The Problem: Limited Utility and Custody Risks
While Bitcoin’s (BTC) success as a digital store of value is undeniable, its utility beyond storage and transfer has been a common point of criticism. The Bitcoin ecosystem relies heavily on custodial, exogenous infrastructure to trade, lend against, or issue derivatives of BTC. This is compounded by the fact that cross-chain bridges for the asset may be limited or have high custody risks.
The Opportunity: Decentralized Finance (DeFi) and Cross-Chain Interoperability
Recent technical advances have spurred a flurry of developer activity in the Bitcoin L2 ecosystem, which may lead to an explosion of Bitcoin-native DeFi in coming years. As of October 2024, Ethereum dominates DeFi with about $47.5 billion in total value locked (TVL), while Bitcoin’s TVL lags at $1.9 billion. If Bitcoin captured just 10% of Ethereum’s market share, it could potentially add $4.8 billion in TVL, highlighting Bitcoin’s untapped potential in DeFi and the need for seamless cross-chain interoperability to close the gap.
The Solution: Portal-to-Bitcoin
Projects such as Chainlink CCIP, LayerZero, Portal-to-Bitcoin, and Threshold Network aim to bridge disparate blockchain environments. Portal-to-Bitcoin stands out by facilitating cross-chain operations through atomic swaps, which eliminate some custodial risk. Cointelegraph’s latest report examines Portal-to-Bitcoin’s approach to cross-chain swaps, offering a unique solution to Bitcoin’s integration into DeFi ecosystems.
How It Works: Atomic Swaps and Multi-Party Hash Time-Locked Contracts (MP-HTLCs)
Portal-to-Bitcoin is a protocol that introduces a solution for swapping native Bitcoin cross-chain without the need for wrapped assets or custodial bridges. Its architecture avoids conventional lock-and-mint models and relies on atomic swaps, specifically MP-HTLCs to facilitate swaps.
When a user initiates a swap, funds are locked in an HTLC on one blockchain (e.g., Bitcoin network), and the counterparty creates a matching HTLC on another chain (Ethereum network). Both contracts rely on the same cryptographic hash and enforce a time limit for the swap to complete. If either party reveals the shared secret (preimage), the swap finalizes; otherwise, both parties recover their assets.
Automated Dynamic Market Maker (ADMM) and Liquidity Management
To match users’ swaps, Portal-to-bitcoin uses an Automated Dynamic Market Maker (ADMM). The ADMM is similar to Uniswap v3 but designed to manage liquidity and execute swaps efficiently across chains. This system is also capable of processing range and market orders. The ADMM minimizes costs and front-running risks by batching transactions per block.
Security: Validator-Based System and Notary Chain
Portal-to-bitcoin operates a validator-based system that is supported by its unique Notary Chain. The Notary Chain uses a Threshold Signature Scheme (TSS) to ensure that no single validator can control critical cryptographic keys. Although there is still a degree of trust required, the distributed structure ensures that no small subset of validators can misappropriate funds.
Charting a Course for Bitcoin’s DeFi Evolution
By solving the key issues of trust and custody, Portal-to-Bitcoin presents a viable solution for Bitcoin’s broader cross-chain DeFi integration. This potentially unlocks significant value in the space. An in-depth dive into various cross-chain technologies and full insight into Portal to Bitcoin’s unique architecture can be found in the full version of the report.
Disclaimer
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. This article is for general information purposes only and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Get the Full Report
Download a full version of the report for free here to learn more about Portal-to-Bitcoin’s unique approach to cross-chain swaps and its potential impact on Bitcoin’s DeFi ecosystem.
