O que é BTCFi? Um Guia para o Crescente Ecossistema BitcoinFi

BitcoinFi, BTCFi, or Bitcoin Finance are new terms that all refer to decentralized finance (DeFi) on Bitcoin. 

While DeFi has predominantly been built on Ethereum and other smart contract-enabled Layer 1 chains, Bitcoin has emerged as a new home for DeFi thanks to the Taproot upgrade and the boom in Bitcoin Layer 2s. 

Read on to learn everything you need to know about the growing BitcoinFi (BTCFi) ecosystem.

What Is BitcoinFi?

BitcoinFi (BTCFi) is short for Bitcoin Finance, which refers to decentralized finance (DeFi) applications built on Bitcoin or Bitcoin Layer 2s. 

By capitalizing on Bitcoin’s security and decentralization, BTCFi allows users to lend, borrow, trade, and earn yield using Bitcoin and Bitcoin-native assets like Ordinals or Runes. 

Unlike the DeFi ecosystems on leading Turing-complete blockchains like Ethereum and Solana, BTCFi is just getting started—but it’s already laying the foundation for a decentralized financial ecosystem built on Bitcoin’s censorship-resistant principles. 

BTCFi is the next frontier for unlocking Bitcoin’s potential, turning the Bitcoin network into the infrastructure for the future of finance.

A BTCFi Origin Story: How Bitcoin Finance Came to Be

Bitcoin wasn’t always the vibrant DeFi hub that it is today. The most significant obstruction here was the fact that it’s not programmable–you can’t whip out a complex smart contract and have it run on the Bitcoin blockchain. This is, of course, required to make things like decentralized lending, liquidity pools, and token swapping happen.

For a while, it seemed the rise of DeFi on other chains would enter into competition with Bitcoin as the biggest and most widely used blockchain. Some other blockchains could theoretically support limitless applications. 

However, the rise of different Layer 2 protocols meant these applications could also be built upon Bitcoin. 

Layer 2 means they’re blockchains or sidechains built on top of the Bitcoin blockchain but with their own approaches and specifics. This means they can use Bitcoin’s robust security and immutability while improving speed, performance, and throughput, as well as adding programmability.

Nowadays, BTCFi is a thriving ecosystem that keeps growing and finding different use cases. 

But not everything is necessarily due to L2s. New on-chain protocols, such as Ordinals and Runes, utilize Bitcoin’s main chain to bring DeFi to Bitcoin. 

How Does Bitcoin Finance Differ From Traditional DeFi?

BitcoinFi is also part of the DeFi landscape, but there are some key differences between BitcoinFi and the DeFi we’ve come to know on Ethereum, which is still the biggest DeFi ecosystem.

Bitcoin is very widely known; pretty much everyone has heard of it, while Ethereum is equally famous among crypto users, but not necessarily outside of this world. 

In this sense, Bitcoin leads in both brand recognition and market dominance, as its market cap makes up around 57% of the total market cap in the crypto world.

On the other hand, advanced programmability is native to Ethereum but not to Bitcoin. This is also why Ethereum’s interoperability with other DeFi ecosystems is high: many other projects use the same technology that Ethereum has introduced and popularized, making it easier for both users and devs to shift between these different blockchains.

BTCFi Use Cases & Applications You Should Know

BTCFi has diverse use cases. Let’s explore the key ones.

Native Bitcoin Assets 

Native Bitcoin assets refer to tokens that aren’t BTC but are still part of the blockchain’s core, such as Ordinals and Runes. 

Ordinals are used to create non-fungible tokens (NFTs), as they inscribe data directly onto specific satoshis, the smallest denomination of a bitcoin, to set it apart from others. Runes make fungible tokens by taking advantage of Bitcoin’s UTXO (Unspent Transaction Output) model.

Bridging

Bridging means transferring tokens from one ecosystem to another. 

This includes both different blockchains and different layers of one blockchain. One example is Rootstock, which bridges BTC from the mainnet to the Rootstock L2, where it can then be used to interact with different dapps built on the L2. 

Decentralized Trading

Decentralized trading refers to trading without intermediaries by directly connecting buyers and sellers via trading pools. This is cheaper than the traditional model and arguably more secure since no third party participates in the trade. 

Borrowing 

Borrowing refers to depositing some sort of collateral into a decentralized lending platform and borrowing a certain amount of BTC from them. 

You’ll have a fixed amount of time before you have to return the funds you’ve borrowed, or you forfeit your collateral. This is a quick way, offered by Liquidium for example, to get access to BTC without having to sell other assets, instead using them for collateral.

Lending 

Lending is the other side of the borrowing coin. Also offered by Liquidium, you can earn interest on your BTC by lending them to other market participants (against collateral)

Your BTC will be paid back within the term you set, plus interest. If it’s not, you will be able to unlock the collateral from the borrower. 

Staking 

While you can’t stake bitcoin natively to earn rewards, you can deposit your BTC in BitcoinFi staking apps. 

Many L2s use staking as their consensus mechanism to reach decisions and keep the network running. Dedicated Bitcoin staking platforms, like Acre, let you stake BTC and receive a BTC-derived token in return by taking part in these Bitcoin L2 consensus protocols.  

Benefits and Drawbacks of BTCFi

BitcoinFi has its own set of pros and cons that you need to know about.

Advantages 

• Security: Bitcoin is considered a highly secure environment, even more so than any other blockchains. This is inherited by the L2s and sidechains built on top of Bitcoin, meaning it (usually) spans the whole ecosystem.

• Liquidity: Although BTCFi is relatively new, Bitcoin is still the oldest cryptocurrency in the world, with a $2 trillion market cap. This liquidity can be invaluable for different DeFi applications.

• Opportunities for innovation: The youthfulness of BitcoinFi means developers can make completely new solutions and take pole position in the dApp race by anticipating and serving users’ needs.

Risks & Limitations

• Volatility: Bitcoin is still a volatile asset, and its price movements can impact the way BTCFi works. Although crypto veterans know and expect this, it can be a deterrent to newcomers to the space.

• Compliance: BTCFi regulations are almost non-existent, so it’s hard to tell what regulatory compliance means, depending on jurisdiction. 

• Smaller ecosystem: Since BitcoinFi is so new, you may not have a lot of choices when it comes to picking financial solutions since the ecosystem is still growing.

Access Liquidium to Securely Explore BitcoinFi

If you’re interested in BitcoinFi and want to try borrowing and lending BTC using Bitcoin Layer 1 assets as collateral, Liquidium is the platform for you. 

Here, you can use Ordinals, Runes, and BRC-20 tokens as collateral to secure BTC loans or lend your Bitcoin to others and earn interest. BTCFi, through Liquidium, offers innovative ways to earn up to 380% APY on your bitcoin stack.

Access the Liquidium app to connect your wallet and get started today. 

Disclaimer: This article does not constitute financial advice, and we strongly recommend conducting your own research and consulting with a professional financial advisor before making any investment decisions. We are not liable for any potential losses incurred from applying the strategies discussed. Proceed with caution and at your own risk.

FAQs

What are some real-world use cases of BTCFi?

People without access to legacy financial services can use BTCFi solutions to gain access to the global marketplace. In the BitcoinFi market, they can borrow, lend, earn yield, and more by deploying their funds in Internet-native, decentralized financial applications built on Bitcoin. 

What is the role of smart contracts in Bitcoin Finance?

As in all blockchains, smart contracts are a way to automate the processes and ensure they work exactly as they’re supposed to. This means the transactions are self-executing and trustless, which helps maintain BTCFi’s trustless nature.

What is the future of BitcoinFi?

Although it’s never possible to tell the future with any certainty, BitcoinFi is currently seeing lots of innovation and growth. This means it may become even more widely known and used. Additionally, with an increasing number of bridges and swapping solutions, the space could see growth in interoperability and a more holistic approach to the blockchain as a whole.