Bitcoin Defi Projects – What Are They? How Do They Work?

Since the 2008 economic crisis and with that, a perfect scenario was created for the birth of Bitcoin, not only as a currency, but as a new financial paradigm.

People need alternatives to deal with collapsing financial systems and protect their reserves from value erosion, and those needs meet Bitcoin. However, Bitcoin by itself, however, cannot replace the entire current financial system.

Its original design and dominant narrative has turned Bitcoin into an excellent store of value and a fantastic way to transact value around the world. But a financial system is extremely complex and requires other functions, and decentralized finance is here for that.

DeFi Revolution

The finance decentralization process started in 2014, when the Ethereum protocol redefined the scope of possibility for cryptocurrency with a design based on programmable rules, smart contracts, incentives, and rewards.

With the evolution of the Ethereum protocol, new digital currency protocols began to be created, offering complex financial instruments and innovative investment strategies, composed of several features and tools. And all in a decentralized way.

DeFi Growth

The success of the DeFi industry was so great that in a few years, dozens of protocols were developed and already added a capitalization of more than US$83 billion in products for lending, borrowing, trading, collectibles, hedging, prediction markets, flash loans, options, etc.

In a short time, projects such as Uniswap, Compound, Curve, Yearn.Finance and Balancer gained the attention of the cryptocurrency community and reached relevant positions in capitalization in a very short time.

Another interesting way to measure the success of DeFi projects is the adoption and integration of projects and cryptocurrencies in the portfolio of institutional investments. According to the report “Global DeFi Adoption Index” of Chainalysis, institutional investors played a major role in De adoption in Q2 2021.

Chainalysis stated:

“Large institutional transactions, meaning those above $10 million in USD, accounted for over 60% of DeFi transactions in Q2 2021, compared to under 50% for all cryptocurrency transactions.”

Bitcoin DeFi

With both the decentralized finance market and Bitcoin evolving as an asset reaching capitalization and $1 trillion, Bitcoin-focused DeFi projects emerged.

BTC can be tokenized in Ethereum in a number of ways, with various tradeoffs, including different levels of decentralization and for different options. One of the most interesting cases is synthetic Bitcoin.

One of the most famous cases of Bitcoin DeFi is TBD. Twitter CEO Jack Dorsey, announced that financial services company Square is developing a new platform to bring decentralized finance services (DeFi) to the Bitcoin network, according to the announcement:

“Square is creating a new business (joining Seller, Cash App, Tidal) focused on building an open developer platform with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services. Our primary focus is #Bitcoin. Its name is TBD.”

Bitcoin DeFi Ecosystem

According to defiprime.com, there are at least 26 Bitcoin DeFi projects divided into different categories as: asset management tools, Bitcoin Decentralized Exchanges, Margin Trading, Infrastructure, payment, tokens and stablecoins and more.

Synthetics

Bitcoin synthetics are those that can simulate the value of Bitcoin to expose investors to their appreciation, while increasing their capabilities. Synthetics already total more than 270,000 BTC blocked on the Ethereum network, with a capitalization of US$ 13 billion.

  • Wrapped BTC ($ 9 billion, second place in capitalization of DeFi projects).
  • Huobi BTC ($1 billion).
  • renBTC ($760 million).
  • eBTC : eco Bitcoin, a carbon-neutral Bitcoin-backed asset (to be launched).

Asset Management Tools

Purchasing, storing, and managing different DeFi assets and management requires a vast array of specialized knowledge of each individual instrument. To facilitate this interaction, decentralized asset management tools are being developed. With decentralized and automated protocols for asset management, the investor only needs to compare the groups, the ROI is optimized within each respective group on its own.

DeFi Asset management in Bitcoin includes:

  • Eidoo: gives access to a full range of features and financial service, including a non-custodial Wallet, a debit-card for DeFi economy, a Hybrid Exchange, and a platform to participate and launch token sales.
  • imToken: a digital asset wallet enabling multi-chain asset management, dApp browsing, exchange of value and providing services to millions of users in more than 150 countries.
  • Joule: an open-source chrome extension that brings the Lightning network to browsers.

Bitcoin Decentralized Exchanges

Bitcoin was created to solve the problem of double spend and trust in online financial transactions, the protocol was designed to allow P2P transactions, without intermediaries.

However, with the development of the industry, centralized chances have replaced traditional banks and brokerages and created numerous problems regarding the custody of Bitcoin. To solve this problem, decentralized exchanges (DEX) are being developed, with emphasis on:

  • Bisq is a peer-to-peer network and open-source desktop software to people buy and sell cryptocurrencies in a decentralized way.
  • Atomex is a multicurrency HD wallet that allows users to securely and anonymously exchange Bitcoin via its desktop wallet and also provides low-level APIs for integration
  • WBTC.Cafe: WBTC.Cafe is a RenVM powered exchange that allows mint WBTC (ERC20 wrapped Bitcoin) without registration or KYC.
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