The tokens from the Bitcoin decentralized finance (BTCfi) sector are down 23.4% on common in 2024, in response to knowledge from Artemis. This contrasts with the hype shared by buyers that the Bitcoin decentralized finance (BTCfi) ecosystem would rise this 12 months. Nonetheless, Charlie Hu, the co-founder of layer-2 blockchain Bitlayer, highlights that this narrative is way from lifeless and lists three the reason why BTCfi is lagging behind.
“When BRC-20 got here out, the market had virtually zero hype as an entire. The Web3 area was in a bear market, and there weren’t too many issues to speak about within the deep bear when buying and selling quantity was low. In comparison with now, we’ve different issues to attract folks’s consideration, so distraction is the primary purpose,” Hu explains.
BTCfi is a comparatively new ecosystem that consists of blockchains created on prime of Bitcoin’s blockchain, which function base layers for decentralized functions. The entire worth locked (TVL) of this ecosystem is up over 100% in 2024, in accordance to knowledge aggregator DefiLlama.
Nonetheless, Hu mentions that since BTCfi is one thing new, its consumer expertise remains to be not optimized. This creates confusion, which ends up in liquidity fragmentation, and that is the second purpose why BTCfi nonetheless hasn’t taken off the bottom.
“I feel there’s a few issues we nonetheless want to coach the market. There are lots of people who nonetheless haven’t gotten aware of how one can bridge property from Bitcoin layer-1 to layer-2. Now, you might be shifting out of Bitcoin layer-1, however what are the use instances that truly make sense?”
Due to this fact, by fixing the consumer familiarity with the Bitcoin layer-2 functions, Hu believes {that a} “massive wave of liquidity,” and factors out that protocols akin to Bitlayer have a key position on this course of.
“Bitlayer is among the first vacation spot chains amongst all these liquidity protocols. We attempt to bridge all these programmable Bitcoins [wrapped tokens] into our ecosystem and use that liquidity to assist all of the DeFi protocols as a result of you possibly can’t do a lot with them with out liquidity.”
The third purpose is expounded to the crypto market as an entire since costs and buying and selling volumes have been falling since March. Consequently, the BTCfi narrative wants the return of on-chain exercise to take off, and Bitlayer’s co-founder thinks that is “not that far-off.”
An underlying scalability downside
The implementation of layer-2 blockchains helps to resolve the scalability challenge, however simply till the second web page. Taking Ethereum for instance, the introduction of devoted block area inside blocks, known as “blobs”, was essential to deal with the rising quantity of various layer-2 chains created on prime of its infrastructure.
Because the variety of layer-2 blockchains created on Bitcoin additionally rises, it’s solely pure that this ecosystem faces the identical downside. But, Charlie Hu isn’t anxious about it, mentioning developments made on this entrance.
“We’re so early on the infrastructure degree. Just a few groups try to create zero-knowledge proofs on Bitcoin, and we consider ZK-snarks have extra value advantages for scalability. No matter you wish to inscribe on the Merkle tree and cross on Bitcoin’s block is dear, so it’s essential to have a price cost-effective technique to make the state transition and confirm it on Bitcoin,” shares Hu.
Furthermore, Bitlayer’s co-founder additionally mentions the continued plan to introduce the OP_CAT code on Bitcoin’s blockchain, which might facilitate knowledge interplay on the community. OP_CAT is an operation code disabled by Satoshi Nakamoto in 2010 to keep away from potential vulnerability exploits whereas the Bitcoin blockchain was nonetheless nascent. Nonetheless, the thought was introduced again by the group referred to as Taproot Wizards.
The introduction of OP_CAT may considerably enhance the flexibility to create functions utilizing Bitcoin as an infrastructure and can also be highlighted by Hu as a technique to enhance scalability. Nonetheless, this isn’t a objective for the present bull cycle.
“On this cycle, the objective is unlocking the present Bitcoin liquidity, which has not been a yield-bearing asset within the final 15 years, sitting in chilly wallets doing nothing, to now turn into programmable cash.”
Why not use Ethereum as an alternative?
A typical characteristic of all layer-2 blockchains constructed on Bitcoin is compatibility with the Ethereum Digital Machine (EVM). Which means that the code of Ethereum-native decentralized functions, akin to Aave or Uniswap, might be replicated on prime of those layer-2 networks.
In consequence, customers would possibly marvel why to construct an ecosystem on prime of Bitcoin as an alternative of sustaining the present panorama of bridging Bitcoin to Ethereum-native functions. Hu explains that, regardless of Ethereum being an essential infrastructure for Web3, Bitcoin presents completely different values and exhibits higher sustainability in the long run.
“If we have a look at the long run, which ecosystem can survive over the following one or twenty years, we consider proof of labor remains to be among the finest consensus for a decentralized community, for a public chain. If we decide any public chain that may survive with sound property nonetheless on the chain, that’s undoubtedly Bitcoin.”
Moreover, Bitlayer’s co-founder provides that Bitcoin presents itself as a extra decentralized floor to construct a DeFi ecosystem, leading to safer property. Bringing battle-tested Ethereum functions to Bitcoin layer-2 blockchains then is sensible to Hu.
“Asset safety is an important factor by way of decentralized finance and so forth. I feel the issues occurring at Ethereum are nice, however in comparison with Bitcoin, it’s only a completely different degree of worth, a special degree of selection.”