How Bitcoin Could Be Used in DeFi
While most DeFi platforms are built on the Ethereum blockchain, the BTC blockchain is now getting involved too.
What is DeFi?
Perhaps you’ve heard of decentralized finance (DeFi) before — lately, it’s become quite a big deal. Defi are smart-contract tools predominantly built on the Ethereum platform that will be used to replace and revolutionize the way we currently perform traditional banking, lending, and borrowing. DeFi aims to take the world of finance and make it available to anyone who has a connection to the internet.
Many people are attracted to DeFi for reasons such as:
- Being able to transfer funds in mere seconds
- Being able to use it without the need for approval
- Being able to hold your money within a safe digital wallet
- Not having to pay exorbitant fees for services, unlike in banks and financial companies
- Getting loans and credit
- Earning interest on loans and credit
Why is Bitcoin Getting Involved?
Right now, most DeFi smart contract development and transactions occur on the Ethereum blockchain. But a new $165 million project hopes to change the DeFi landscape by including more Bitcoin adoption and creating a network for Bitcoin-based smart contracts.
The project, called “Bitcoin Odyssey” is led by Okcoin, Stacks Accelerator and Stacks Foundation.
According to Okoin’s website, “Bitcoin Odyssey comes as a response both to the big influx of investors DeFi has seen over 2021 and to the growth of the Stacks ecosystem and other smart contracts solutions built on top of Bitcoin.
“The narrative is shifting: 2022 is going to be the year of Bitcoin DeFi and the Bitcoin Odyssey will be at the forefront of this dynamic.”
Alex Chizhik, Bitcoin Odyssey’s co-chair told Axios, “If we’re right, we’re about to see a lot more DeFi projects being built on top of Bitcoin… I’m excited to see a renaissance of development on the Bitcoin blockchain.”
Bitcoin Odyssey hopes to support not only smart contracts, but metaverse applications, gaming, non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs) and other applications.
It may work by either allowing Bitcoin — a currency that has its own blockchain — to run on Ethereum’s blockchain or having the BTC blockchain itself become capable of DeFi overlays.
The Bitcoin Odyssey solution may soon let us know.
Right now, you can’t directly use Bitcoin on Ethereum platforms, but you can convert Bitcoin into a currency that represents Bitcoin but is essentially an Ethereum-based token.
The Bitcoin is then locked into a smart contract (a code that’s used to replicate agreements) and is made ready to use for the platform.
How You Can Use Bitcoin for DeFi
Maybe you’re wondering why anyone would want to trade their Bitcoin for Ethereum smart contracts when they can simply purchase Ethereum tokens directly and start there. Well, the reason why people do this is to use their Bitcoins to earn passive income. Because many people hold their Bitcoin for the long run, hoping it goes up in value, they can use this currency “switch” and still keep their desired coins.
So, while your Bitcoin is sitting in crypto space, hopefully gaining in value, why not put it to good use in the meantime… and make some money with it?
That’s the point of Bitcoin DeFi.
Sources:
https://www.investopedia.com/decentralized-finance-defi-5113835
https://decrypt.co/resources/what-is-bitcoin-defi-and-how-does-it-work
https://www.forbes.com/advisor/investing/cryptocurrency/defi-decentralized-finance/
https://www.coinbase.com/learn/crypto-basics/what-is-defi
https://www.coindesk.com/learn/what-is-defi/
https://www.nytimes.com/interactive/2022/03/18/technology/what-is-defi-cryptocurrency.html
https://www.fool.com/the-ascent/cryptocurrency/articles/what-is-dai-dai-and-should-you-buy-it/