Summary
- The Cardinal Protocol is the initial fully decentralized Bitcoin DeFi on Cardano.
- Wrapped UTXOs, MuSig2, and non-custodial structure were constructed.
- Ordinals can now be made cross-chain collateral.
- Makes safe trans-chain communication with Ethereum, Solana, Avalanche, and others possible.
- The further development will consist of zero-knowledge evidence, expanded liquidity and wallet integration.
Prologue: A New Age Of Bitcoin and Cardano
It is not a vision anymore but a reality; blockchains on Cardano already offer Bitcoin DeFi. On X (ex Twitter), Cardano founder Charles Hoskinson posted a historic post:
This is the start of real trustless, interoperable finance between the two most known monikers in crypto Bitcoin and Cardano.
What is Cardinal Protocol?
Cardinal Protocol is a decentralized platform that enables the holder of the Bitcoin to access a DeFi activity by Input Output HK (IOHK).
- Lending
- Borrowing
- Yield farming
- Staking
There is no necessity to have custodians or separate bridges.
To guarantee complete control, transparency and security, the platform relies on wrapped UTXOs and MuSig2 signature scheme. When the users are finished, they may burn their wrapped tokens to obtain unlocked native BTC or even Ordinals.
“Welcome to the first Bitcoin DeFi protocol developed for Cardano.”
The Way Bitcoin DeFi Cardano Works
With high-level cryptography, Cardinal uses Bitcoin UTXOs: wrapped into interoperable tokens on the Cardano proof-of-stake. Such tokens do not destroy the initial values and property integrity of BTC and allow using it in the DeFi.
Cardinal uses:
- MuSig2: It is a more efficient improvement to multi-signature security.
- BitVMX is a feather-weight off-chain verification engine that enables effortless access across chains.
This arrangement enables the BTC users to interface directly with Cardano-based protocols such as:
- The Minswap DEX (DoFollow)
- SundaeSwap (DoFollow)
- DoFollow Fluid Tokens
The Strength in Trustless Interoperability
- There are no centralized exchanges.
- No tokens in bridges wrapped.
- No intermediaries.
On-chain, clean, DeFi Bitcoin on Cardano.
Hoskinson is not alone in his feelings, as a wider trend in blockchain technology is the movement towards decentralized interoperability; the ability of assets to move robustly and securely across chains.
Cardinal’s Design
- Holding their user assets under custody
- Employs on-chain visibility
- Minimizes attack surfaces by getting rid of custodians
Ordinals as Collateral: Functional Value as Non-Collectibles
Cardinal does not just stop at BTC. It is also attached to Ordinals; that is, the Bitcoin native NFTs or digital collectibles that can be utilized as collateral.
This changes the perception of Ordinals:
- Speculative assets or art
- From inaccessible parts in lending, trading and auctions
The step would rebrand Ordinals as utility tokens in dominant DeFi networks.
Next Up: Watch Upgrades
The CTO of IOHK Romain Pellerin has described what is in store:
In the future, it will have:
- Zero-Knowledge Proofs: Confidentiality of the user
- Increased Depth Liquidity Pools: As a means of enhanced DeFi performance
- Improved Wallet Onboarding: To smooth the onboarding of the users.
“We’re bringing in zero-knowledge proofs for privacy, expanding liquidity pools, and integrating smoother wallet UX.”
Why Cardinal Is Important in the Future of Crypto
Cardinal Protocol is not merely a new platform, it is the demonstration of what can be done when the liquidity offered by Bitcoin and the smart contract functionality provided by Cardano can mix.
It is the first time when Bitcoin owners can:
- Get a passive income
- Remain under control of their keys
- Deploy BTC in full decentralized and scaling DeFi infrastructure
It is also a turning point in the Cardano ecosystem, demonstrating that its infrastructure allow it to handle safe, scalable and multichain finance on a high level.
Conclusion
Cardano-based Bitcoin DeFi is here: it is fully-trustless. With the power of Cardinal Protocol, the two prominent chains are closer than ever before, providing high-power use cases and value to its users across the world.
With the expanding DeFi world, Cardinal will be the key to its future, safe, interoperable, and open to everyone.