20 token with a one-to-one peg to BTC, with both assets being interchangeable), which many see as an…