In the context of the increasingly developing crypto market, one of the prominent trends today is the development of decentralized financial (DeFi) products on the Bitcoin network. According to Alexei Zamyatin, co-founder of Bitcoin layer 2 Build on Bitcoin, the first decentralized finance company launching user-friendly products on Bitcoin has the potential to 'capture the entire market,' which includes about 300 million users of this blockchain.
The competitive advantage of Bitcoin DeFi
At the TOKEN2049 event held in Dubai, Zamyatin shared that Bitcoin DeFi has a significant market advantage, especially among retail users. He stated that 'the advantage of Bitcoin DeFi is that the market is much larger, you have a far larger retail user base that you can tap into.'
Alexei Zamyatin – Co-founder of Build on Bitcoin
According to Zamyatin, while this transition is not easy, if DeFi solutions on Bitcoin dominate the market, it would mean they will dominate the global market of blockchains. He asserts that the current 300 million Bitcoin users represent a huge potential, allowing DeFi services on this blockchain to 'outperform everything we have seen on Ethereum and Solana so far.'
Build on Bitcoin is one of the leading companies providing DeFi solutions for Bitcoin. This company is building a layer 2 platform called BitVM, aiming to combine the inherent security of Bitcoin with the smart contract processing capabilities of Ethereum. BitVM is a platform capable of processing complete Bitcoin contracts in accordance with Turing standards, allowing Bitcoin to maximize its potential in DeFi applications.
Zamyatin also pointed out that although Bitcoin possesses superior security, this blockchain lacks the necessary tools, manpower, and network effects to develop a robust DeFi ecosystem like Ethereum. Therefore, native Bitcoin bridges are an important factor in addressing this shortcoming and expanding the application capabilities of DeFi on the Bitcoin platform.
Strong demand for Bitcoin-based DeFi
One of the driving factors for the development of DeFi on Bitcoin is the strong demand for Bitcoin yield and stablecoin products. Zamyatin emphasizes that many organizations today are looking for ways to increase profits from the Bitcoin assets they hold. This has created an increasing demand for DeFi services that support profit-making from Bitcoin.
In addition, the demand for Bitcoin-backed stablecoins is also increasing significantly, as Bitcoin is considered the 'best collateral asset.' The adoption of staking forms for Bitcoin has become a popular DeFi use case, enabling Bitcoin holders to earn rewards by locking their funds in blockchains that use the Proof of Stake mechanism like Ethereum.
Although the demand for DeFi on Bitcoin is increasing, the total value locked (TVL) in DeFi products on Bitcoin remains very modest compared to Ethereum. According to data from DefiLlama, Babylon Protocol is currently leading the DeFi market on Bitcoin with a locked value of up to 4.64 billion USD, accounting for nearly 80% of the total locked value on Bitcoin. However, the TVL of Bitcoin on DeFi applications still only represents a small fraction compared to Ethereum's figure of 54.6 billion USD.
The bridge issue in the DeFi market
One of the controversial topics in the development of DeFi on Bitcoin is cross-chain bridges. Although there have been many attacks on bridges, Zamyatin believes that the main cause is not due to smart contract vulnerabilities but primarily because groups cannot manage their private keys.
However, using bridges in DeFi still faces many difficulties, especially for large organizations. These organizations remain wary of the anonymity and reliability of decentralized bridge solutions. Instead, they often choose reputable custodial entities like BitGo and Coinbase Custody for cryptocurrency-related transactions.
The future of Bitcoin DeFi
Zamyatin believes that the development of DeFi on Bitcoin is not just a temporary trend but will become an important part of the future of the crypto market. Although there are many technological and security challenges, with continuous improvements and growing demand from organizations, DeFi on Bitcoin promises to make significant progress in the near future.
With a strong user community and strong demand for DeFi products, Bitcoin may soon become a superior DeFi platform, directly competing with blockchains like Ethereum and Solana in the near future.
Disclaimer: This article is for informational purposes only and is not investment advice. Investors should do thorough research before making decisions. We are not responsible for your investment decisions.