Decentralized finance, better known as “DeFi,” has taken the cryptocurrency industry by storm over recent months. This industry sector has gained increasing traction as investors see the need to earn yields on their capital. DeFi applications have garnered $12 billion in deposits, per a number of data sources.
Innovators in the space have found ways to leverage smart contracts to build financial applications, increasing the utility of cryptocurrencies. Furthermore, the concept of decentralized financial services is fundamentally in line with encroaching on the monopoly of traditional financial systems.
The issue is: DeFi has been centered around Ethereum thus far. This has meant that Bitcoin, which investors like Anthony Pompliano call the “original” DeFi application, has not been able to truly play a role in blockchain-based financial applications.
Even with tools that allow users to “wrap” Bitcoin for usage on another chain, BTC holders currently cannot trustlessly leverage their capital in a decentralized manner.
With Wall Veteran Raoul Pal arguing that Bitcoin is a “pristine reserve asset,” indicating it is the most likely contender to be the reserve currency of a decentralized economy, it is important Bitcoin reclaims its role as the king of DeFi.
What Is RSK?
Launched in 2016, smart contract protocol RSK has become the leader of the movement to bring DeFi back to Bitcoin. RSK is an open-source smart contract platform based on Bitcoin where developers can build anything they please—as long as they can code it.
RSK, which takes the form of a Bitcoin sidechain, offers a Turing-complete virtual machine that is compatible with Ethereum and 30-second block times for fast transactions.
This makes it similar to Ethereum’s Virtual Machine but with the key twist being that it is based on Bitcoin. This simple difference means that BTC can trustlessly be used in and used by RSK smart contracts without clunky solutions that carry custodial and centralization risks.
RSK’s token, Smart Bitcoin (RBTC), is secured by merge mining, meaning that users are offered the same double-spend prevention measures and transaction settlement finality that users expect from the original Bitcoin chain.
DeFi Innovation on Bitcoin Right Now
Innovators in the DeFi space have begun to build on RSK as Bitcoin has become an increasingly dominant force as its network effects continue to outweigh those of altcoins.
The RSK-based protocol Money On Chain has just begun to roll out new products for developers to leverage. Money On Chain is looking to service a number of critical needs within the Bitcoin DeFi ecosystem. Developers have launched a series of products built on the Money on Chain protocol called RIF On Chain.
RIF on Chain is a Bitcoin-backed stablecoin that is pegged to the U.S. dollar through smart contracts, is uncensorable by centralized parties, and is a secure medium of payment for its users. It is similar to MakerDAO, which is an Ethereum protocol that allows users to deposit cryptocurrency in exchange for DAI.
RIF On Chain‘s developers are also offering other products, such as RIFPRO, a token that allows holders to earn interest on their holdings of Bitcoin, and RIFX, a token representing a leveraged Bitcoin position. These products allow users to bypass centralized services, which carry custodial risks.
RIF On Chain is far from the only innovator leveraging RSK to bring DeFi to Bitcoin.
RskSwap is an iteration of the Uniswap protocol, launched on Ethereum. RskSwap is a decentralized exchange focused on user experience. Erik Voorhees, an early Bitcoin adopter, and innovator called decentralized exchanges the most “cypherpunk thing going on in crypto” at the moment. RskSwap is part of that group of decentralized exchanges.
The introduction of projects like Money on Chain and RskSwap shows that RSK is crucial in helping Bitcoin investors gain access to a full-stack ecosystem where they can leverage their BTC and earn a yield for doing so.
Ethereum DeFi projects can also connect to RSK through a new interoperability bridge. This allows established DeFi protocols and coins to interact with the base money of the entire cryptocurrency ecosystem, Bitcoin, creating a new degree of utility and liquidity for blockchain financial applications.
The RSK-Ethereum bridge was recently utilized to bring MakerDAO’s DAI stablecoin to Bitcoin and to be traded on RskSwap. DAI can now be used within Bitcoin-based decentralized finance protocols. MakerDAO founder Rune Christensen sees the move of integrating MakerDAO’s DAI into Bitcoin as pivotal:
“RIF integrating DAI creates a new world of opportunity for the bitcoin community to participate in defi,” he said announcing this recent integration.
Leading the DeFi Movement on Bitcoin
Being the most well-known and respected cryptocurrency at an over $200 billion market capitalization, it is important that Bitcoin returns to its position as the reserve asset of the DeFi ecosystem.
Current systems do not cut it: if you want to use Bitcoin in Ethereum’s DeFi applications, one must send coins to a centralized counterparty, then trust that they do not lose or take your coins.
RSK provides a crucial solution to this issue: by being a smart contract protocol built on Bitcoin itself by acting as a sidechain, BTC can be a scarce, liquid, and decentralized reserve asset of the DeFi economy.
As Bitcoin becomes an increasingly dominant reserve asset, the desire for Bitcoin to be used in decentralized financial applications will increase. RSK plays a pivotal role in allowing BTC to truly be leveraged in decentralized applications. In fact, right now, RSK might be Bitcoin’s best bet to make a strong return to DeFi.
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