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Bitcoin DeFi Is Finding Product-market Fit With Runes

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Over the past year, the Bitcoin renaissance has drawn significant attention to applications for BTCfi, or “Bitcoin DeFi.” Despite the hype, very few of these apps have delivered on their promises or managed to retain a significant number of “actual” users.

To put things into perspective, the leading lending platform for Bitcoin assets, Liquidium, allows users to borrow against their Runes, Ordinals, and BRC-20 assets. Where does the return come from, you ask? Just like any other loan, borrowers pay an interest rate to lenders for their Bitcoin. Additionally, to ensure the security of loans, they are always over-collateralized by the Bitcoin assets themselves.

How big is Bitcoin DeFi right now? It depends on your point of view.

In approximately 12 months, Liquidium executed more than 75,000 loans, representing more than $360 million in total loan volume, and paid out more than $6.3 million in original BTC interest to lenders.

For BTCfi to be considered “real,” I would argue that these numbers need to grow significantly and become comparable to those on other chains like Ethereum or Solana. (Although I firmly believe that over time, comparisons will become irrelevant because all economic activity will eventually settle on Bitcoin.)

However, these achievements are impressive for a protocol that is only a year old, running on-chain where the slightest mention of decentralized finance (DeFi) is often met with extreme skepticism. For additional context, Liquidium actually outperforms altcoin competitors like NFTfi, Arcade, and Sharky in terms of volume.

Bitcoin is evolving in real time, without the need to make changes to its underlying protocol — and I’m here for it.

source: Questioner’s landing page

After a rocky start, runes are now responsible for the majority of loans taken on Liquidium, overtaking both Ordinals and BRC-20s. Runes is a significantly more efficient protocol that provides a lighter load on the Bitcoin blockchain and provides a slightly improved user experience. The improved user experience provided by Runes not only simplifies the process for existing users, but also attracts a large number of new users who may be willing to pay attention to the series in a more sophisticated way. In contrast, the BRC-20 struggled to gain new users due to its complexity and less intuitive design. Therefore, having additional financial infrastructure such as P2P loans represents a step forward in the ease of use and adoption of Runes, and possibly other Bitcoin-backed assets in the future.

Source: Liquidium Sand Dunes Dashboard

Loan volume on Liquidium has steadily increased over the past year, with runes now making up the majority of activity on the platform.

Source: Liquidium Sand Dunes Dashboard

Well, runes are now the dominant asset backing original Bitcoin loans, so why should I care? Is this good for Bitcoin?

I would argue that, regardless of your personal opinion about runes or the on-chain degen games happening right now, the fact that real people are trusting the Bitcoin blockchain for decentralized Bitcoin-denominated loans should make freedom lovers stand up and cheer.

We win.

Bitcoin users have always maintained that no other blockchain can match Bitcoin’s security guarantees. Now, others are starting to see it too, bringing new forms of economic activity to the chain. This is undeniably bullish.

Furthermore, all transactions are secured locally on the Bitcoin blockchain – no encapsulation or bridging, just Bitcoin. We should encourage and support people who build this way.

This article is a takes. The opinions expressed are entirely those of the author and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.

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