.png){kind=logo}
Bitcoin’s nascent DeFi scene is getting a lot of excitement, with proponents saying that it will ultimately unlock more than $1 trillion in idle capital that currently does nothing more than act as a store of value.
Few will deny the potential is there, but one of the challenges is the increasingly fragmented nature of Bitcoin liquidity available to Bitcoin-native decentralized applications. So long as liquidity remains low, it presents an enormous challenge for Bitcoin DeFi, but fortunately solutions like Zeus are striving to do something about it.
Liquidity is vital for DeFi, because it’s the main force that enables traders to buy or sell digital assets without any significant price impact. If liquidity in any asset market is low, one big trade can have a dramatic impact on its price, leaving it open to potential manipulation. Of course, if the available liquidity is too low, it might not even be possible to make such a big trade in the first place.
Bitcoin has a problem in this regard. For years, observers have been warning that the Bitcoin market is edging closer to a liquidity crisis, as the amount of BTC available to trade on crypto exchanges has steadily decreased. This stems from the fact that many believe BTC represents an excellent long-term investment. They expect is price to increase dramatically in the next five or ten years, and that expectation is a strong incentive to keep “hodling” the asset.
More recently, with the debut of numerous Bitcoin ETFs earlier this year, numerous big traditional financial institutions have gotten into the game, buying up thousands more Bitcoins so they can market the asset to old-skool investors. The result is that there are fewer than ever Bitcoins on the open market, and that has been one of the key factors driving up its price this year.
In Bitcoin DeFi circles the liquidity problem is even more acute. The vast majority of BTC simply doesn’t interact with any DeFi protocols, instead being held by centralized exchanges or in the wallets of long-term crypto holders. There are several reasons for this inactivity. Fact is, until recently Bitcoin DeFi wasn’t even a practical or safe option for most users, due to the lack of interoperability with other blockchains and the lack of smart contract functionality on the Bitcoin network. With the emergence of various Bitcoin Layer-2 networks, that has changed, with projects like Stacks, Rootstock, Merlin Chain, Babylon and SatoshiVM all bringing DeFi utility to BTC users. But another challenge is that many of these dApps are extremely complex, making them intimidating for a large number of users.
Add to that, what limited BTC liquidity that does exist in DeFi is fragmented across each of these L2 networks due to a lack of interoperability. A DeFi application on Stacks, for instance, cannot easily interact with a dApp on Merlin Chain, and so both will struggle to scale.
Bitcoin liquidity might not always be such a problem, though. Zeus Network is a new project that’s trying to destroy Bitcoin’s liquidity barriers by making it much simpler for BTC holders to access the lucrative DeFi ecosystem on the Solana blockchain. It abstracts away the complexity of bringing BTC to Solana-based dApps, so all users need to do is process a simple transaction to start earning yield on their holdings.
Zeus has created a permissionless communication layer between Solana and Bitcoin that leverages the former’s blazing fast infrastructure to process those transactions instantly, with dynamic and secure composability. Because it’s permissionless, there’s no barrier to entry. Users can simply connect their Bitcoin wallet to the consumer-facing Apollo dApp and from there, access any DeFi protocol on Solana. When users transfer their BTC to Apollo, they’ll deposit the exact same amount of zBTC tokens on the Solana dApp.
The protocol incentivizes BTC users to provide liquidity through a novel staking mechanism that pays out enticing rewards. The Solana Virtual Machine takes care of all of the state-related functionalities, handling the process of integrating BTC liquidity into Solana, processing transactions rapidly at scale.
The result of this easy interoperability between Bitcoin and Solana is likely to be massive growth of BTC-based DeFi. As more users become aware of the opportunities to earn yield while still holding their BTC, it will open the floodgates for billions of dollars of value to pour into Solana’s DeFi ecosystem, reducing transaction costs and slippage and making markets even more attractive to BTC holders.
BTC’s seamless integration with Solana is well underway, and it’s expected to bring enormous amounts of value into a fast-growing DeFi ecosystem that’s among the first to bring accessible yield farming opportunities to Bitcoin investors.
Join our WhatsApp Channel to get the latest news, exclusives and videos on WhatsApp
_____________
Disclaimer: Analytics Insight does not provide financial advice or guidance on cryptocurrencies and stocks. Also note that the cryptocurrencies mentioned/listed on the website could potentially be scams, i.e. designed to induce you to invest financial resources that may be lost forever and not be recoverable once investments are made. This article is provided for informational purposes and does not constitute investment advice. You are responsible for conducting your own research (DYOR) before making any investments. Read more here.
