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Smart Contracts Have Arrived on the Bitcoin Blockchain – Will BTC Become a DeFi Powerhouse?

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DeFi DEX Smart Contract

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Michael Davis

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Michael Davis

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Last updated:

October 22, 2023

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A new era has begun for the Bitcoin blockchain.

Last week, a group of developers deployed a suite of Uniswap smart contracts directly onto the Bitcoin blockchain.

Uniswap is a decentralized cryptocurrency exchange (DEX) that operates on multiple smart contract-enabled blockchains like Ethereum and Polygon and operates based on automated market maker (AMM) smart contracts.

The new Bitcoin-based DEX, called Trustless Market, allows its users to swap so-called “Smart BRC-20 tokens”, provide liquidity and earn a 2% transaction fee and issue new Smart BRC-20 tokens, according to @punk3700, one of the developers behind the DEX. ‘

We deployed @Uniswap smart contracts on @Bitcoin this week.

→ https://t.co/5tTmKld8M0

Now you can:

✅ Swap Smart BRC-20 tokens
✅ Provide liquidity & earn a 2% fee
✅ Issue your Smart BRC-20

How is it going after 3 days?

* $500K trade volume
* 2K trades
* 500 users

👇🧵 pic.twitter.com/JedGHpsEZ6
— 3700 | BVM (@punk3700) May 5, 2023

BRC-20 is a new Bitcoin-based token standard that allows users to write information into each Satoshi, which is the smallest unit of denomination of BTC – there are 21 million Satoshi’s per Bitcoin.

According to Trustless Market’s website, “Smart BRC-20s are the first smart contracts deployed on Bitcoin”.

“They run exactly as programmed without any possibility of fraud, third-party interference, or censorship,” the protocol added, saying they can be issued for “virtually anything: a cryptocurrency, a share in a company, voting rights in a DAO, and more”.

“DeFi is coming to @Bitcoin… And we couldn’t be more excited to be part of the movement,” @punk3700 said.

5) DeFi is coming to @Bitcoin. And we couldn't be more excited to be part of the movement.

→ https://t.co/5tTmKld8M0

Questions? Find us on the Trustless Computer Discord server.https://t.co/vsIZRVwUyQ
— 3700 | BVM (@punk3700) May 5, 2023

Bitcoin Enters DeFi

The deployment of AMM smart contracts on Bitcoin marks its official emergence as a smart chain, whether its creators and strongest proponents intended for it to be used as such.

Prior to the arrival of the Ordinals protocol late last year, which introduced text and image-based inscriptions to the Bitcoin blockchain, the BRC-20 token standard in March and now smart contracts, Bitcoin’s use in decentralized finance (DeFi) had been limited.

Tokenized versions of the cryptocurrency, like Wrapped Bitcoin (WBTC) on the Ethereum blockchain, had attempted with mixed success to unlock the world’s largest cryptocurrency’s DeFi potential.

And there has also been a lot of excitement as of late regarding smart-contract-enabled Bitcoin layer-2 scaling solutions like Stacks.

But the Trustless Market protocol could well be the first of a Cambrian explosion of new dApps that will be deployed directly onto the Bitcoin blockchain.

And there is certainly demand for Bitcoin DeFi.

After three days of the protocol’s deployment on Bitcoin, Trustless Market had already seen over $500,000 in trade volume, @punk3700 said.

Meanwhile, the market cap of (normal) BRC-20 tokens recently surpassed $1 billion, though this has since dropped back to around $500 million, as per BRC-20.io.

Will Bitcoin Become a DeFi Powerhouse?

Its early days for DeFi on Bitcoin.

But @punk3700 compared the current moment to Uniswap in 2018, when the protocol had just launched on the Ethereum blockchain.

Since 2018, AMM smart contracts using DEXs like Ethereum have been at the forefront of an explosion of DeFi applications on Ethereum and other smart chains.

One hurdle to Bitcoin potentially following this path is the blockchain’s lack of transaction processing capacity, which also continues to hinder Ethereum.

However, unlike for Ethereum, Bitcoin has no plans or roadmap to upgrade its protocol to increase transaction throughput.

Layer-2 scaling solutions like Stacks may thus hold the key if Bitcoin, or at least Bitcoin’s zone of sovereignty (i.e. the protocols like Stacks that rely on its underlying consensus mechanism), is to become a DeFi powerhouse.