A number of weeks in the past a CoinDesk headline,”Why Hardnosed Bitcoiners Can Learn to Love DeFi,” caught my eye. The title was designed for controversy. Decentralized finance (DeFi) appears to be all the pieces Bitcoiners reject: ineffective tokens created for haphazard initiatives and fast money-grabs pushed by ponzinomics. All of this occurring on Ethereum, Bitcoin’s unprincipled competitor.
But, to dismiss the piece, and its creator Matt Luongo, can be a mistake. Matt is an ardent Bitcoiner making an argument that to me appears apparent. As a long-time Bitcoiner, it has at all times been my dream to increase Bitcoin’s decentralization to the broader financial system. That’s exactly what Matt is saying: It’s time for us to take our perception in decentralization to the following degree.
Edan Yago is a contributor to Sovryn and founding father of CementDAO. Sovryn is a decentralized bitcoin buying and selling and lending platform. CementDAO is a decentralized instrument to unite the fragmented stablecoin ecosystem.
We have already got a decentralized foreign money; now we must always decentralize the companies by way of which we use that foreign money. I disagree, nonetheless, with Matt’s proposed resolution.
The identical day Matt’s article got here out, we discovered BitMEX, the place so many Bitcoiners have deposited their bitcoin, is under threat. Not solely does this place customers’ bitcoin and personal info in jeopardy, it additionally threatens the supply of a sort of monetary service that many Bitcoiners have discovered helpful.
Over time, all BitMEX-type companies will discover themselves beneath stress to turn into regulated. They’ll demand customers dox themselves by way of know-your-customer (KYC) guidelines. They’ll proceed to turn into centralized chokepoints within the Bitcoin financial system the place authorities can exert stress, management and lengthen their tentacles of surveillance. This isn’t how we construct an uncensorable, permissionless financial system round bitcoin. We want another.
If we wish to lengthen Bitcoin’s ethos of freedom and self-sovereignty past simply hodling, then bitcoin companies should turn into decentralized. That’s what DeFi is. Backside line, no person ought to be paying extra consideration and be extra supportive of DeFi than Bitcoiners.
So the place do Matt and I disagree? Matt suggests the way in which to perform that’s by making the most of the DeFi companies being constructed on Ethereum. To make this doable, he has been working laborious on tBTC, a extra decentralized approach of tokenizing bitcoin on Ethereum.
Ethereum, he argues, is the place the motion is, it’s the place the DeFi companies are, it’s the place the community results are being constructed. All of that is true. Nevertheless, it’s also true that on Ethereum, tokenized BTC, nonetheless properly decentralized the token is, will at all times be a second-class citizen. The bottom foreign money is ether (ETH), the transaction charges are paid in ETH, the safety assurances are these of Ethereum.
For me, and I believe for a lot of, that is at greatest a serious drawback and at worst a deadly flaw. There’s merely no purpose to construct “Bitcoin DeFi” on Ethereum. Bitcoin layer 2 offers all of the instruments to do that in a bitcoin-native surroundings, with clearer safety assurances, decrease charges and with out creating competing altcoins.
See additionally: DeFi Dad – Five Years In, DeFi Now Defines Ethereum
The Bitcoin-sidechain referred to as RSK is host to a rising variety of Bitcoin DeFi companies that present the core monetary features. Money-on-Chain creates a bitcoin-backed stablecoin, giving Bitcoiners entry to U.S. dollar-denominated funds, with out having to the touch fiat. Sovryn will quickly present permissionless and uncensorable spot buying and selling, leveraged buying and selling, borrowing and lending.
As Matt suggests, Bitcoiners have a useful asset and may be capable of earn yield on it with out going by way of a centralized service. That’s doable right now with out Ethereum or some other altcoin. Bitcoin’s huge pool of customers and asset worth is the largest community impact in crypto. Persons are waking as much as the truth that Bitcoin, the unique DeFi, now’s gaining much more decentralized superpowers.