Although the Bitcoin network is poised to see significant growth in its Layer-2 (L2) ecosystem, “finding an optimal mechanism to maintain finality” on the network remains an inherent limitation that prevents this, according to Mithil Thakore, the co-founder and CEO of Velar, has said. Thakore also identified the yet-to-be-optimized “bridging of native Layer-1 (L1) assets to L2 and back” as another obstacle to the growth prospects of the L2 ecosystem.
The transition from BRC 20 to BRC 420
However, in his written responses to Bitcoin.com News, Thakore acknowledged that preliminary results from solutions such as Bitvm and Drivechains suggest a breakthrough may be on the horizon. The CEO also called Stacks’ SBTC a low-trust solution for bridging L1 assets to L2.
Commenting on the expected transition of Bitcoin-based decentralized financial defi from BRC-20 to BRC-420, Velar’s CEO said the latter would enable the introduction of “more specialized functionalities such as governance, staking and compliance.” He added that such features would be tailored to the growing and diversifying needs of the defi market.
Furthermore, Thakore said that such a transition from BRC-20 to BRC-420 tokens would mark “a maturation within Bitcoin-based defi, with the aim of supporting more advanced financial instruments and platforms.” In the rest of his responses via Telegram, Thakore also discussed what he envisions for Bitcoin’s decentralized financial ecosystem and why he chose to build on the Bitcoin network.
Below are Thakore’s answers to all questions sent.
Bitcoin.com News (BCN) What makes you believe that Bitcoin’s decentralized finance (defi) could potentially surpass Ethereum’s defi? What are the most important technological developments that could make this possible?
Mithil Thakore (MT): To understand this, we need to separate the Bitcoin blockchain from Bitcoin (BTC) as an asset. The Bitcoin blockchain running on a Proof of Work (PoW) consensus mechanism offers an unprecedented level of security and decentralization, which was the fundamental ethos of crypto anyway but has been compromised along the way.
The second reason is that BTC as an asset class represents more than 50% of the total crypto market capitalization, but until now was virtually untouched and unused in defi. Key technological breakthroughs enabling this shift include the advent of ordinal numbers, which introduce a new dimension of usability to Bitcoin, and major developments in Layer 2 (L2) solutions such as Stacks.
This L2 ecosystem will ensure that the $1 trillion value stored in BTC can be used in defi applications, significantly growing defi overall. The total value of EVM chains, including Ethereum, is $90 billion today. Just 10% of the BTC value coming to Bitcoin Defi via the L2 ecosystem will be enough for Bitcoin Defi to overtake Ethereum Defi. So I believe it’s not a question of if, but when it will happen.
Stacks in particular promises to reduce block times with its Nakamoto upgrade, dramatically improving transaction throughput and efficiency. The upgrade, in addition to creating synthetic assets like sBTC, provides a non-custodial way to unlock Bitcoin’s liquidity for defi applications.
BCN: According to a recent report from the Spartan Group and Kyle Ellicott, the Bitcoin network could see significant growth in the Layer-2 ecosystem to address the network’s inherent limitations. While much of the Bitcoin ecosystem is bullish on Layer-2 solutions, what do you see as the biggest potential risks that could derail their momentum?
MT: In my estimation, the two biggest potential risks that could derail the momentum of Bitcoin L2 solutions are finding an optimal mechanism to maintain the finality of the Bitcoin blockchain, and bridging native L1 assets to L2 and these bridge in a way with a minimum of trust. Multiple L2s are trying multiple ways to maintain finality of their chain’s data and bridge it to Bitcoin L1, with some retaining finality via merge mining, which requires dependence on Bitcoin miners. Bitvm and Drivechains are good recent technologies that have emerged but are still in a very early stage and need more research.
The second and most crucial risk in my opinion is bridging valuable L1 assets such as BTC, ordinals and BRC20 to L2s and tying them back, both in a manner with the least amount of trust possible, while ensuring they are not at risk come. Multiple L2s currently use centralized bridges, which is risky and unsustainable, and some are trying different ways to minimize trust. But bridging assets between Bitcoin L1 and L2 is far from optimized at this point and requires more experimentation. Stacks’ SBTC is probably the best solution at the moment with a minimum of trust, where validators are incentivized to approve correct bridge transactions and punished for fraudulent transactions.
BCN: Why did you choose to build Velar on top of the relatively slow Bitcoin network via Ethereum or Solana, which are the popular destinations for defi activity today?
MT: The choice to build Velar on the Bitcoin network, despite its perceived slowness compared to Ethereum or Solana, was a strategic decision rooted in Bitcoin’s unparalleled security and decentralization. As most crypto enthusiasts may know, Bitcoin’s proof-of-work (PoW) consensus mechanism has stood the test of time and provides a level of security and resilience unmatched by any other blockchain – an aspect that is critical for defi applications that require a high level of security. for users’ assets.
Furthermore, recent innovations such as Ordinals and the rise of L2 ecosystems on Bitcoin such as Stacks, Botanix and BoB, to name a few, provide new opportunities to overcome Bitcoin’s inherent limitations as they enable smart contract functionality and faster transaction speeds to make. , making it possible to bring complex defi applications to the Bitcoin network.
With Velar, we aim to make BTC more productive by bringing it to defi and enabling holders to earn returns on their BTC holdings, while leveraging Bitcoin’s robustness and growing Layer-2 infrastructure to create a secure and decentralized platform to provide for defi activities on the Bitcoin network. , aligned with our broader vision of an open, decentralized financial system built on the most secure blockchain network available today.
BCN: Bitcoin HODLers, both retail and institutional, who are willing to use their BTC holdings in defi activity today must rely on the inefficient and risky process of taking (WBTC) and transferring them to other chains like Ethereum and Solana. What is the Bitcoin native and non-custodial solution for these investors?
MT: The way forward for these investors is to engage in L2 solutions that are built directly on top of the Bitcoin network and are definitive for Bitcoin. For example, Velar uses such L2s to enable smart contracts and implement decentralized apps (dapps) with Bitcoin as a base layer, while also offering a range of defi tools, including a decentralized exchange (DEX) and perpetual swaps, allowing holders to leverage of their BTC as collateral in a non-custodial manner.
This approach makes it possible to maintain a high level of security and decentralization while enabling new functionalities such as borrowing, borrowing and trading, without the need to wrap BTC in another token on another blockchain that is not secured by the Bitcoin blockchain.
BCN: Your defi project Velar is preparing to launch a perpetual decentralized exchange. Can you briefly talk about this and how this could benefit traders and market makers?
MT: For traders, the Perpetual Decentralized Exchange (PerpDEX) offers perpetual contracts on the Bitcoin network, allowing them to speculate on asset prices or hedge their positions without an expiration date. This allows them to leverage their investments for higher potential returns. One of the standout features of our platform is its non-custodial nature, which allows traders to maintain control over their funds. Not only that, our PerpDEX, built on a scalable L2 infrastructure, promises minimal slippage and fast settlement times, making it an attractive option for beginners and veterans alike.
Market makers, on the other hand, can take advantage of opportunities to provide liquidity to the ecosystem, earn fees and contribute to a more stable and efficient market. Furthermore, the decentralized and transparent nature of PerpDEX significantly reduces counterparty risks, creating a more secure environment for liquidity provision. Finally, our broad suite of services allows market makers to diversify their strategies, utilizing a range of perpetual contracts.
BCN: Can you explain to our readers what BRC-20 and BRC-420 tokens are? Additionally, can you discuss how and why Bitcoin-based defi might move from BRC-20 to BRC-420?
MT: Simply put, BRC-20 tokens are Bitcoin’s answer to Ethereum’s ERC-20 asset standard, enabling the creation of fungible assets within the Bitcoin network while facilitating a range of defi-related activities.
That said, BRC-420 tokens introduce more specialized functionalities such as governance, staking and compliance features tailored to the growing and diversifying needs of the defi market. Furthermore, the progression from BRC-20 to BRC-420 marks a maturation within Bitcoin-based defi, with the aim of supporting more advanced financial instruments and platforms. It reflects the industry’s trend toward complex, nuanced digital products, expanding Bitcoin’s utility and mass appeal, catalyzing innovation and increasing user engagement.
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