Bitcoin’s (BTC) role in decentralized funding (DEFI) is growing as the world’s largest cryptocurrency develops from more than just a store of value, Binance Research said in a report on Thursday.
The Bitcoin network “develops into a wider decentralized financing ecosystem with the emergence of Bitcoin Defi,” Analyst Moulik Nagesh wrote.
This is a sector that “unlocks Bitcoin’s capital efficiency” with the use of financial applications focusing on lending, stacking, stableecoins and decentralized exchanges (DEXs), the report said.
Defi is an umbrella expression used for lending, trade and other financial activities performed on a blockchain, without the need for traditional intermediaries.
Binance noted that only ~ 0.8% of the Bitcoin supply is currently used in defi, and this provides a great “unused option.” In fact, last year, Julian Love said, a deal analyst at Franklin Templeton Digital Assets, the opportunity could be as much as $ 1 trillion.
Binance Research Report said Bitcoin needs Layer 2S as the network lacks “original programmability”, as opposed to smart contract -based layer 1S. A layer 1 network is the base layer or the underlying infrastructure in a blockchain. Layer 2 refers to a set of off-chain systems or separate blockchains built on top of layer 1S.
While there has been some progress in the development of Bitcoin Layer-2 networks, these platforms need greater adoption and liquidity incitaments to scale up effectively, Binance Research said.
The network’s security model faces “long -term sustainability challenges” as block rewards continue to halve, says the report, reducing the incentives for mines.
The long-term viability of Bitcoin Defi is dependent on execution, the further development of LAG-2s and “the ability to adapt to Bitcoin’s unique value proposition,” the report added.
Read more: Ethereum L2 Starknet Seeks ‘Bitcoin’s Defi Take-Off Moment’ with BTC Wallet Xverse
