Charles Hoskinson Unveils First Bitcoin DeFi Solution on Cardano

In an announcement, Charles Hoskinson, who founded the Cardano network, introduced the Cardinal Protocol, the first Bitcoin DeFi protocol for Cardano. The innovation alters the way Bitcoin is applied in decentralized finance (DeFi).

Cardinal enables DeFi activities without Custodians

Hoskinson quoted Pellerin’s X thread to provide more details about this new protocol. Romain Pellerin, CTO at InputOutput HK, the company behind Cardano’s development, explained that Cardinal offers a fresh approach for Bitcoin.

It allows users to wrap any Bitcoin unspent transaction output (UTXO), and turn it into an asset that can generate DeFi yields. Activities like lending, staking, and borrowing become possible with this method.

The Wrapped UTXO primitive is a core feature of Cardinal. It creates assets, such as NFTs or tokens, that are natively pegged 1:1. These assets can be transferred on-chain or with Ordinals and are burnable to release Bitcoin or Ordinals.

Pellerin points out some reasons that makes Cardano the right choice for this project. The extended UTXO (eUTXO) model is like Bitcoin’s, which allows Cardano to handle powerful smart contracts with ease. Cardinal is not tied to a chain, so it can work with Ethereum, Solana, Avalanche, and other networks too.

This Bitcoin DeFi System Allows for Additional Cross-Chain Yield

The protocol is a change from the way the wrapped BTC model was designed. Unlike systems with custodians or federations that carry risks, Cardinal keeps Bitcoin locked under an advanced multi-signature (multisig) protocol (MuSig2).

Wrapped UTXO is minted cross-chain and redeemable anytime via a fraud-proofed peg-out. There’s no rehypothecation, ensuring no compromise on security.

What makes Cardinal unique is that it works with any non-fungible use case today. It uses BitVMX (@bitvmx on X) for verifiable off-chain execution and is built on MuSig2 aggregated multisigs. Bitcoin HTLCs and Cardano smart contracts power it, with full support for peg-in/peg-out and ownership transfer.

Bitcoiners can now find DeFi yield on Cardano through this protocol, reinforcing Robert Kiyosaki’s view of Bitcoin as ‘people’s money’. They may also stake, lend, or loan with Fluid Tokens. They can also use MinswapDEX and SundaeSwap to farm, or trade Ordinals.

Even so, Pellerin believes that there is plenty of room for improvement. He proposes generating solidarity proofs using zero-knowledge technology, and using recursive state proofs. In addition, liquidity provider systems for fungible assets and wallet integrations could enhance the user experience.

Cardinal also powers a trust-minimized Ordinal bridge to Cardano mainnet. Ordinals can now be used in DeFi, serve as collateral, be auctioned across chains, or borrowed/lent while keeping provenance. This Bitcoin DeFi protocol marks a historic first cross-chain Ordinal wrap, with transaction IDs available for verification.

Meanwhile, this development coincides with global attention on Bitcoin’s role as legal tender.