Jack Dorsey, the Twitter CEO and Bitcoin enthusiast, wants to bring decentralized finance onto the OG cryptocurrency protocol.
On July 15, Dorsey announced that his financial services and digital payments company, Square, is creating a new business focused on bringing non-custodial, permissionless DeFi services to Bitcoin. The new company, which is called “TBD” (just like the acronym for “to be determined”), will be an open-source, open developer platform with an open roadmap. Dorsey has said that there isn’t anything more important than Bitcoin for him to work on in his lifetime and recently, Twitter experimented with Ethereum-based NFTs, minting and dropping 140 to Twitter users for free.
So bringing the two together shouldn’t come as much of a surprise.
But while TBD sounds like it will adhere to the permissionless ethos of DeFi, it’s unclear what benefits DeFi on Bitcoin would provide that aren’t already being offered on Ethereum.
Leading figures in DeFi were amused by Dorsey’s plan. “You know Aave already exists right,” wrote Aave founder Stani Kulechov in response to the TBD announcement. He quipped that if Dorsey was building Aave on Bitcoin, then Aave would build Twitter on Ethereum.
While Bitcoin was initially conceived as a peer-to-peer electronic cash system, BTC is most commonly used as a store of wealth akin to digital gold. Meanwhile, the Ethereum blockchain has become the default home for more complex financial services and NFT markets, alongside other blockchains like Binance Smart Chain, Terra and layer 2 solutions like Polygon.
Bitcoin’s straightforward use-case is seen by some as one of its biggest draws when compared to DeFi spaces. Building DeFi applications on Bitcoin could add new attack vectors, not to the core protocol, but to the layer 2 protocols built on top. That could taint Bitcoin’s reputation the same way rug pulls and hacks of DeFi protocols muddy Ethereum’s reputation to some groups of users and onlookers.
But Jeremy Rubin, a core developer for Judica, a Bitcoin research and development organization aiming to help Bitcoin fulfill its original transaction-based purpose, isn’t too worried about potential new vulnerabilities.
As long new blocks continue to be mined, Bitcoin transactions will stay secure. Currently, miners are incentivized to mine through transaction fees so, if anything, more complicated transactions on Bitcoin could drum up larger fees, bolstering its security even more.
“Bitcoin relies on fees for security,” Rubin told The Defiant. “People are paying hefty fees, outpacing Bitcoin itself, for DeFi. The attack vectors I’m most worried about are de-risked by ensuring that there are diverse and broad use cases to establish a robust fee market on Bitcoin. DeFi seems to be a piece of that puzzle.”
Rubin isn’t worried about more complex use-cases diluting Bitcoin’s accessibility either. “The same sorts of primitives required for Bitcoin DeFi are also required to achieve mass scalability,” he said. “Why cut off a nose to spite one’s face?”
Bitcoiners Already in DeFi
As it happens, Bitcoin traders who want to engage in DeFi lending and borrowing protocols like Aave can already access them with Wrapped Bitcoin (WBTC), an ERC-20 token usable on Ethereum that represents Bitcoin at a 1:1 ratio. There is more than 195,000 WBTC, worth $5.7B, on the Ethereum network right now. This displays that DeFi and Ethereum’s broader capabilities are an attractive use case for many Bitcoin holders.
That said, wrapping BTC to use on Ethereum adds a step to the process that might turn off some Bitcoin investors, especially since Bitcoin is the longest-running, most secure blockchain and some investors (i.e. Bitcoin Maximalists) will not want to move their assets to what they view as a less secure chain.
Then again, a smooth end-user experience with DeFi applications on Bitcoin could potentially attract wary investors. If this happens, DeFi on Bitcoin might become an ideal gateway for many into the full-fledged DeFi community.