Bitcoin DeFi is an important development in the crypto space, so let's start with a brief introduction.
Bitcoin is the first and most well-known cryptocurrency. Although there are many other cryptocurrency projects currently, Bitcoin still holds a large share of the market capitalization in the entire blockchain space, and its popularity continues to grow.
Another area that has seen significant growth over the past few years is decentralized finance (DeFi). DeFi refers to financial services and products that do not rely on any centralized entities (such as banks), supporting peer-to-peer transactions and decentralized applications.
Challenges of Bitcoin DeFi
Bitcoin DeFi, simply put, is the DeFi that utilizes Bitcoin (BTC). However, using Bitcoin in DeFi is not that straightforward, as Bitcoin, as a network infrastructure, was designed to be simple and limited in functionality.
This limitation restricts the use of Bitcoin in decentralized applications (including DeFi). The significant growth of DeFi has largely occurred without Bitcoin's involvement. Clearly, it would be beneficial if Bitcoin's vast market capitalization could be released and used for DeFi applications.
So far, most attempts at Bitcoin DeFi have relied on some form of centralized intermediary, which contradicts the decentralized nature of Bitcoin.
Internet Computer Solutions
What assistance can the Internet Computer provide here?
The Internet Computer is directly integrated with Bitcoin at the network level, meaning no centralized intermediaries are needed, ensuring the reliability and security of interactions. This integration allows smart contracts on the Internet Computer (called 'containers') to access information from the Bitcoin blockchain, such as the balance of Bitcoin addresses. The 'containers' themselves can also own Bitcoin addresses and conduct Bitcoin transactions.
In short, Bitcoin containers can store and transfer Bitcoin like wallets, but since they are programmable, any program logic can be implemented. In other words, any decentralized application, especially any DeFi application, can be built around Bitcoin on the Internet Computer.
For example, Bitcoin can be used to construct tokens that are backed by real Bitcoin in a decentralized manner.
For example, ckBTC is a token on the Internet Computer. The ckBTC minting container ensures that one ckBTC always corresponds to one Bitcoin. Unlike Bitcoin, ckBTC can be transferred within seconds and at a low cost, making it suitable for micro-payments.
Another example is decentralized exchanges, which can provide trading pairs for Bitcoin or fungible tokens on Bitcoin. You can build lending services to earn interest with Bitcoin or use it as collateral. You can also build custodial services based on Bitcoin and provide automated payment features.
In summary, Bitcoin DeFi can be realized on the Internet Computer without the need for any centralized intermediaries, providing exciting opportunities for developers and users.
Join us on a journey to the World Computer.
Learn more:
Discover the Internet Computer at internetcomputer.org;
Watch Liquidium discuss how they solve the bridging issue for native asset lending on the DFINITY YouTube channel;
For developers, visit docs.bitcoindefi.dev for documentation on building on Bitcoin;
This article is adapted from the 'World Computer Technology Lecture' by DFINITY Foundation researcher Thomas Locher, and you can watch the original video at the beginning of this article.
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