Bitcoin (BTC) Developers Actively Exploring How to Use Decentralized Finance (DeFi) to Create New Programmable Capabilities on the Network

After the launch of exchange-traded funds in the United States and the fourth halving, the community focused on the future of the ecosystem

Developers are actively exploring how to use decentralized finance (DeFi) to create new programmable capabilities on top of the Bitcoin (BTC) network.

The launch of exchange-traded funds in the United States and the fourth halving have brought increased attention to the future of the ecosystem of the first cryptocurrency by capitalization.

Developers are particularly interested in the potential of DeFi to transform Bitcoin from a simple “digital gold” into a more dynamic and programmable platform.

For example, Toby Lewis, co-founder of the OrdinalsBot project, is bullish on the prospects of BTC-based DeFi. According to DefiLlama, the total value locked (TVL) on the Bitcoin network currently stands at $1.216 billion.

“It’s entirely possible that the DeFi ecosystem on the BTC blockchain could grow to trillions of dollars in market value over the next few years, and it looks set to be one of the major growth drivers for cryptocurrencies this cycle,” said Lewis.

Bitcoin has traditionally been seen as a store of value with limited functionality, especially when compared to Ethereum (ETH), a network that hosts a vast ecosystem of applications and smart contracts.

Now, developers are attempting to close this gap with a range of innovative solutions. One approach involves the introduction of second-level (L2) networks, such as the Lightning Network. L2 networks are designed to enhance the scalability and utility of the blockchain.

In 2023, the development of the BTC ecosystem saw a pivotal moment with the launch of the Ordinals protocol, enabling the creation of non-fungible tokens (NFTs) on the Bitcoin blockchain.

This was followed by the introduction of BRC-20 standard tokens in the network of the first cryptocurrency by capitalization, allowing satoshis (the smallest unit of bitcoin) to be inscribed with data.

Developers are also exploring other features that could facilitate greater programmability on the BTC network, such as a potential update to the OP_CAT software. The upgrade is currently under consideration and has not yet garnered the necessary support from the community.

However, integrating programmability into the blockchain of the leading cryptocurrency does not come without challenges.

For instance, the recent launch of the Runes protocol for creating altcoins on BTC resulted in a surge of activity on the network, leading to higher transaction fees. Ultimately, the enthusiasm fizzled out.

At its peak on April 23, the number of transactions involving Runes surpassed 1 million, but as of May 20, this figure dropped to 52,000, according to Dune.