A look at DeFi on Bitcoin and its future prospects

When DeFi became popular, Bitcoin holders were in a conundrum. They had two options: hold on to their BTC and wait for its value to keep going up or sell it for a chance to earn a passive income through DeFi. To solve this dilemma, people needed a way to hold BTC and participate in the DeFi industry, and developers heard what the market wanted.

Wrapped Bitcoin is the perfect coming together of Bitcoin and Ethereum. Essentially, you can lock up your Bitcoin and receive WBTC — an ERC 20 token pegged to Bitcoin 1:1. You can use this WBTC on several DeFi protocols and switch it back to BTC whenever you want. WBTC is accepted widely on other DeFi networks, so you’re always sure of liquidity and the complete DeFi experience.

Stacks is an independent open-source layer-1 blockchain explicitly designed to enable smart contracts and decentralised applications (DApps) on the Bitcoin network. Stacks uses a unique proof-of-transfer (Pox) consensus mechanism linked directly to Bitcoin. With PoX, you can stake your STX tokens to earn Bitcoin.

Essentially, Stacks is a platform that facilitates smart contracts and decentralised apps. However, it generates its power from Bitcoin, depending on the legacy chain for security and the execution of transactions. On the Stacks network, you can lend, borrow, stake, create dApps, NFTs and more — all by expanding the horizons of what’s possible with Bitcoin.

The RSK blockchain works as a Bitcoin sidechain and remains one of the most popular Bitcoin-DeFi crossovers. It enables smart contracts to be part of the Bitcoin network with its utility token RBTC, which is pegged to Bitcoin 1:1. Similar to how you pay ETH as a transaction fee on the Ethereum network, you pay with RBTC on the RSK network. As the RSK network works as a sidechain to Bitcoin, it allows for assets to be transferred and DeFi protocols to be executed seamlessly.

After all this, the obvious question is — why take so much trouble with a Bitcoin-based DeFi ecosystem when you can jump into DeFi with Ethereum and other smart contract networks? It may be bewildering to many, but a large audience only trusts Bitcoin as a store of value. And if there is a passive income to be generated with minimal risk, they’ll be willing to take a chance with it.

That shows in the skyrocketing numbers we see with WBTC, which had a market cap of nearly $9 billion in May this year compared to merely a few million two years ago. Going forward, two things can further augment DeFi on Bitcoin: easier accessibility of the DeFi platforms worldwide and the mass adoption of Bitcoin. Moreover, many people invested in Bitcoin have still not explored the DeFi industry. This makes it a market waiting to be explored by savvy developers who can unleash the legacy blockchain’s untapped potential.