In the last couple of years, decentralized finance and Bitcoin have exploded into mainstream awareness. From 2020 to 2021, the DeFi market grew by a staggering 210-times, while Bitcoin saw its value rise by more than 700%. Everyone was talking about crypto, discussing the exciting new ways to invest that go beyond simply “hodling” and hoping the value will moon.Â
DeFi has emerged as the enabler of these new ways of investing, introducing concepts such as staking, liquidity providing, and yield farming to the world of crypto investing. Yet these innovations have largely remained separate from Bitcoin itself.
Instead, the vast majority of the world’s DeFi applications and protocols sit not on Bitcoin, but on Ethereum or other blockchains that claim to be faster. Bitcoin meanwhile has remained what it was always intended to be – a straightforward digital currency and a store of value.Â
Times are changing though. For all of the ups and downs it has experienced over the past year, studies show that Bitcoin is enjoying increasingly widespread adoption and growth. And with it, there is increased demand for Bitcoin to merge with the world of DeFi.
Bitcoin is, after all, the world’s most popular cryptocurrency with by far and away the largest market capitalization. Yet most of these assets are sitting idle. By bringing BTC to DeFi, the opportunities for Bitcoin holders could be transformational.Â
How Does Bitcoin DeFi Work?
The most common way in which Bitcoin is used within the DeFi ecosystem is through so-called “wrapped” tokens. An example is the aptly named Wrapped Bitcoin token (WBTC), which is an ERC-20 token (meaning it runs on the Ethereum blockchain) that’s backed 1:1 with real Bitcoin tokens. WBTC launched in 2019 and gives Bitcoin holders a way to participate in Ethereum-based DeFi without swapping their BTC assets for another cryptocurrency first. They simply swap their BTC for an equivalent amount of WBTC, which…
