Following the launch of Bitcoin in 2008, several promising trends have emerged across the blockchain ecosystem. While some have faded with time, other trends have gained enough traction to establish themselves as transformative movements capable of disrupting traditional business and financial models.
Decentralized finance (DeFi) is one such trend that has exploded in popularity over the last couple of years. Per a recent Forbes report, growth in the DeFi industry accelerated in 2020, especially due to the influx of DeFi protocols on the Ethereum network, increasing from $700 million in December 2019 to $13 billion as of December 31, 2020.
Even though DeFi has grown manifold, cementing itself as one of the most promising sectors within the blockchain universe, the majority of DeFi products and protocols are on Ethereum. Accordingly, the rapid growth of the DeFi sector has led to several problems within the Ethereum network, including increased gas costs, low throughput, and high network congestion. Due to these problems, the demand for alternatives like layer-2 scaling solutions has reached an all-time high.
While the idea of incorporating DeFi within the Bitcoin network has floated around for quite some time, RSK Network has successfully developed the first smart contract platform secured by the Bitcoin network. The promising solution introduced by RSK adds value and functionality to the legacy network by powering smart contracts on top of it that ensure greater scalability, helping Bitcoin and the DeFi ecosystem take a step closer towards long-term sustainability.
Layer-2 Scaling Solution For The Bitcoin Network
Launched in January 2018, RSK merges the best features of Ethereum and Bitcoin networks into a highly scalable platform. The first smart contract platform secured by the Bitcoin network enables trustless and transparent decentralized finance opportunities. With RSK, all Bitcoin users can now lend, borrow, trade, and earn interest on their holdings.
Since its inception, RSK has achieved several notable milestones. The platform achieved 72% hash power in April 2021, securing its spot as the best layer-2 platform on the Bitcoin network. In terms of total value locked (TVL), RSK has surpassed Bitcoin-based Lightning Network by achieving a TVL of 1,445 BTC, over 259,000 smart contract transactions, and more than 50,000 active users, further highlighting the growing demand for DeFi on Bitcoin.
As the world’s most secure smart contracts platform, RSK uses a similar hashing mechanism and is covered by roughly 40% of the total computing power of the Bitcoin network. In addition, RSK natively supports Ethereum’s Solidity Smart Contracts and APIs, making it easier for developers to migrate their dApps to the platform. Furthermore, the RSK infrastructure is fully interoperable, allowing seamless movement of ERC-20 tokens from Ethereum to Bitcoin-powered RSK smart contracts.
With the Ethereum network staring down efficiency and performance issues, RSK has emerged as a potent alternative for traders who hold DAI, the stablecoin tethered to the US dollar. For instance, the massive growth of DeFi apps and transactions on the Ethereum network has inflated transaction costs, due to which many developers are migrating their dApps to layer-2 chains. The platform also allows merge-mining with BTC or any other shared blockchain, enabling miners to simultaneously mine on two or more blockchains while using the same hardware, thus generating more income opportunities.
The DAI community is enormous, with over 76 million DAI in circulation. For users who wish to continue utilizing this stablecoin, the RSK network introduces a novel solution, rDAI or redeemable DAI, pegged to the actual stablecoin DAI. While DAI works through smart contracts based on Ethereum, rDAI works on the RSK network. Therefore, transaction fees amount to a fraction of comparable Ethereum fees, often reaching over 100 times cheaper. Moreover, RSK also allows rDAI holders to invest in a pool of collateralized loans to generate yield.
As bitcoin (BTC) continues to gain mainstream recognition globally, especially third-world countries like El Salvador, RSK can facilitate a new horizon of DeFi opportunities on the Bitcoin network, empowering users and developers to leverage its scalability, efficiency, and cost-effectiveness.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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