The rise of decentralized finance (DeFi) has coincided with the birth of Chainlink’s industry-leading decentralized oracle network, which has enabled over $19 trillion in transaction value. Now the standard for onchain finance, Chainlink’s comprehensive web3 services support a spectrum of tokenized real-world assets and stablecoins issued by leading DeFi protocols and top financial institutions such as ANZ and Fidelity International.
Tokenization’s next frontier is DeFi on Bitcoin (BTCFi) leveraging the world’s oldest and largest cryptocurrency with an underutilized market capitalization of over a trillion dollars. While DeFi was historically the domain of networks with inherent smart contract capabilities, such as Ethereum, advancements like the 2021 Taproot upgrade made it possible to build more complex DeFi applications on Bitcoin and unlock BTC’s utility throughout the onchain economy.
BTCFi use cases resemble those of traditional DeFi but are deployed on Bitcoin and often use BTC as the native asset. The same Chainlink services that provide high-quality data, computation, and cross-chain interoperability to power secure, reliable DeFi applications are being adopted to uncover the full scope of BTCFi.
Wrapped Bitcoin
Wrapped Bitcoin (wBTC) is an ERC-20 token that is backed 1:1 by reserve BTC and can interact with Ethereum-based decentralized applications and DeFi protocols. Chainlink Proof of Reserve (PoR) is essential infrastructure for wBTC because it verifies in real time that onchain assets are fully collateralized.
21.co, the parent company of 21Shares – one of the world’s largest issuers of crypto exchange-traded products – integrated PoR on Solana and Ethereum to enhance the transparency of 21BTC. DLC.Link, an infrastructure provider for the Bitcoin ecosystem, also utilizes PoR and Cross-Chain Interoperability Protocol (CCIP) to enhance reserves transparency, secure minting, and enable cross-chain transfers of dlcBTC.
Bitcoin Staking
PoR also plays a critical role in securing BTC staking protocols, which allow users to lock up their BTC to earn rewards. After a $2 million security exploit involving uniBTC last September, multi-asset liquid restaking protocol Bedrock integrated PoR to secure its minting function and prevent similar attacks in the future.
Lombard Finance, the largest provider of BTC liquid staking tokens (LSTs) by market share, partnered with Chainlink to promote a secure, scalable, decentralized BTC-based economy through Chainlink’s essential tokenization infrastructure – PoR, CCIP, and Price Feeds – to support its flagship LST, LBTC.
Solve, the largest Bitcoin staking protocol with $2B+ TVL, also adopted the Chainlink standard by integrating PoR, CCIP, and Price Feeds across Arbitrum, BNB Chain, and Ethereum to protect and enhance SolvBTC.
Bitcoin Layer-2s
Bitcoin layer-2s are offchain networks built on Bitcoin to expand BTCFi’s smart contract capabilities with greater scalability, reduced fees, and deeper liquidity. CCIP is crucial for Bitcoin L2s because it provides the highest level of cross-chain security and a separate Risk Management Network that independently monitors cross-chain transactions.
Bitlayer, the first Bitcoin L2 built on the Bitcoin Virtual Machine (BitVM) model, integrated CCIP as its canonical cross-chain infrastructure to drive BTCFi adoption. Similarly, Chainlink Scale member Botanix Labs is integrating CCIP and Data Feeds into Spiderchain, the first fully decentralized EVM-equivalent L2 network on Bitcoin, to unlock the full potential of BTCFi.
As Botanix Labs COO Alisia Painter highlighted during SmartCon 2024, BTCFi harnesses the most decentralized and censorship-resistant cryptocurrency to open up a new world of possibilities. For example, Bitcoin’s unique resistance to local political economies can broaden cryptocurrency’s global adoption by democratizing access to high-performing asset classes such as private equity or stock markets.
The future looks bright for BTCFi and Chainlink is leading the way.