When Will Bitcoin Join the DeFi Revolution?

As of early February, more than $1 billion U.S. dollars of assets reside in decentralized finance protocols, commonly called DeFi protocols. DeFi protocols and platforms offer crypto holders sophisticated financial tools that were unavailable to them just a year or two prior, but the rapid evolution and speedy adoption of DeFi has left some observers wondering about the ecosystem’s future.

Skeptics and supporters alike want to know when Bitcoin (BTC) — the first and most popular cryptocurrency — will receive adequate DeFi support. Decentralized finance with Bitcoin is on the way, but there are good reasons that it’s relatively late to the market.

Related: Decentralized Finance, Explained

Bitcoin, as any longtime cryptocurrency trader knows, suffers limitations in terms of speed and transaction fees. There’s a long history of people attempting to extend the capabilities of the Bitcoin blockchain, but today, more and more are developing cross-chain solutions that move Bitcoin onto other chains for use in DeFi. One such protocol, Wrapped Bitcoin, has many strengths, but still requires third-party-intervention and Know Your Customer checks for its users. While some may accept these tradeoffs as necessary for doing business, others will conclude that such concessions are overly centralizing and contrary to the spirit of crypto.

Related: Bitcoin Scaling Problem, Explained

The tBTC protocol also looks promising, taking inspiration from protocols such as Maker and uses bonded deposits to secure Bitcoin on other chains. Ensuring that the decentralized custodians are properly incentivized to keep the system running smoothly while providing “no KYC, no middlemen.” It remains in early days, however, and there are substantial limits to its current feasibility. To take an obvious example, the project’s website acknowledges that for the moment, “deposits are only possible in fixed-sized lots of 1 Bitcoin.” While there are compelling reasons for this limit, tBTC…

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