The factors that limit the growth of DeFi on Bitcoin: the latest analyses

In this article, we address an analysis of the current limitations that DeFi on Bitcoin must face in order to grow significantly and compete with Ethereum and other established networks in the sector. Despite the recent implementations of Ordinals, Runes, and BRC-20 tokens, Bitcoin remains a decentralized environment that is not very fluid and not very efficient for users who intend to seek a native yield.

Despite the recent introduction of Ordinals, Runes, and BRC-20 tokens, Bitcoin's decentralized nature poses challenges for users seeking native yield. This limitation hinders the growth of DeFi on Bitcoin.

To address this issue, several protocols and initiatives are emerging, each offering a unique approach to enhancing yield efficiency and scalability within the Bitcoin ecosystem.

SolvBTC, a platform that enables users to obtain yield on their BTC positions by utilizing it in liquid staking protocols on the Ethereum blockchain, aims to resolve the problem of low yield and inactive Bitcoin supply.

SolvBTC serves as a bridge between BTC and EVM chains, allowing users to earn a return on their BTC positions by participating in liquid staking protocols on the Ethereum blockchain.

This approach combines the benefits of both worlds, enabling users to generate a yield on their BTC positions while also contributing to the security of the Ethereum network.

SolvBTC recently partnered with Ethena Vault to offer a net APY of 15%. Users can deposit native BTC into SolvBTC, which is then used as collateral to obtain stablecoins.

These stablecoins are used to mint USDe from Ethena, capturing the yield from arbitrage in interest rates in the futures markets.

Another protocol that is facilitating the emergence of DeFi on Bitcoin is Master Yield Market, which enables users to directly purchase yield resources from native blockchain DeFi protocols for Bitcoin, Tether, Ethereum, and wrapped Bitcoin (WBTC) from a single platform.

This approach simplifies the experience of searching for yield within the chain, offering a solution that is both easy and low-effort.

Meanwhile, other developers are focusing on improving the underlying capacity of the Bitcoin blockchain to enhance DeFi performance.

Sunny Fung, a developer at MetaID, believes that Bitcoin needs to improve in terms of scalability and network congestion in light of a potential future growth of the DeFi sector.

According to Fung's analysis, one possible solution is to group individual transactions into a single layer-2 application to save time and effort.

Fung argues that although Bitcoin was initially designed as a layer for the simple exchange of money, it could soon become the “best carrier for web3 applications” thanks to some key features of the chain such as high consensus, strong security, efficient on-chain data storage (inscription on satoshi), and decentralization.

However, it is important to note that all these approaches mentioned in the article involve operational risks that should not be excluded in the evaluations, especially regarding exposure to the USDe Vaults of Ethena (use of algorithmic stablecoin) and the use of second-layer networks that are less secure than the main Bitcoin network.