What’s up guys — Ras here. Hope life’s treating you well.
It’s July 28th, 2021. Bitcoin is currently battling with $40,000 resistance. I have been dollar cost averaging the past 2 months, but this week I decided to re-enter the market with around 30% of my stable coin portfolio.
Anyways –
Saw a really interesting tweet from Stack’s founder Muneed Ali mentioning that Native Bitcoin swaps are live.
Native Bitcoin swaps — what?
This is DeFi or Decentralized finance — but on Bitcoin. Bitcoin is the original DeFi, it gave users ownership of their own money and provided secure peer-to-peer transfers.
BUT
There's a new DeFi in town and it's the evolution of this original idea by Satoshi.
Here’s the tweet from Muneeb:
In this article, I wanted to dive a little bit into Stacks and give my views on Bitcoin DeFi versus DeFi on other chains.
If you’re interested in what Stacks is here’s a quick overview:
Stacks was originally created in 2013 and is essentially a is a flexible layer 2 on top of Bitcoin that enables decentralized apps, smart contracts, and digital assets.
Think of layer 2 as the smaller yellow gear — and on that smaller gear, we are able to do things that previously weren’t able to be done. What are these?
- Decentralized apps or DApps — are applications that connect to a blockchain
- Smart contracts — a computer program that will automatically execute, control, or document legally binding events and actions according to the terms of the contract itself
- Digital assets — tokens, NFTs, etc.
With Stacks, Bitcoin users can have access to functionalities offered in the new DeFi by other blockchains like Ethereum and Solana. (Taproot is another way — but that’s not what this article is about)
Ok — What does this mean?
Basically, Bitcoin being the granddaddy of decentralized finance is facing heavy competition from innovations in the blockchain and crypto space — namely from Ethereum which has the most active DeFi projects on a decentralized blockchain; yet is in the middle of an almost impossible upgrade that is rumored to be delayed for a second time until 2022 and has some investors biting their nails.
Also, there’s Cardano — a titan in community engagement and code development, with some of the most cutting-edge technology that is looking very, very promising. They are scheduled to have smart contracts at the end of August 2021 — and if you see projects from Ethereum moving there by the end of the year — it’s not a coincidence.
All of these projects are promising to be able to securely and cheaply uphold the demand for decentralized finance which has been noticed by billionaires like Mark Cuban and is now giving users access to yield farming, lending, borrowing, staking, and derivatives.
Now, thanks to Stacks — Bitcoin users can have some of these functions — we have to remember that Bitcoin right now has a huge chunk of the crypto market share.
But why not just go to Ethereum and use DeFi there?
Well firstly, you actually can with Wrapped Bitcoin (essentially just Bitcoin that is converted to a token that can be used on Ethereum)
BUT
The problem is that many Bitcoin holders are against any other crypto besides Bitcoin and believe it to be the one and only crypto that should exist.
They rave about its decentralization and security. And I wouldn’t argue that they’re wrong. Because it is the best (however its energy consumption is much more than other blockchains — energy used to provide freedom and security to the people that is well wasted, in my opinion).
However, we’re talking about an infant technology here — blockchain — that is going through a massive revolution and has seen light-speed adoption thanks to COVID. Bitcoin is akin to web 1.0 in the eyes of many.
And we are now coming closer and closer to the deployment of web 3.0 blockchains like Cardano, Polkadot, and those already deployed like Solana that with their technology can provide the underlying framework for this space to gain global adoption.
So, here’s where I stand:
I’m waiting to see how Stacks’ value proposition goes. And am curious to see if it will be adopted by Bitcoiners. If it is, it may be a good idea to start dollar-cost averaging into it and/or becoming a miner/staker. I personally HODL, but when the time comes to sell — I would prefer to do a Bitcoin swap to a stable coin cheaply and on a Bitcoin L2 blockchain leveraging Bitcoins’ than on a centralized exchange like Binance.
I personally am more excited about the Cardano DeFi ecosystem, and although very small right now, — I see many of Ethereum’s DeFi projects migrating over to Cardano in the near future. Why? Because even though I’m invested in Ethereum — I don’t think they’ll be able to upgrade fast enough. They’re basically trying to change their shoes while running a marathon — too much competition in this space and changing from PoW to PoS is no easy feat (I would rather hedge my bet and buy both).
Cardano just offers so much more security than Ethereum with native assets and a new programming language. Also, its community is just so strong!
So there you have it. DeFi on Bitcoin is here and its just the beginning. But who will trump? Or will this space become as interoperable as claimed to be?
I’ll be posting some more on Cardano’s ecosystem soon so stay tuned.
Take care
