Why is Bitcoin DeFi blooming? Developers share their insights

Zhiyuan Sun6 hours agoWhy is Bitcoin DeFi blooming? Developers share their insightsExperts say that the lack of base yield and fragmented liquidity have made Bitcoin DeFi a challenging environment to navigate.805 Total views3 Total sharesListen to article 0:00NewsOwn this piece of crypto historyCollect this article as NFTJoin us on social networksIn the past year, the namesake 16-year-old blockchain has seen the new arrivals of features such as Ordinals, Runes, and BRC-20 tokens. Even so, developers are undeterred at the sight of a market correction, speaking of a bourgeoning ecosystem ahead.

"There are currently two key factors constraining BTCFi"s development, the lack of base yield and the fragmentation of liquidity," SolvBTC"s co-founder Ryan Chow told Cointelegraph in an interview. "These factors have led to a significant amount of Bitcoin being left idle, unable to actively participate in the DeFi ecosystem."Original vs novel asset transactions on Bitcoin (Dune)

As a Bitcoin yield protocol, SolvBTC is currently developing Liquid Yield Tokens that would allow Bitcoin holders to deposit their assets and earn income from DeFi, engaging analogous to liquid staking tokens on the Ethereum blockchain. Launched early this year, the project has since attracted a total value locked of $1.3 billion among 292,000 users.

"I"d like to take SolvBTC Ethena Vault as an example to explain how Solv brings stable base yield and rich earning opportunities to Bitcoin users," Chow clarified. "The Vault leverages Bitcoin as collateral to borrow stablecoins, which are then used to mint and stake Ethena"s USDe. This process captures yield from funding rates earned from delta hedging derivatives positions. Under this strategy, users can earn a competitive APY of approximately 15% net."

He added: "Moreover, both Solv and Ethena provide bonus token incentives for this Vault, potentially boosting the overall yield even higher. Simultaneously, Solv is developing rich DeFi integrations for SolvBTC.ena, which allows users to explore additional yield opportunities across multiple networks."

SolvBTC will soon launch on the Ethereum mainnet, which will allow its users to tap into wrapped Bitcoin (wBTC) liquidity and generate yields directly on the Ethereum DeFi ecosystem.

Master Yield Market is another Bitcoin yield protocol that was recently launched and consolidates all yield-bearing assets within the Bitcoin ecosystem. The protocol allows users to directly purchase Bitcoin yield assets sources from blockchain-native DeFi protocols using Tether, Ethereum and wrapped Bitcoin.

Meanwhile, other developers are focused on increasing the underlying capacity of the Bitcoin blockchain to improve its DeFi performance.

According to Sunny Fung, core developer of MetaID, Bitcoin "cannot solve the problem of congestion and high fees in the foreseeable future." However, layer solutions on top of Bitcoin can mitigate the issue by bundling individual transactions into one single application to save time and effort.

"MetaID introduces the concepts of Unified UTXO Chain and Unified Bitcoin Address, which effectively solves Bitcoin"s congestion problem and fully unleashes the potential of Layer 2 networks that are homogeneous with Bitcoin," Fung told Cointelegraph, "As long as it is a Bitcoin sidechain, Layer-2, or even BCH that is homogeneous with Bitcoin, MetaID can theoretically support it seamlessly."

Fung also commented that although Bitcoin was "designed the earliest and lacked smart contracts," it is still the "best carrier for Web3 applications" due to features such as highest consensus, decentralization, security, and on-chain data storage through satoshis.

Related: ‘Bitcoin Layer 2s’ aren’t really L2s at all: Here’s why that matters# Bitcoin# Blockchain# Cryptocurrencies# AdoptionAdd reaction