[BTCFi #3] The limitless possibilities of BtcUSD

Bifrost
Bifrost
Published in
3 min readMar 5, 2024

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In our last article, we discussed the significance of BtcUSD, and how a Bitcoin-backed stablecoin may serve as a game changer for those who are strong believers of Bitcoin. Today, the topic is on how BtcUSD can be utilized, and to what impact this has on the utilization of Bitcoin.

Bitcoin (BTC), the progenitor of all cryptocurrencies, has historically been somewhat of a digital gold: valuable for holding but limited in terms of utility beyond a store of value or medium of exchange. This limitation has been a significant hurdle for BTC holders looking to leverage their assets within the decentralized finance (DeFi) ecosystem. The introduction of Wrapped Bitcoin (WBTC) represented a leap forward, enabling Bitcoin holders to participate in the Ethereum-based DeFi space. However, WBTC, while innovative, has not entirely bridged the gap between Bitcoin’s value and DeFi’s opportunities.

The challenge for BTC holders has traditionally been the lack of versatility in utilizing their holdings. While WBTC opened new doors by allowing Bitcoin to be used on Ethereum’s network, enabling participation in smart contracts and DeFi protocols, it still presented limitations. BTC holders could supply liquidity and engage in various DeFi activities, yet they could not mint a stablecoin directly based on their BTC holdings. This limitation meant missing out on a significant aspect of DeFi’s utility: leveraging assets to mint stablecoins, which can then be used for a myriad of financial activities without selling the underlying asset.

With BtcUSD, that is set to change. Unlike traditional methods where Bitcoin could be used as collateral to borrow USD, which often comes with high-interest rates (15–16% APY on Aave and 6.7%-27.7% on MakerDAO — as of March 3rd, 2024), BtcUSD introduces a more efficient and cost-effective solution. By leveraging BTCFi, a platform designed explicitly for this purpose, BTC holders can mint BtcUSD at a remarkably low rate of 3.5% APY. This development not only makes financial sense but also unlocks a plethora of opportunities for BTC holders to generate additional revenue streams.

So how do we use it?

The process of using BtcUSD is elegantly simple: BTC is collateralized, and BtcUSD is minted. This BtcUSD can then be utilized across various DeFi platforms (such as Everdex and BiFi) for lending, borrowing, trading, and more, without the BTC holder having to sell their Bitcoin. This mechanism provides a low-interest loan option for BTC holders as well, further enhancing the attractiveness of BtcUSD in the DeFi ecosystem.

Moreover, BtcUSD’s utility is not confined to a single blockchain. Enhanced with advanced cross-chain capabilities of Bifrost Network, it ensures that BTC holders can leverage their assets across multiple networks, significantly expanding the scope of potential applications. Some of the services that could potentially be used this way would be Aave, Compound and seemingly infinite number of DeFi services that occupy the cryptosphere. Even RWA services such as MakerDAO can be actively utilized as well as centralized solutions, if the user wishes so. Bitcoin’s Layer 2 solutions are also being looked into, for even broader accessibility and utility.

One of the most compelling uses of BtcUSD is in leveraging positions. BTC holders can now take low-interest loans against their BTC, mint BtcUSD, and then use that for further investment in BTC or liquidity provision in the DeFi space. This strategy can significantly enhance the yield-generating potential of Bitcoin, transforming it from a passive asset to an active tool for financial growth.

Conclusion

The introduction of BtcUSD addresses a critical need among BTC holders: the desire to maintain and leverage their positions without relinquishing their hold on Bitcoin. It represents a significant step forward in the integration of Bitcoin with the broader DeFi ecosystem, offering unprecedented opportunities for BTC holders. As DeFi continues to evolve, so will BtcUSD with its ever-expanding capabilities in DeFi space. We look forward to the future BTCFi will bring to Bitcoin ecosystem, and in the cryptocurrency utility and investment.

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Bifrost
Bifrost

Bifrost is the ultimate cross-chain L1 blockchain welcoming all DApps! www.bifrostnetwork.com