Bitcoin DeFi Ecosystem Explained

by Arthur · January 17, 2023

Besides wBTC, Stacks and Rootstock, BadgerDAO, RenVM and Liquid Network promote various use cases of Bitcoin DeFi.

Table of Contents

BadgerDAO

A decentralized autonomous organization (DAO) called BadgerDAO enables BTC to be used as security across various DApps. BadgerDAO uses the Ethereum-based token BADGER for protocol management and incentive distribution.

Users can earn income from their synthetic BTC assets using Sett Vaults, the first product offered by Badger. Users can unlock their tokenized Bitcoin in SETTs, which are pools of tokens, and let smart contracts manage their holdings to produce a return in the form of bTokens.

The second product from Badger, called Digg, is software that controls the elastic supply cryptocurrency called the DIGG token, linked to the price of BTC in US dollars. Like all other tokens, DIGG can be invested in SETTs to provide a return for the holders and used in DeFi protocols.

RenVM

The decentralized Ethereum protocol Ren creates tokens that monitor the value of non-Ethereum assets like Bitcoin and offer liquidity to projects on multiple blockchains. That said, Bitcoin holders can use Ren (required to pay nodes) to access Ethereum’s range of DeFi products without selling their BTC or moving their assets across blockchains.

The Ren virtual machine stores the original funds, accepts tokens from one blockchain and generates new tokens on another through the RenBridge to exchange assets between blockchains. For example, a user can submit BTC to RenVM, which will issue renBTC, a new token on Ethereum that will reflect the original Bitcoin, meaning that when the user wants to get the Bitcoin back, the transaction can be reversed.

Liquid network

The Liquid Network is a layer-2 Bitcoin solution and a settlement network between exchanges that enables the issuance of digital assets such as security tokens, stablecoins and other financial instruments privately and quickly on top of the Bitcoin blockchain.

LBTC, a wrapped version of Bitcoin, serves as the native token on the Liquid sidechain. Users send BTC to a Lightning Network address (a process called peg-in) on the Bitcoin network to use the Liquid Network. A similar amount of LBTC is minted on the Liquid Network and delivered to the user’s address after the transaction has received 102 confirmations.

In addition, peg-out can be initiated to withdraw BTC by sending LBTC for burning to an unrecoverable address, which, upon receiving two separate confirmations, allows a Lightning Network member to send the original BTC to a user’s Bitcoin network address.