The role of Bitcoin (BTC) in decentralized finance (DEFI) is growing as the world’s largest cryptocurrency is emerging from more than a value store, Binance Research said in a Thursday report.
The Bitcoin network is “emerging in a broader decentralized financial ecosystem with the emergence of Bitcoin Defi,” analyst Maulik Nagesh wrote.
This is a sector that “unlocks the efficiency of bitcoin capital” in the use of financial applications dedicated to lending, staking, Stablecoins and Decentralized exchange (Dex’s), the report said.
Defi is a term umbrella used for lending, trading and other financial activities conducted in a blockchain, without the need for traditional mediators.
Binance noted that only ~ 0.8% of Bitcoin’s supply is currently used in Defi, and it presents a huge “unfinished opportunity.” In fact, last year, Julian Love said, a deal analyst at Franklin Templeton Digital Assets, said The chance can be as much as $ 1 trillion.
The Binance research report said Bitcoin requires layer 2S because the network lacks “native programmability,” unlike the intelligent contract -based layer. A Layer 1 network is the base layer or the underlying infrastructure of a blockchain. Layer 2 Refers to a set of off-chain systems or separate blockchains built on top of layer 1s.
While there has been some development in the development of Bitcoin layer-2 networks, these platforms require more incentives to adoption and liquidity to effectively, Binance Research said.
The network security model faces “long -term maintenance challenges” as the block rewards will continue to divide, the report said, thus reducing miner incentives.
The long-term flexibility of Bitcoin Defi depends on the implementation, the further development of the layer-2s, and the “ability to align to the unique Bitcoin proposal,” the report added.
Read more: Ethereum L2 Starknet is looking for ‘Bitcoin’s Defi Take-off Moment’ with BTC Wallet Xverse
