DeFi on Bitcoin, $500B+ Market Potential

Decentralized Finance (DeFi) has emerged as a transformative force in the world of finance, revolutionizing traditional banking systems and enabling peer-to-peer transactions with unprecedented efficiency, transparency, and accessibility. While Ethereum has been the epicenter of the DeFi boom, a new frontier is now opening up as DeFi finds its way to the most renowned cryptocurrency of all time: Bitcoin.

Bitcoin, the pioneering digital currency that sparked the decentralized revolution, has long been associated primarily with its store of value and digital gold narrative. However, its potential as a platform for sophisticated financial applications is increasingly being recognized. With a market capitalization that exceeds half a trillion dollars and a vast network of users and developers, Bitcoin has the potential to unleash a DeFi revolution on an unprecedented scale.

As we embark on this journey into the world of trends like lightning, bridging, ordinals, inscriptions, and BRC-20 tokens, it is important to first understand the differences between Bitcoin and Ethereum.

1. Purpose: Bitcoin aims to be a decentralized digital currency and store of value, while Ethereum goes beyond currency, offering a platform for creating smart contracts and decentralized applications (dApps).
2. Programming:?Bitcoin has limited scripting abilities, focusing on simple transactions. Ethereum supports complex smart contracts through a Turing-complete programming language called Solidity.
3. Consensus: Bitcoin uses proof-of-work (PoW) for transaction validation, while Ethereum transitioned to proof-of-stake (PoS) for improved energy efficiency and scalability.
4. Adoption:?Bitcoin enjoys widespread recognition as a digital currency, while Ethereum has a thriving ecosystem for dApps, tokens, and innovative blockchain solutions.
5. Scalability:?Both Bitcoin and Ethereum face scalability challenges, but Ethereum’s roadmap milestones aim to enhance scalability through future updates
6. Community:?Bitcoin’s community emphasizes financial sovereignty and protection against inflation, while Ethereum’s community values innovation and the potential of dApps to disrupt multiple industries.

Daily active users

Bitcoin:?With a daily active user count of 500,000, Bitcoin maintains a robust and engaged user base. The network’s daily fees peaked at $17.7 million, reflecting the level of economic activity and transactions within the Bitcoin ecosystem.

Ethereum:?Ethereum boasts a daily active user count of 325,000, showcasing a vibrant community participating in decentralized applications and token interactions. The network’s daily fees reached a peak of $32 million, indicating a high level of demand and usage for Ethereum-based services.

Total Value Locked

Ethereum’s Total Value Locked (TVL) reaches $53B, an impressive figure given its $220B market cap. With Bitcoin’s market cap as a benchmark, BTC TVL has the potential to become as large as $125B, based on present market conditions and sentiments.

Wrapped Bitcoin

Wrapped Bitcoin (WBTC) is created by converting Bitcoin into an equivalent token on the Ethereum blockchain. This process involves trusted custodians holding the Bitcoin and minting WBTC tokens in return. However, there are risks involved:

1. Centralized Custody: WBTC relies on third-party custodians, introducing counterparty risk.
2. Trust in Custodian: The custodian’s integrity is crucial, as any issues can impact the value and redeemability of WBTC.
3. Smart Contract Vulnerabilities: WBTC relies on smart contracts, and any flaws can lead to potential exploits or losses.

Total Value Hacked

The chart shows the impact of hacks in the Web3 ecosystem. A staggering $6.5 billion has been stolen in various incidents, highlighting the need for heightened security measures. Notably, $2.5 billion of the total amount represents hacks specifically targeting bridges, which are essential for interoperability between different blockchain networks. Now it’s clear that Bitcoin DeFi market is such small because of high risk for investors.

Lightning Network

Despite all FUD, Bitcoin is used broadly and a great example of its utility is payment on the Lightning Network, which is a speedy and efficient solution that enables instant and low-cost transactions on the Bitcoin blockchain. The Lightning Network works by creating a network of payment channels off-chain, allowing users to conduct transactions without recording each one on the Bitcoin blockchain. Recently the network capacity surpassed 5.3K BTC and is set to grow further with the broader adoption of this payment solution.

Bitcoin Ordinals

Most of you heard about ordinals, it is a hyped and trendy thing, which basically allows the creation of NFTs on Bitcoin. It is based on an idea put forward by?Casey Rodarmor , that includes Ordinals (a numbering mechanism for Sats) and Inscriptions (to inscribe Sats with arbitrary content. This buzz already generated almost 8 million unique inscriptions and enormously high fees on the Bitcoin network. On top of that, a new record was set with a transaction fee of 20 million Sats (~$5.4K).

BRC-20

Meme coin season on Bitcoin is not a joke anymore. An insane experiment was recently estimated at $1 billion in capitalization. It is represented by more than 5 million transactions and $27 million in fees.

The activity in the blockchain reminds a bullrun — high fees, a record volume of transactions. Binance, for example, was forced to stop BTC withdrawals twice. It’s funny, but some Bitcoin developers are discussing censoring ordinals and BRC, declaring an attack on the network.

Summary

There is a potential for growth of the ecosystem, for example, Binance is planning to solve throughput issues with lightning integration and Ordinal NFTs are coming to the Binance marketplace soon.

Currently, the situation resembles the NFT hype of 2021. It takes time for good technology to be adopted and utilized effectively. My take will be that hype around ordinals and BRC-20 tokens will initiate the constant unlocking of significant untapped liquidity — dormant Bitcoins stored in unused wallets. This has the potential to bring a continuous wave of value realization.

Author: Petro Yanytskyi

Sources:

• https://blockgeeks.com/
• https://www.bitpanda.com/en
• https://tokenterminal.com/
• https://bitinfocharts.com/
• https://defillama.com/
• https://studio.glassnode.com/
• https://brc-20.io/
• https://dune.com/