- Cardano’s Cardinal is a DeFi protocol for Bitcoin users, providing access to lending, borrowing, and staking without centralization.
- Unlike traditional wrapped Bitcoin, Cardinal uses MuSig2 to sign transactions with no reliance on custodians securely.
- BitVMX enables safe BTC-to-Cardano transfers, allowing users to interact with both Bitcoin and Cardano networks seamlessly.
Cardano has introduced Cardinal, the first decentralized finance protocol for users of Bitcoin. Charles Hoskinson, founder of Cardano, announced Cardinal on June 9, giving Bitcoin users access to tools in DeFi, including lending, borrowing, and staking, without using centralized solutions. The team behind Cardano, Input Output, has introduced this new protocol, providing more options for Defi users of Bitcoin.
Cardinal takes Bitcoin’s unused outputs, also called UTXOs, and converts them into wrapped tokens. These UTXOs represent unused parts of previous Bitcoin transactions that show ownership. These wrapped Bitcoins are subject to a protocol that maintains a 1:1 ratio with the original Bitcoin. They can receive their wrapped Bitcoin back at any point, and this is a reliable and safe process that allows them to keep moving their assets.
Cardinal vs Regular Wrapped Bitcoin
The main difference between Cardinal and regular wrapped Bitcoin is its trust-minimized setup. While other systems have custodians or federated methods, Cardinal utilizes MuSig2 to allow different people to sign transactions at the same time. As a result, the original Bitcoin remains safe and secure on the original blockchain. If any user behaves dishonestly, the system is still safe.
Cardinal’s innovative take on rehypothecation stands out among the standard practices in the financial world. In several systems, custodians can reuse user assets without revealing all the details to them. Furthermore, Cardinal ensures this by placing complete asset control in users’ hands. It ensures that the original Bitcoin is kept secure, but users can still make use of DeFi services.
BitVMX is also part of the protocol, as it lets users run complex Bitcoin tasks and still keep the system decentralized. Due to this integration, asset transfers between Bitcoin and Cardano are secure and efficient. As a result, users can use Cardano’s smart contracts and Bitcoin’s scripting features to connect the two networks smoothly.
Cardano Ecosystem Growth
During the Bitcoin 2025 conference, a demonstration of transferring BTC to Cardano without a bridge was performed by BitVMX. The event showed that Cardinal could become a major part of Bitcoin applications, boosting ADA role in the growing world of DeFi.
Source: DefiLlama
Cardinal’s launch has brought many people into the ADA ecosystem, but Cardano’s TVL has gone down from $415 million in May to $334 million by June 10, as per DefiLlama data. Yet, the ADA team is confident that ADA will introduce new liquidity, enabling those holding Bitcoin to utilise DeFi services while remaining within the Bitcoin ecosystem.
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