DeFi

Top 5 Intriguing Ways RWATs (Real-World Asset Tokens) Can Stabilize DeFi

Published

8 months ago

27 May, 2024

RWATs DeFi Is Thriving In The Digital Age

Decentralized Finance (DeFi) has revolutionized the financial landscape, offering innovative lending, borrowing, and trading opportunities. However, DeFi currently faces a significant challenge – volatility. The value of DeFi assets, primarily cryptocurrencies, can fluctuate dramatically, leading to potential risks for users. Here’s how real-world asset tokens (RWATs) can act as a stabilizing force in the DeFi

The Volatility Challenge in DeFi

DeFi protocols are often built on native tokens or other cryptocurrencies. While these offer decentralization and innovation, their inherent volatility can lead to:

Liquidation Risks: In lending protocols, sudden price drops can trigger loan liquidations, forcing users to sell their assets at a loss.
Investor Uncertainty: High volatility discourages some traditional investors from entering the DeFi space, hindering its overall growth and adoption.
Market Manipulation: Volatile markets are more susceptible to manipulation by large holders, posing a risk to smaller investors.

Unveiling the Potential: A Deep Dive into Real-World Asset Tokens (RWATs)

The world of finance is on the cusp of a transformative era, fueled by the innovative power of blockchain technology. Enter Real-World Asset Tokens (RWATs), a revolutionary concept that bridges the gap between traditional assets and the decentralized world of cryptocurrency. Let’s delve deeper into this exciting realm, exploring the intricacies of RWATs and their potential to reshape the financial landscape.

At its core, an RWAT represents a digital claim on a real-world asset. This asset can be tangible, like real estate, artwork, or commodities, or intangible, like intellectual property or even a fraction of a company. Imagine a piece of valuable artwork owned by a gallery. Through tokenization, this artwork can be represented by RWATs, essentially creating digital units of ownership that can be traded on a blockchain platform.

Unlocking New Possibilities: The Benefits of RWATs

The tokenization of real-world assets offers a myriad of benefits for both asset owners and investors:

Increased Liquidity: Traditionally illiquid assets like real estate or fine art become more accessible through RWATs. Imagine a high-value property that would typically require a large sum of money to invest in. By tokenizing the property, it can be divided into smaller, more manageable RWATs, allowing a wider pool of investors to participate.
Fractional Ownership: RWATs enable fractional ownership of assets, allowing individuals to invest in previously inaccessible assets. Imagine a high-priced piece of intellectual property. By tokenizing it, investors can purchase smaller fractions of ownership, spreading the investment cost and democratizing access to valuable assets.
Enhanced Efficiency: The use of blockchain technology streamlines processes associated with asset ownership and transfer. Imagine the cumbersome paperwork and legal fees involved in selling a piece of real estate. RWATs eliminate these inefficiencies by creating a secure and transparent record of ownership on a blockchain, facilitating faster and cheaper transactions.
Global Investment Opportunities: RWATs open doors to a global investor base. Imagine a piece of real estate in a remote location. By tokenizing it, investors from all over the world can participate in the ownership, eliminating geographical restrictions and fostering a more inclusive investment landscape.
Programmable Features: Smart contracts, self-executing contracts on the blockchain, can be attached to RWATs, enabling features like automated dividend distribution or voting rights for token holders. Imagine owning RWATs representing a company. Smart contracts could be programmed to automatically distribute a portion of the company’s profits to token holders at predetermined intervals.

Top 5 Intriguing Ways Real-World Asset Tokens (RWATs) Can Stabilize DeFi: Building Bridges of Stability

The world of Decentralized Finance (DeFi) pulsates with innovation and disruption. However, the inherent volatility of cryptocurrencies poses a significant challenge to mainstream adoption. Enter Real-World Asset Tokens (RWATs) – a potential game-changer that can introduce stability and broaden the horizons of the DeFi ecosystem. Here’s a deep dive into the top 5 intriguing ways RWATs can stabilize DeFi:

1. From Crypto Rollercoaster to Stable Shores: Diversification Through Real-World Assets

DeFi currently relies heavily on crypto-native assets, exposing users to the volatile swings of the cryptocurrency market. RWATs, representing real-world assets like real estate, commodities, or even precious metals, offer a diversification opportunity. Imagine a DeFi user with a portfolio solely invested in cryptocurrencies. By incorporating RWATs, they can diversify their holdings with assets that exhibit lower volatility, potentially mitigating overall portfolio risk and creating a more stable investment environment.

2. Harnessing Collateralized Stability: Unlocking Borrowing Power with RWATs

RWATs can act as collateral for loans within DeFi protocols. Imagine a user holding RWATs representing a piece of real estate. They could use these tokens as collateral to borrow a stablecoin on a DeFi platform, unlocking additional liquidity without selling the underlying asset. This injects stability into the system by creating a more diverse pool of collateral options for borrowers, potentially leading to more stable interest rates and borrowing terms.

3. Bridging the Gap to Traditional Finance: Attracting Institutional Investors with Stability

The volatility of cryptocurrencies discourages many institutional investors from entering the DeFi space. However, RWATs offer a bridge between the two worlds. Assets like tokenized real estate or commodities offer a level of familiarity and stability that can attract institutional investors. This influx of capital can bring greater liquidity and stability to DeFi protocols, benefiting all participants. Imagine a large investment firm hesitant to invest in DeFi due to the volatility. By incorporating RWATs, DeFi becomes a more attractive investment proposition, fostering growth and stability within the ecosystem.

4. Innovation Through Hybrid Stablecoins: RWAT-Backed Stability with Crypto Agility

RWATs can be used to create innovative hybrid stablecoins. Imagine a stablecoin pegged to the value of a basket of RWATs, such as real estate and precious metals. This stablecoin would benefit from the stability of real-world assets while retaining the fungibility and transferability characteristics of cryptocurrencies. These hybrid stablecoins can introduce more stability to DeFi by offering users a reliable store of value within the ecosystem, potentially mitigating the impact of market fluctuations.

5. Unlocking New Investment Opportunities: Structured Products with Reduced Risk

The integration of RWATs opens doors for the creation of structured products within DeFi. These products can offer various risk-return profiles, catering to a wider range of investors. Imagine a DeFi platform offering investment products that combine RWATs with cryptocurrencies, allowing users to create customized portfolios with varying levels of risk and potential returns. This innovation can attract new investors seeking stability and potentially lead to a more mature and diversified DeFi ecosystem.

Also, read – Top 10 Amazing Potential of Real-World Assets in DeFi: Clearing All The Hype vs. Reality

Challenges and Considerations: Navigating the Evolving Landscape of RWATs for DeFi Stability

Crash Market Shiba Inu (Shib) Tether Ripple

While Real-World Asset Tokens (RWATs) offer a compelling vision for stabilizing DeFi, there are significant challenges to consider before they can fully realize their potential. Here’s a closer look at the key hurdles that need to be addressed:

1. Regulatory Uncertainty: A Labyrinth of Legal Frameworks

The regulatory landscape surrounding RWATs remains murky. Governments are still grappling with how to classify and regulate these new financial instruments. This uncertainty creates a barrier for traditional financial institutions hesitant to enter the DeFi space due to potential regulatory compliance issues. Imagine a large bank considering offering RWAT-based services on a DeFi platform. Without clear regulations, they might be hesitant to move forward, hindering the integration of traditional finance and DeFi.

2. Valuation Hurdles: Determining the True Worth of RWATs

Accurately valuing RWATs, particularly those representing unique or illiquid assets like fine art or private equity, can be complex. Unlike publicly traded stocks with readily available market data, RWAT valuation often relies on appraisals or subjective assessments. This lack of a standardized and transparent valuation process can create uncertainty for investors and potentially lead to market inefficiencies within DeFi.

3. Security Concerns: Bridging the Gap Between Physical and Digital

Ensuring the security of both the underlying real-world assets and the blockchain platform where RWATs reside is paramount. Imagine a scenario where a security breach compromises the digital representation of a real-world asset on the blockchain. This could lead to a loss of investor confidence and disrupt the stability of DeFi protocols. Robust security measures are crucial to foster trust and mitigate the risks associated with bridging the physical and digital worlds through RWATs.

4. Liquidity Challenges: Creating Deep and Active Markets

While RWATs aim to improve asset liquidity, creating a deep and active market for all tokenized assets can be difficult. Imagine a DeFi platform offering RWATs representing a niche asset class like vintage cars. If the trading volume for these RWATs is low, it can be challenging for users to enter or exit their positions quickly, potentially hindering the overall liquidity of the DeFi ecosystem.

5. Counterparty Risk: The Importance of Trustworthy Custodians

When RWATs represent physical assets, there’s a need for secure and reliable custodians to safeguard the underlying assets. Imagine a scenario where the custodian responsible for storing a piece of real estate represented by RWATs goes bankrupt or mismanages the asset. This can lead to significant losses for investors and erode trust in the RWAT ecosystem. Careful selection and rigorous oversight of custodians are essential to mitigate counterparty risk and ensure the stability of RWATs within DeFi.

A Collaborative Effort for a Stable Future

Despite the challenges, RWATs hold immense potential to usher in a new era of stability and growth for DeFi. By addressing the regulatory hurdles, developing standardized valuation methods, implementing robust security measures, fostering deeper liquidity, and ensuring reliable custodianship, RWATs can truly become the bridge between the traditional and decentralized financial worlds. This requires a collaborative effort from governments, regulators, DeFi developers, and traditional financial institutions. By working together, we can navigate these challenges and unlock the transformative potential of RWATs, paving the way for a more stable and inclusive DeFi ecosystem.

The Road Ahead: A Collaborative Path to DeFi Stability with RWATs

The potential for Real-World Asset Tokens (RWATs) to revolutionize DeFi by introducing stability and attracting new participants is undeniable. However, as we’ve explored, there are significant challenges that need to be addressed. Here’s a roadmap outlining a collaborative approach to navigate these hurdles and pave the way for a more stable DeFi future with RWATs:

1. Building Bridges with Regulators: Fostering Open Dialogue

Industry Initiatives: DeFi developers and blockchain companies can work together to establish industry standards for RWAT creation, trading, and custody.
Regulatory Clarity: Engaging in open dialogue with regulatory bodies to advocate for clear and comprehensive regulations for RWATs, fostering innovation while mitigating potential risks.
Pilot Programs: Collaborating with regulators on pilot programs that explore the use of RWATs in a controlled environment, providing valuable data to inform future regulations.

2. Standardization for Stability: Creating a Unified Approach

Valuation Frameworks: Developing standardized valuation methodologies for RWATs based on asset class, ensuring transparency and fair market pricing within DeFi.
Data Sharing and Transparency: Encouraging collaboration between DeFi platforms and traditional financial institutions to share relevant data and create a more holistic view of RWAT valuation.
Independent Audits: Regular independent audits of RWAT platforms and custodians to ensure the security and integrity of the underlying assets and the blockchain infrastructure.

3. Security by Design: Building Trustworthy Infrastructure

Blockchain Security: Leveraging cutting-edge blockchain security protocols and conducting regular penetration testing to identify and address potential vulnerabilities.
Smart Contract Audits: Rigorous audits of smart contracts associated with RWATs to minimize the risk of bugs or exploits that could compromise user funds.
Decentralized Custody Solutions: Exploring decentralized custodian models that leverage blockchain technology to enhance security and transparency while mitigating counterparty risk.

4. Liquidity Innovation: Building Deep and Active Markets

Market Makers: Incentivizing market makers to provide liquidity for RWATs, especially for those representing less common asset classes.
Secondary Market Integration: Exploring integration with secondary markets for traditional assets, allowing DeFi users to benefit from existing liquidity pools.
Fractionalization Strategies: Strategically fractionalizing RWATs to make them more accessible to a wider range of investors, potentially increasing trading volume and liquidity.

5. Collaboration is Key: A Multi-Stakeholder Approach

DeFi-Traditional Finance Partnerships: Encouraging partnerships between DeFi platforms and traditional financial institutions to leverage their expertise in asset custody, valuation, and risk management.
Academia and Research: Fostering collaboration between academia and the DeFi industry to conduct research on RWATs and their impact on the financial landscape.
Community Building: Building a strong and inclusive DeFi community that actively participates in discussions and developments surrounding RWATs.

Conclusion: A Brighter Future for DeFi

By embracing these collaborative strategies, we can unlock the true potential of RWATs to stabilize DeFi and usher in a new era of financial inclusion and opportunity. With clear regulations, standardized practices, robust security measures, and deeper liquidity, RWATs can bridge the gap between traditional and decentralized finance, creating a more stable and accessible financial system for all. The road ahead requires dedication and collaboration, but the potential rewards are immense. By working together, we can transform DeFi into a powerful engine for financial innovation and empowerment, with RWATs serving as the cornerstone of a more stable and inclusive financial future.

Fuente

DeFi

Haust Network Partners with Gateway to Connect to AggLayer

Published

6 months ago

1 August, 2024

Financial Block Staff

Haust Network Partners with Gateway to Connect to AggLayer

Dubai, United Arab Emirates, August 1, 2024, Chainwire

Consumer adoption of cryptocurrencies is a snowball that is accelerating by the day. More and more people around the world are clamoring for access to DeFi. However, the user interface and user experience of cryptocurrencies still lag behind their fundamental utility, and users lack the simple and secure access they need to truly on-chain products.

Haust Network is a network and suite of products focused on changing this paradigm and bringing DeFi to the masses. To achieve this goal, Haust Network has announced its far-reaching partnership with bridgeseasoned veterans in rapidly delivering revolutionary blockchain utilities for projects. The Gateway team empowers blockchain developers to build DAOs, NFT platforms, payment services, and more. They drive adoption of crypto primitives for individuals and institutions around the world by helping everyone build their on-chain presence.

Gateway specializes in connecting sovereign blockchains to the Aggregation Layer (AggLayer). The AggLayer is a single unified contract that powers the Ethereum bridge of many disparate blockchains, allowing them all to connect to a single unified liquidity pool. The AggLayer abstracts away the complexities of cross-chain DeFi, making tedious multi-chain transactions as easy for the end user as a single click. It’s all about creating access to DeFi, and with Polygon’s technology and the help of Gateways, Haust is doing just that.

As part of their partnership, Gateway will build an advanced zkEVM blockchain for Haust Network, leveraging its extensive experience to deploy ultra-fast sovereign applications with unmatched security, and enabling Haust Network to deliver its products to its audience.

The recently announced launch of the Haust Wallet is a Telegram mini-app that provides users with access to DeFi directly through the Telegram interface. Users who deposit funds into the wallet will have access to all standard send/receive services and generate an automatic yield on their funds. The yield is generated by Haust Network’s interconnected network of smart contracts, Haustoria, which provides automated and passive DeFi yielding.

As part of this partnership, the Haust Network development team will work closely with Gateway developers to launch Haust Network. Gateway is an implementation provider for Polygon CDK and zkEVM technology, which the Haust wallet will leverage to deliver advanced DeFi tools directly to the wallet users’ fingertips. Haust’s partnership with Gateway comes shortly after the announcement of a high-profile alliance with the Polygon community. Together, the three will work to build Haust Network and connect its products to the AggLayer.

About Haust Network

Haust Network is an application-based absolute liquidity network and will be built to be compatible with the Ethereum Virtual Machine (EVM). Haust aims to provide native yield to all users’ assets. In Telegram’s Haust Wallet, users can spend and collect their cryptocurrencies in one easy place, at the same time. Haust operates its network of self-balancing smart contracts that interact across multiple blockchains and then efficiently funnel what has been generated to Haust users.

About Gateway

bridge is a leading white-label blockchain provider that offers no-code protocol deployment. Users can launch custom blockchains in just ten minutes. They are an implementation provider for Polygon CDK and have already helped projects like Wirex, Gnosis Pay, and PalmNFT bring new utility to the crypto landscape.

About Polygon Labs

Polygon Laboratories Polygon Labs is a software development company building and developing a network of aggregated blockchains via the AggLayer, secured by Ethereum. As a public infrastructure, the AggLayer will aggregate the user bases and liquidity of any connected chain, and leverage Ethereum as the settlement layer. Polygon Labs has also contributed to the core development of several widely adopted scaling protocols and tools for launching blockchains, including Polygon PoS, Polygon zkEVM, and Polygon Miden, which is currently under development, as well as the Polygon CDK.

Contact

Lana Kovalski
haustnetwork@gmail.com

Fuente

DeFi

Ethena downplays danger of letting traders use USDe to back risky bets – DL News

Published

6 months ago

1 August, 2024

Financial Block Staff

Ethena downplays danger of letting traders use USDe to back risky bets – DL News

Ethena and ByBit will allow derivatives traders to use USDe as collateral.
There is a risk in letting traders use an asset partially backed by derivatives to place more bets.

Ethena has downplayed the dangers of a new feature, which will allow traders to put up its synthetic dollar USDe as collateral when trading derivatives, which are risky bets on the prices of crypto assets.

While allowing users to underwrite their trades with yield-bearing USDe is an attractive prospect, Ethena said there is potential risk in letting traders use an asset partially backed by derivatives to place even more derivatives bets.

“We have taken this risk into account and that is why Ethena operates across more than five different sites,” said Conor Ryder, head of research at Ethena Labs. DL News.

The move comes as competition in the stablecoin sector intensifies.

In recent weeks, PayPal grown up the amount of its stablecoin PYUSD in circulation 96%, while the MakerDAO cooperative plans a rebrandingaiming to increase the supply of its DAI stablecoin to 100 billion.

US dollar growth stagnates

It comes as Ethena has lost momentum after its blockbuster launch in December.

In early July, USDe reached a record level of 3.6 billion in circulation.

That figure has now fallen by 11% to around 3.2 billion.

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New uses for USDe could boost demand for Ethena’s products.

This is where the new plan, announcement Tuesday with ByBit, one of its partner exchanges, is coming.

Ethena users create USDe by depositing Bitcoin or Ether into the protocol.

Ethena then covers these deposits with short positions – bearish bets – on the corresponding asset.

This creates a stable support for USDe, unaffected by price fluctuations in Bitcoin or Ether.

Mitigate risks

While using USDe as collateral for derivatives trading is proving popular, it is unclear what the effects will be if the cryptocurrency market experiences major fluctuations.

Using derivatives as collateral to place more bets has already had disastrous effects.

In June 2022, Lido’s liquid staking token stETH broke its peg to Ether following the fallout from the Terra collapse.

Many traders who used looping leverage to increase their stETH staking yields were liquidated, creating a cascade that caused the price of Ether to drop by more than 43%.

Ethena Labs founder Guy Young said: DL News His office and his partners have taken many precautions.

Ethena spreads bearish bets supporting the USDe across the five exchanges it partners with.

According to Ethena, 48% of short positions supporting USDe are on Binance, 23% on ByBit, 20% on OKX, 5% on Deribit, and 1% on Bitget. website.

In doing so, Ethena aims to minimize the impact of an unforeseen event on a stock market.

The same theory applies to the distribution of risks across different supporting assets.

Fifty percent of USDe is backed by Bitcoin, 30% by Ether, 11% by Ether liquid staking tokens, and 8% by Tether’s USDT stablecoin.

Previous reviews

Ethena has already been criticised regarding the risks associated with USDe.

Some have compared USDe to TerraUSD, an undercollateralized stablecoin that collapsed in 2022.

“It’s not a good design for long-term stability,” said Austin Campbell, an assistant professor at Columbia Business School. said as the USDe launch approaches.

Young replied to critics, saying the industry needs to be more diligent and careful when “marketing products to users who might not understand them as well as we do.”

Ethena has since added a disclaimer on its website stating that USDe is not the same as a fiat stablecoin like USDC or USDT.

“This means that the risks involved are inherently different,” the project says on its website.

Tim Craig is DL News DeFi correspondent based in Edinburgh. Feel free to share your tips with us at tim@dlnews.com.

Fuente

DeFi

Cryptocurrency and defi firms lost $266 million to hackers in July

Published

6 months ago

1 August, 2024

Financial Block Staff

Crypto companies, defi lost $266m to hackers in July

In July 2024, the cryptocurrency industry suffered a series of devastating attacks, resulting in losses amounting to approximately $266 million.

Blockchain Research Firm Peck Shield revealed in an X post On August 1, attacks on decentralized protocols in July reached $266 million, a 51% increase from $176 million reported in June.

The most significant breach last month involved WazirX, one of India’s largest cryptocurrency exchanges, which lost $230 million in what appears to be a highly sophisticated attack by North Korean hackers. The attack was a major blow to the stock market, leading to a break in withdrawals. Subsequently, WazirX launched a program in order to recover the funds.

Another notable incident involved Compound Finance, a decentralized lending protocol, which suffered a governance attack by a group known as the “Golden Boys,” who passed a proposal who allocated 499,000 COMP tokens – valued at $24 million – to a vault under their control.

The cross-chain liquidity aggregation protocol LI.FI also fell victim On July 16, a hack resulted in losses of $9.73 million. Additionally, Bittensor, a decentralized machine learning network, was one of the first protocols to suffer an exploit last month, lo m ing $8 million on July 3 due to an attack targeting its staking mechanism.

Meanwhile, Rho Markets, a lending protocol, suffered a $7.6 million breach. However, in an interesting twist, the exploiters research to return the stolen funds, claiming the incident was not a hack.

July 31, reports The Terra blockchain protocol was also hacked, resulting in a loss of $6.8 million across multiple cryptocurrencies. As crypto.news reported, the attack exploited a reentrancy vulnerability that had been identified a few months ago.

Dough Finance, a liquidity protocol, lost $1.8 million in Ethereum (ETH) and USD Coin (USDC) to a flash loan attack on July 12. Similarly, Minterest, a lending and borrowing protocol, saw a loss of $1.4 million due to exchange rate manipulation in one of its markets.

Decentralized staking platform MonoSwap also reported a loss of $1.3 million following an attack that allowed the perpetrators to withdraw the liquidity staked on the protocol. Finally, Delta Prime, another decentralized finance platform, suffered a $1 million breach, although $900,000 of the stolen funds was later recovered.

Fuente

DeFi

The Rise of Bitcoin DeFi: Then and Now

Published

6 months ago

1 August, 2024

Financial Block Staff

The convergence of Bitcoin’s robust security and Layer 2 scaling solutions has catalyzed the emergence of a vibrant DeFi ecosystem.

By expanding Bitcoin’s utility beyond simple peer-to-peer payments, these advancements have opened up a new frontier of financial possibilities, allowing users to participate in decentralized lending, trading, and other complex smart contract operations on Bitcoin.

Read on to learn about the rise of Bitcoin-based decentralized finance and how the space has expanded to accommodate a new generation of native assets and features.

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What is DeFi?

Decentralized finance (DeFi) represents a paradigm shift in financial services, offering internet-based financial products such as trading, lending, and borrowing through the use of decentralized public blockchains.

By implementing blockchains, smart contracts, and digital assets, DeFi protocols provide financial services through a decentralized ecosystem, where participants do not have to deal with intermediaries when transacting.

What is Bitcoin DeFi?

The inherent limitations of the Bitcoin mainchain in supporting the intricacies of decentralized finance have created the need to develop smart contract-based Layer 2 solutions.

Additionally, the advent of the Ordinals protocol in 2023, which facilitated the emergence of fungible token standards such as BRC-20 and Runes, catalyzed the growth of DeFi on the Bitcoin blockchain.

This expansion in protocol diversity has broadened the applications of the world’s leading cryptocurrency network beyond the core base-layer use cases around value preservation and transactional capabilities.

Therefore, Bitcoin DeFi has become a nascent sector within the digital asset market, after previously being a missing essential part of the Bitcoin ecosystem.

Bitcoin DeFi in its early days

Integrating decentralized finance (DeFi) concepts into the Bitcoin ecosystem has been a journey of innovation and perseverance. Early attempts to bridge the gap between Bitcoin’s fundamental simplicity and DeFi’s complexities have spawned pioneering projects that, while laying essential foundations, have also encountered significant obstacles.

Colored coins

Colored coins represented an early foray into tokenizing real-world assets on the Bitcoin blockchain. By leveraging the existing network to track ownership of assets ranging from stocks to real estate, this approach highlighted Bitcoin’s potential as a platform beyond digital currency. However, scalability and practical implementation challenges have limited its widespread adoption.

Counterpart

Building on the colored coins, Counterparty has become a platform for creating and trading digital assets, including non-fungible tokens (NFTs), on Bitcoin.

The introduction of popular projects like Rare Pepe NFTs has demonstrated the growing appeal of digital collectibles. However, constraints around user experience and network efficiency have hampered its full potential.

These early experiments, while not fully realizing their ambitions, served as valuable stepping stones, informing Bitcoin DeFi’s subsequent developments. Their challenges highlighted the need for more sophisticated infrastructure and protocols to harness the full potential of decentralized finance on the Bitcoin network.

Bitcoin DeFi Today

Today, building DeFi applications on Bitcoin is primarily done in the realm of Layer 2 (L2) networks. This architectural choice is motivated by the limitations of Bitcoin’s base layer in supporting complex programmable smart contracts.

Bitcoin’s original design prioritized security and decentralization over programmability, making it difficult to develop sophisticated DeFi protocols directly on its blockchain. However, the recent emergence of protocols like Ordinals, BRC-20, and Runes, while not DeFi in their own right, has sparked possibilities for future DeFi-like applications on the main chain.

In contrast, L2 solutions offer a scalable and programmable environment built on Bitcoin, enabling the creation of various DeFi products.

By expanding Bitcoin’s capabilities without compromising its core principles, L2s have become the preferred platform for developers looking to build DeFi applications that encompass trading, lending, staking, and more.

Leading L2 networks such as Lightning Network, Rootstock, Stacks, and Build on Bitcoin provide the infrastructure for these efforts. Some of these L2s have even introduced their own native tokens to the network, further expanding Bitcoin’s DeFi ecosystem.

Essentially, while Bitcoin’s core layer presents challenges for DeFi development, its security and decentralization have provided a foundational layer for the innovative L2 landscape to thrive.

Bitcoin Layer 2 offers a promising path to building a robust and thriving Bitcoin-based DeFi ecosystem that offers trading, staking, lending, and borrowing. All you need is a DeFi Wallet like Xverse to access the new world of decentralized financial services secured by Bitcoin.

Conclusion

The integration of DeFi principles into the Bitcoin ecosystem, primarily facilitated by Layer 2 solutions, marks a significant evolution in the digital asset landscape.

Building on the foundational work of pioneers like Colored Coins and Counterparty, the industry has evolved into more sophisticated platforms like Rootstock, Stacks, and Build on Bitcoin to create a thriving Bitcoin-powered DeFi ecosystem.