Square CEO Jack Dorsey announced earlier this week that his payments company would be entering the decentralized finance sector. He’s not using ethereum as his stock-in-trade. Dorsey hopes to create his platform using Bitcoin.
DeFi is the fourth wave of crypto. It is being built by companies, and users are investing in it . Regulators are concerned. According to DeFipulse, more than $50 billion worth of assets is locked into DeFi exchanges.
However, the ethereum-based apps that dominate DeFi such as Uniswap or Compound don’t have the only option.
Bitcoin DeFi is on the rise, although slowly. Square could make significant gains in this space. There are 26 active DeFi projects related to bitcoin, which include everything from derivatives trading and payments.
DeFi services are largely built on Ethereum, partly due to the ease of smart contracts, which pieces of code that automate agreements between parties, being used by cryptocurrency. DeFi Prime, an analytical firm, lists 80% of the products based on Ethereum.
Although smart contracts could be created directly on the bitcoin blockchain, the technology has not been realized in practice, Peng Zhong, CEO at Tendermint, and a developer at Cosmos. This collective is trying to connect independent blockchains.
Insider has heard that smart contracts can be built on bitcoin. “I feel that development has stalled somewhat.” We haven’t yet seen any concrete examples of this.
The main effort to create bitcoin DeFi came through the Layer 2 network, which is protocols that are built on top of Layer 1, the main bitcoin blockchain. However, smart-contract protocols built on Layer 2 have received far less development energy than those on ethereum.
Tally Greenberg (Allnodes’ business development head), stated that Ethereum is the network with most developers. “But, I believe the smart contract idea will also be coming to bitcoin.
She said that bitcoin will need to catch up. Noting that even a successful bitcoin DeFi ecosystem wouldn’t hurt ethereum’s development trajectory or price, she also noted that it would take some time for bitcoin to catch up.
As Dorsey’s Square builds its new venture, Bitcoin DeFi could be given a boost from taproot, which is a planned protocol upgrade for November. Taproot has broad support from the bitcoin community and will make many technical changes to bitcoin which should ease the process of creating Layer-2 smart contracts.
Greenberg stated that there are hundreds of DeFi projects right now.
“The more you have, the better!”
