Finance Redefined is Cointelegraph'due south DeFi-centric newsletter, delivered to subscribers every Wednesday.

Today the crypto globe is celebrating Bitcoin's new all-time high. We did information technology guys! Nosotros're back to $twenty,000 after three grueling years.

So for this reason, this will be a bit of a Bitcoin-themed newsletter. How is Bitcoin related to DeFi, you enquire? Well, for one thing, DeFi'south total value locked has a delta of about 0.2 to Bitcoin's price. This means that for each 1% that BTC toll goes higher or lower, DeFi TVL changes past 0.ii%.

BTC and Wrapped BTC locked in DeFi, co-ordinate to Defipulse .

Most of that relationship is due to the peculiar accounting choice of considering BitGo's Wrapped BTC as its own asset in DeFi, while also counting all instances where WBTC is used in DeFi protocols. From a "natural" worth of $535 million, Bitcoin'southward contribution to total value locked jumps to $two.9 billion — a pretty major discrepancy, correct?

But beyond Bitcoin'southward use on Ethereum, there is also the phenomenon of Bitcoin DeFi. Now, the affair is that none of these are actually "Bitcoin" DeFi, considering Bitcoin just does not let you create the circuitous smart contracts needed to implement true DeFi. The only project I know of that sort of does that is Diminutive Loans. You pledge Bitcoin natively, but all smart contracts are on Ethereum and your loan is disbursed in that location.

Bitcoin DeFi does exist on RSK and Liquid, 2 Bitcoin "sidechains" — separate blockchains that use Bitcoin as their native currency. RSK likewise uses merge mining to validate its own chain, resulting in a much tighter bail with the main chain.

The trouble is of course that since Bitcoin doesn't have smart contracts, the path for BTC to reach those "DeFi" sidechains is commonly custodial and centralized. But we recently saw RSK button a solution that makes the bridge effectively trustless, so I'1000 starting to warm up to seeing it every bit two sides of the aforementioned Bitcoin.

The Bitcoin DeFi roundup

RSK has definitely been active on the DeFi front. This week, Sovryn launched its DeFi suite on RSK. It'due south a mix of several building blocks, including a lending protocol and an automated market maker exchange, or AMM. Similar to bZX'southward Fulcrum, the combined suite makes information technology easier to enter leveraged positions on Bitcoin without taking the transmission steps you'd have to have on, say, Compound.

Amidst the more than interesting protocols on RSK we take TEX, a sort of mix betwixt an AMM and an order volume exchange. The mechanism is complex, but essentially it settles orders every few minutes based on an average of all limit orders submitted. The exchange was launched by Dollar on Chain, RSK's Maker analog with a few additional features.

On the Liquid side — the sidechain developed by Blockstream — there is less variety, although at that place is some other interesting twist on decentralized exchanges chosen TDEX. It uses atomic swaps to perform trades and allows consummate control over settlement price, unlike AMMs, where you don't really know your trade'southward toll until the order is executed.

Tokenized Bitcoin on Ethereum

The nearly pop type of Bitcoin on Ethereum is Wrapped Bitcoin, as I've mentioned. Quite simply, BitGo (and supposedly other partners) takes custody of Bitcoin that's bridged to Ethereum, and and then they mint the respective WBTC tokens. Very similar to Tether or other centralized stablecoins, information technology feels similar a cop out.

For tokenized Bitcoin to be relevant, we need to solve this pesky issue of relying on custodians to bridge it to new chains.

The tBTC project is one such trustless Bitcoin bridging mechanism. The project really embodies the "make lemonade" principle to its fullest. To avoid Bitcoin'due south smart contract limitations, information technology allows anyone to become a "bonding amanuensis" tasked with performing the conversions between Bitcoin and Ethereum. In case of any wrongdoing, users take a claim to the agent's bail on Ethereum, which is overcollateralized when compared to the bridged amount.

As you may expect, tBTC's machinery of bonds and slashing is quite complex and is probably stifling adoption, so this calendar week tBTC partnered with the CoinList exchange to provide an easier method for minting the token. That may also be interpreted as a cop out, simply the fundamental feature is that the system is all the same open to anyone, instead of being operated past an exclusive and well-defined set of validators.

Lastly, at that place is RenBTC. While the squad uses fancy words like "Shamir's Hugger-mugger Sharing" and "Multi Party Ciphering" to justify itself as a trustless and permissionless bridging protocol, enquiry by Wanchain seems to show that all BTC in their bridge is held past a unmarried wallet, presumably controlled by the squad. Wanchain is a competitor, so brand of this what yous will — I don't actually take the expertise to approve this rapidly.

In practise, Ren is definitely simple and permissionless enough. So much so that DeFi hackers have now turned to it to launder their gain. The nearly likely caption I encounter is that the Bitcoin blockchain is just much harder to runway, and mixing solutions are much more liquid on it than Ethereum'south Tornado Cash.

If Ren is really as centralized as information technology seems, I could foresee major problems if the team continues letting hackers use information technology. The full general rule of financial regulation is that if you tin can stop money laundering, you must — in a very vigorous and proactive way. Still, private instances of money laundering are non a big deal, provided in that location is an adequate anti-money laundering program.

Overall, Bitcoin may become the most promising expansion avenue for DeFi. You just can't fence with its $383 billion market capitalization. Whether it'due south on Ethereum, on Bitcoin sidechains or anywhere else, DeFi would be a natural extension for Bitcoin as an asset.

In other news

  • BNC publishes a roundup of all DeFi non-financial (read: Technical) risks. Highly recommended reading.
  • Nexus Mutual'due south founder Hugh Karp got hacked for $8 million in personal NXM tokens. The hacker and so demanded a bribe to stop dumping those tokens.
  • Compound governance refused to compensate victims of an unfair liquidation event in November.
  • Incognito launches pUniswap, a way to merchandise on Uniswap with complete anonymity.
  • Cardano keeps onboarding DeFi projects.
  • I of the first instances of cantankerous-shard DeFi interoperability was sighted on Polkadot.
  • The CFTC is evaluating DeFi, and it's not quite certain what to make of it.