The landscape of the latest projects building on top of Bitcoin is expanding beyond payments and includes Layer-2 scaling solutions and key application categories like DeFi and NFT. Some of the scaling layers such as Lightning Network focus on payments while others (e.g. Stacks, Rootstock) are general-purpose smart contract layers that enable different types of applications, such as those related to DeFi and NFT, to be built.
Due to the challenges of modifying Bitcoin’s core protocol, Layer-2 scaling solutions are key to expanding the use cases and ecosystem for Bitcoin. Currently, the major Layer-2s are Lightning Network, Stacks, Rootstock, and Liquid Network.
The programmability of smart contracts in the Ethereum network drives much of the innovation in blockchain, including the majority of DeFi platforms today. However, Bitcoin has lagged behind the growth of DeFi ecosystems: While full interoperability among blockchains remains an issue, solutions like blockchain bridges have helped unlock new DeFi markets.
There are nearly US$5 billion BTC bridged on Ethereum today, most of which are likely deployed and locked in DeFi platforms, which clearly demonstrates a pent-up user demand to utilise their Bitcoin in other ways and venues and to develop more Bitcoin-native DeFi applications.
In our report we highlight some interesting Bitcoin DeFi-based projects, like Sovryn, ALEX, Lend at Hodl Hodl, and Stackswap.
Bitcoin non-fungible tokens (NFTs) have gained considerable popularity and traction recently, since the launch of the Ordinal protocol in January 2023 that made it possible to mint NFTs directly onto the Bitcoin blockchain. Since then, the number of Ordinal inscriptions on the Bitcoin Network has exceeded 1 million.
Traditionally, it is more difficult to mint NFTs on Bitcoin compared to other blockchains like Ethereum. This is due to the limited smart contract functionality on the Bitcoin base layer, as well as the lack of a token standard for NFTs, such as the ERC-721 token standard on Ethereum.
Although efforts to expand Bitcoin’s use cases have been continuing since 2012, levels of adoption are still relatively low to date. However, there are some catalysts emerging that could potentially accelerate developments in the Bitcoin ecosystem, including infrastructure progress and developer incentives.
Bitcoin will still face stiff competition from Ethereum and the other multitude of alternative Layer-1 blockchains. These competing platforms were built for general-purpose applications since their inception and their user experience currently remains superior to many Bitcoin-based solutions.
The landscape of the latest projects building on top of Bitcoin is expanding beyond payments and includes Layer-2 scaling solutions and key application categories like DeFi and NFT.
