We are aware of fraudulent individuals impersonating Leather on a number of accounts. Please note that there is no official Leather Telegram group or Leather token.

We are aware of fraudulent individuals impersonating Leather on a number of accounts. Please note that there is no official Leather Telegram group or Leather token.

We are aware of fraudulent individuals impersonating Leather on a number of accounts. Please note that there is no official Leather Telegram group or Leather token.

Back

Bitcoin DeFi

7/11/24

The Impact and Landscape of Bitcoin Layer 2

The Impact and Landscape of Bitcoin Layer 2

The Impact and Landscape of Bitcoin Layer 2

The emergence of Bitcoin Layer 2 networks like Stacks and consequently the rise of L2 projects have positively impacted the Bitcoin DeFi landscape. These Stacks-based protocols are opening new avenues to leverage BTC as an asset and creating a billion dollar market opportunity.


Bitcoin L2s are expanding the DeFi space by accommodating the rising BTC market demand, capital influx, and user adoption rates.

The Untapped Potential of Bitcoin

In October 2024, the market valuation of BTC surpassed $1.35 trillion, according to CoinMarketCap, and surpassed silver to become the 8th most valuable property.


Although Bitcoin enjoys unparalleled dominance over other cryptocurrencies, it remained underutilised and unproductive in user wallets. Bitcoin’s enormous liquidity reserves stayed dormant due to the network’s restricted scalability. Additionally, the Bitcoin network doesn’t natively support programmable smart contracts and has a delayed block confirmation time.


These problems affected financial activity on Bitcoin and hindered the growth of BTC-based decentralized finance. However, in the absence of Bitcoin DeFi, it will never be possible to build an alternative to legacy financial systems through Bitcoin.

Making Bitcoin more suitable for DeFi



Developers within the Bitcoin community have been working for a long time to improve Bitcoin’s functionality and performance. The aim was to make Bitcoin more suitable for DeFi and empower users to capitalize on their vast BTC reserves.


For example, Casey Rodarmor’s launch of Ordinals in January 2023 and Runes Protocol in 2024 have introduced NFT-like inscriptions and fungible meme coins on Bitcoin. These tokens have helped developers experiment with a number of possible DeFi-related use cases.


Similarly, the launch of Bitcoin Layer 2 networks like Stacks has opened up new avenues in Bitcoin finance. Stacks offers smart contract functionality to Bitcoin and the recent Nakamoto upgrade reduces transaction processing time to 5 seconds with immediate transaction confirmation.


Layer 2 networks like Stacks empower developers to create applications that make Bitcoin a more versatile asset class. These apps enable users to leverage BTC in multiple ways. For instance, anyone can use BTC as a collateral to borrow other crypto or as a digital asset that can earn yield.

How Stacks Contributes to Bitcoin DeFi

Stacks provides a platform with much of the programmability needed to unlock DeFi capabilities for Bitcoin developers and users. It has opened up the space for unprecedented development and user adoption, making Bitcoin Layer2s a strong competitor of Ethereum Layer 2s.


Bitcoin L2s like Stacks have the potential to address the surging market appetite, trading volumes, and emerging user expectations. Stacks provides a sustainable ecosystem to bolster Bitcoin’s use cases and help drive innovation in Bitcoin DeFi.


A lot of the activity on Bitcoin is powered by Stacks-based protocols and tokens like ALEX, Velar, STX City, and other projects.

How Stacks Projects Contribute to Bitcoin DeFi

ALEX is one of the most successful projects on Stacks that facilitates the creation of a finance layer on Bitcoin. The ALEX protocol has a total value locked (TVL) of over $158 million with over $2 billion in total transaction volume across 66K active wallets.


The ALEX DeFi ecosystem provides the following decentralized applications (dapps):

  • SWAP- It is a decentralized exchange (DEX) that leverages automated market makers (AMMs) for seamless token swaps.

  • KICKSTART- It is a launchpad that provides the necessary tools to kickstart new projects within the Bitcoin space.

  • LISA- It offers Bitcoin liquid staking options to maximize yield from idle BTC assets.

  • TRADE B20- It is a trading platform for BRC-20 and SIP-10 tokens with optimal price discovery mechanisms.

  • XLINK- It is a Bitcoin bridge that connects various blockchains to ensure smooth asset transfers.


Velar is another popular Stacks protocol for unlocking Bitcoin’s liquidity through swapping, trading, and launching digital assets. The Velar ecosystem offers the following dapps:


  • Velar DEX- The DEX enables users to swap tokens with minimal fees.

  • Perpetual DEX- It enables traders to trade crypto with 20x leverage, ensuring more security for users.

  • Memestacker- It allows users to launch memecoins on the Bitcoin network without any fees.

  • Velar Bridge- It facilitates interoperability and bridges assets across different ecosystems.

  • Velar Launchpad- The launchpad is coming soon and it will help projects start their operations on Bitcoin.


Similarly, STX City is another project that empowers users to launch memecoins in a few seconds without any prior coding knowledge. It also supports Bonding Curve tokens. These are some of the projects that are taking Bitcoin DeFi to the next level.

Unlocking Bitcoin DeFi’s True Potential

A Spartan Research report states that Bitcoin DeFi offers a 7-fold growth opportunity without considering any additional liquidity influx. To better understand the point, let us closely look at the report’s statistics.


In December 2023, BTC’s market cap was $850 billion, 3.1 times more than Ethereum’s $270 billion. But, Ethereum’s DeFi TVL was $76 billion or 28% of its market cap compared to merely $320 million for Bitcoin DeFi.


Keeping the data points constant, Bitcoin DeFi offers a $238 billion market opportunity as of December 2023. These figures don’t consider any surge in user adoption or influx of new capital.


Needless to say, as BTC prices hit new highs, the potential for Bitcoin DeFi will keep expanding. To this end, Bitcoin Layer 2s like Stacks and Stacks-based protocols will play a significant role in contributing to Bitcoin DeFi.

Article Navigation

Article Navigation