The role of Bitcoin (BTC) in decentralized finances (Defi) is growing as the largest cryptocurrency in the world evolves from more than a value store, said Binance Research in a report on Thursday.
The Bitcoin Network “is evolving towards a broader decentralized financial ecosystem with the appearance of Bitcoin Defi,” wrote analyst Moulik Nagesh.
This is a sector that “unlocks the capital efficiency of Bitcoin” with the use of financial applications focused on loans, rethinks, stable and decentralized exchanges (DEX), according to the report.
Defi is a general term used for loans, shops and other financial activities carried out in a block chain, without the need for traditional intermediaries.
Binance pointed out that only ~ 0.8% of the Bitcoin supply is currently being used in Defi, and this presents a great “without exploiting opportunity.” In fact, last year, Julian Love, an analyst in Franklin Templeton Digital Active, said the opportunity could be up to $ 1 billion.
Binance Research Report said that Bitcoin needs layer 2, since the network lacks “native programability”, unlike the intelligence layer based on contracts. A layer 1 is the base layer or the underlying infrastructure of a block chain. Capa 2 refers to a set of systems outside the separate chain or blockchains built at the top of layer 1.
While there have been some progress in the development of Bitcoin layer 2 networks, these platforms need greater adoption and liquidity incentives to be able to climb effectively, said Binance Research.
The network security model faces “long -term sustainability challenges” as block rewards will continue to half, according to the report, thus reducing mining incentives.
The long-term viability of Bitcoin defi depends on the execution, the additional development of the CAPA-2 and the “ability to align with the unique value proposal of Bitcoin,” the report added.
Read more: Ethereum L2 Starknet Search ‘Bitcoin’s Defi Take-Off Moment’ with BTC Wallet Xverse
