DeFi
Bitcoin will power the next DeFi summer
In 2023, we said goodbye to Crypto Winter. Now it’s time to welcome a new era of DeFi Summer, this time focused on the most interesting but also enduring trends: Bitcoin. With ordinals proving demand, exchange-traded funds (ETFs) providing access, and the emergence of Bitcoin scaling solutions, 2024 is expected to unlock the roughly $1 trillion asset class from a new way.
The initial decentralized finance (DeFi) revolution in 2020 focused on smart contracts unlocking the utility of blockchain beyond just maintaining a ledger and asset. This has transformed the technology into a platform for large, interoperable financial ecosystems. On the Ethereum Virtual Machine (EVM), individuals around the world could essentially become their own banks, accessing hundreds of interoperable financial applications. This development offered a promising glimpse of a financial future governed by an immutable code rather than fickle human beings.
As DeFi Summer unfolded, the technology and enthusiasm that fueled DeFi extended to non-financial applications of blockchain, including non-fungible tokens (NFTs). Blockchains have demonstrated their versatility by not only hosting financial systems, but also becoming centers of art, culture and gaming. Driven by the constant search for “what’s next”, blockchain technology seems to have expanded to every use case imaginable, often going beyond its core utility and practicality at the height of the craze.
Ultimately, the initial buzz regarding NFTs and blockchain expansion turned to fear during the crypto winter of 2022, although it would not be the end for NFTs. 2023 has seen renewed enthusiasm for blockchain, thanks in part to the comeback of NFTs, this time taking the form of ordinals on Bitcoin. In the same way that DeFi Summer revealed new blockchain capabilities, Ordinals and BRC20 tokens showcased the potential of Bitcoin, generating excitement about the future possibilities of blockchain technology.
The question arose: If Bitcoin could support NFTs and tokens, what other applications could its unmatched security and popularity cover?
In retrospect, the NFT craze of 2021 can be interpreted as the disappearance of a hype cycle. While valuable, the technology was more of a reverberation of the big tech splash of DeFi. In contrast, the current enthusiasm around Ordinals feels like the emergence of a new cycle, representing a newly discovered demand that will undoubtedly have downstream effects. This is not simply a repetition of past utility; it’s an intriguing development whose potential is only just beginning to be revealed.
Before the advent of Ordinals and BRC-20, there was a widely held belief that Bitcoin played a solely passive role within the blockchain ecosystem, offering little beyond basic asset functionality. This perception has radically changed. Thanks to a number of significant advancements from a usability perspective, Bitcoin is emerging as a critical security provider for DeFi and an asset with new utility and interoperability.
The future of Bitcoin DeFi is about bringing the security of the Bitcoin network to EVM-enabled smart contracts. Leading EVM-enabled Bitcoin scaling solutions are innovative methods to incentivize Bitcoin miners to secure both BTC asset and smart contracts simultaneously but independently. Ensuring that miners, and therefore Bitcoin itself, gain value is essential to expanding the Bitcoin network beyond just protecting BTC assets.
Historically, BTC has primarily served as a passive store of value, not actively involved in DeFi security or commerce. Yet, much like ETH’s dual role in securing Ethereum and as a currency, bitcoin has the potential to evolve into a versatile asset beyond the basic Bitcoin chain. The introduction of Bitcoin staking in 2024 is expected to transform BTC from a passive asset to a rewards-generating asset, marking a significant shift in its utility.
Once DeFi ecosystems are massively aligned with both Bitcoin miners and Bitcoin holders/stakeholders, these ecosystems will become the largest and most secure platforms for “BTCFi”. As advancements like HTLC atomic swaps and innovative bridging solutions overcome technical hurdles, BTC is poised to launch into DeFi protocols. This influx will unlock extraordinary utility for the world’s largest and most trusted blockchain-based asset.
Bitcoin is leading the creative front of blockchain innovation for the first time in years. Now that Bitcoin’s base layer is widely recognized as definitively secure, it’s time to create solutions to take it to new heights. Given that the BTC asset is the definitive self-sovereign asset, it makes sense that the Bitcoin network would be the primary protector of the future of self-sovereign decentralized finance.
We, the Bitcoin community, are keenly aware of the vast potential that lies within our network and its currency. It’s time to move forward and unlock that potential, driving innovations that strengthen Bitcoin, DeFi, and the pursuit of financial independence around the world.