The evolution of the Bitcoin-based financial ecosystem, known as BTCfi, which aims to create a decentralized, scalable and interoperable infrastructure (DeFi) to support a wide range of on-chain applications.
What is BTCfi? How is the Bitcoin-based DeFi ecosystem divided?
BTCfi is designed as a “second tier” for Bitcoin, offering not only a more efficient payment system, but also a network of networks including decentralized exchanges, lending protocols, derivatives markets, and more.
The company’s latest report divides the BTCfi ecosystem into three main categories: scaling chains for Bitcoin, bridged versions of the Bitcoin asset usable on these chains, and leading Bitcoin-focused decentralized applications.
1. Bitcoin Scalability Chains
“Bitcoin Scaling Chains” represent solutions that work as layer 2, sidechain, or other strategies to improve the scalability and usability of Bitcoin. Some of the main ones mentioned in the report include:
- Lightning Network:A second-layer payment protocol that enables fast and cost-effective transactions using payment channels that do not require each transaction to be included in the main blockchain.
- Liquid network:A Bitcoin sidechain created by Blockstream that offers faster settlement and privacy, primarily used by financial institutions and merchants.
- Basic Blockchain:An infrastructure that combines Bitcoin’s Nakamoto consensus with a consensus model called Satoshi Plus, which extends the capabilities of Bitcoin miners to secure a smart contract platform.
2. Bitcoin Asset (Bitcoin Asset)
The report also looks at bridged versions of Bitcoin that can be used on these scaling chains. These versions include:
- coreBTC:A bridged version of Bitcoin usable on the Core blockchain, created through a decentralized system involving “lockers”, liquidators and slashers to ensure a trust-minimizing approach.
- L-BTC:The native asset of the Liquid network, pegged 1:1 to Bitcoin and used for faster, more private transactions.
- RBTC:RSK’s native asset, which allows users to stake Bitcoin on the RSK blockchain with a 1:1 peg.
3. Top BTCfi Decentralized Applications
Finally, the report explores various decentralized applications (dapps) designed to expand the use of Bitcoin, including through bridging solutions on scaling chains. Some of these dapps include:
- ALEX:A DeFi platform on Stacks that offers financial tools such as yield farming, lending, and decentralized exchanges.
- Sovryn:A protocol on RSK that enables trading, lending and margining with Bitcoin, while maintaining full control of the assets.
- Bitflow Financing:A DEX on Stacks that allows users to trade, lend, and earn using Bitcoin without centralized intermediaries.
Conclusion
The report concludes that BTCfi represents an important step towards expanding Bitcoin’s capabilities, offering a range of solutions that improve its scalability and interoperability.
While many of these technologies are still in the development phase, the potential for creating a robust, decentralized financial infrastructure is clear. However, the report emphasizes the importance of continued research and expert consultation to fully understand the complexities and implications of these solutions.
BTCfi promises to align with the principles of Bitcoin, maintaining its resilience and decentralization, while expanding its use far beyond simple payment transactions.
