DeFi
5 Bitcoin DeFi Protocols You Should Know
The introduction of layer 2 protocols on Bitcoin was instrumental in expanding the network’s smart contract capabilities and solving its scalability problem. A byproduct of solving Bitcoin’s constraints is the development of Bitcoin DeFi protocols. Read on as we discuss five exciting Bitcoin DeFi protocols you need to know and pay attention to.
What is Bitcoin DeFi?
Before defining Bitcoin DeFi, let’s take a step back and talk about DeFi in general. Decentralized finance (DeFi) is blockchain’s answer to traditional finance that eliminates centralized intermediaries in financial systems and replaces them with peer-to-peer networks. DeFi protocols rely on smart contracts to automate financial transactions.
Bitcoin DeFi applications generally operate on Bitcoin Layer 2, which offers the type of smart contract capabilities that Bitcoin’s main chain lacks. Bitcoin’s status as the most secure blockchain network provides the ideal infrastructure for DeFi projects prioritizing security.
Top 5 Bitcoin DeFi Protocols
Let’s take a look at the top five DeFi protocols using Bitcoin as their main chain.
Sovyrna
Sovyrna is the largest Bitcoin DeFi protocol, with over $150 million in TVL. Operating on Rootstock (RSK), Sovyrn uses smart contracts for peer-to-peer lending secured on the Bitcoin blockchain. Rootstock is a Bitcoin sidechain known for its security. The non-custodial smart contract dApp allows Bitcoin holders to earn a return on their assets.
The Sovyrn platform is powered by the SOV token, which serves as the protocol’s governance token. The determination of voting power uses a quadratic formula which takes into account the amount and duration of the SOV involved.
ALEX
Automated Liquidity Exchange (ALEX) is the leading Bitcoin DeFi protocol on Stacks with over $70 million in TVL. The platform offers decentralized exchange, yield farming, borrowing, lending services, and a launchpad for Stacks projects.
The ALEX token is the platform’s native currency that primarily serves as an incentive for participation, but can also be used to earn money through staking. The token grants holders voting rights on future developments, policies and fees. The Alex Lab Foundation makes decisions regarding company operations. There are plans to move to a DAO, with ALEX holders gaining voting rights currently reserved for the foundation.
Arkadiko
Also built on Stacks, Arkadiko is a non-custodial liquidity protocol with over $3 million in TVL. The lending protocol allows participants to collateralize their STX tokens and mine the USDA stablecoin.
The DIKO token, the native token of the platform, serves as an incentive for contribution and participation. The token grants its holders the governance right to vote on on-chain governance proposals and future developments.
The weight of the vote depends on the proportion of tokens involved. Holders cannot, however, vote on questions concerning the management and operations of the company. There are plans to move the protocol to a DAO structure, allowing DIKO holders to vote on all issues.
LNS Exchange
LNSwap is a non-custodial atomic swap protocol on Stacks that allows participants to exchange Bitcoin for digital assets. Its compatibility with Lightning allows for fast transactions while maintaining low transaction costs.
The platform brings together liquidity providers who add funds to the pool, users who trade assets, and aggregators who record events on the protocol. Currently, LNSwap uses a router to perform the aggregator function. The development team plans to move to an on-chain smart contract to achieve complete decentralization.
Stack exchange
Stackswap is an automated market maker (AMM) on Stacks with over $280,000 in TVL. Users can launch and trade tokens, create and trade NFTs, and borrow cryptocurrencies. The platform includes liquidity providers who provide funds to the pool and traders.
The STSW token is the platform’s native utility and governance token. Users who stake their tokens earn voting rights via vSTSW, which are burned at the end of the staking period. Voting rights are limited to platform functionality and do not extend to management and the operations of the company.
Conclusion
DeFi has arrived on Bitcoin, attracting a number of new users – from DeFi degenerates to Bitcoin maximalists – who are looking to explore the yield generating opportunities this new market has to offer.
The growth of Bitcoin Layer 2 protocols has been the primary growth driver enabling Bitcoin DeFi, which was previously hampered by the lack of smart contract capabilities on the Bitcoin blockchain.
Today, Bitcoin holders can deploy their coins across a wide range of DeFi protocols to monetize their digital gold.
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