Decentralized Finance, or rather DeFi started as a playing field for developers to create decentralized financial apps on the Ethereum blockchain. Developers and the young project teams utilize the Ethereum open-source tools to build decentralized financial apps that eliminate the need for costly intermediaries.
Moreover, the Dapps provides anybody with an internet connection with diverse financial products and services such as cryptocurrency exchange, margin trading, derivatives, synthetic assets, algorithmic trading, and lending markets. The two key applications of DeFi are a high-yield savings account, and access to credit.
Introduction of BTC to Ethereum’s Decentralized Finance ecosystem
Despite DeFi projects being built on the Ethereum Network, they have been utilized as the foundation asset and the fundamental source of security. Regardless, the DeFi sector is now seeing attempts to feed Bitcoin into its system.
In particular, the BTC peggs are attempting to link ETH and BTC; integrating Bitcoin’s high liquidity, volume and bigger adoption, with ETH’s flexibility and financial applications ecosystem. Some of the notable projects attempting to bring Bitcoin to the DeFi sector include tBTC (Keep Network), WBTC (Wrapped Bitcoin), imBTC (TokenIon), renBTC (Ren), sBTC (Synthetix)and pBTC (ptokens).
Indeed, the more familiar way developers undertake this is by creating a Bitcoin-backed ERC-20 token, that is underpinned to the market price of Bitcoin. In other words, the procedure requires a user to deposit BTC into a smart contract, and afterwards, the contract produces a fresh BTC-pegged token that can be accessed through the user’s ETH wallet.
Bitcoin and Ethereum set to battle for dominance
It appears as though Bitcoin and Ethereum are set to directly compete to serve as Decentralized Finance’s fundamental reserve asset. Regardless of Bitcoin’s pressure to exert dominion, Ethereum will also benefit as DeFi apps need users to spend in ETH, to process transactions. This surmises that the Ethereum Network will remain the superior blockchain for DApps, and other rival platforms such as Tezos and Algorand are unable to capture a significant market share.
The integration of BTC into the DeFi ecosystem is still at its infancy. It remains to be seen whether Bitcoin will come out as the top reserve asset accelerating DeFi. The market will determine which digital currency is worthwhile.