Scaling Bitcoin Beyond Money: The Case for Bitcoin DeFi – TOKEN2049 Singapore 2025

I've heard that we're talking about Bitcoin today. Um, so let's start with what properties, what characteristics, what features of Bitcoin make it the best for DeFi? Is it proof of work? Is it immutability? What is it about Bitcoin that makes it the best choice for DeFi?

Matt, let's start with you. It's the biggest. So, DeFi needs liquidity. Bitcoin has liquidity and it's that's not going to change. It's going to continue to be number one.

Um, I'm going to leave the rest for you guys. Actually, it's the biggest.

Yeah. No, you know what Matt said is is really hitting it on the head. Bitcoin isn't just the biggest crypto asset out there. It's bigger than everything else combined. And so if we were able to unlock any amount of TVL on it, even just a tiny little bit, that would be larger than all these other DeFi ecosystems.

Now, Bitcoin of course the base layer has lots of limitations, but that's why I'm sitting next to two Bitcoin L2s where Bitcoin DeFi can so can flourish. So yeah, basically DeFi the opportunity is the biggest in the space.

I got to say censorship resistance. Censorship resistance is uh what Dan was referring to is that base base layer. If you want to have L2s, if you want to have Bitcoin transactions, you want to have Bitcoin DeFi transactions, the first step is to not be censored by any governmental authority, any local authority, any ISP monitoring your own uh internet connection. Fundamentally, you need censorship resistance in order to have all the other things, in order to have proofof work mining, in order to have a distributed consensus, etc. So, I'm going to go base layer.

I'm going to say censorship resistance.

So, it's the biggest and it's the bestest. But what about the eword Ethereum? In five years, in 10 years, will these humans mostly associate DeFi with Bitcoin or with Ethereum? Uh, Bitcoin, Bitcoin, easy answer. Uh, one of the, uh, OG stories or, uh, prophecies that we would say in 2010 was that the world will try, innovate, work on existing and new technologies, beta test them on other chains, and then it comes back to Bitcoin.

And it comes back to Bitcoin.

Beta test.

Yeah, it is. And it comes back to Bitcoin.

Sorry, Amanda. with a trial by fire. And so it's been beaten up. It's been tested. It's has a$1 trillion dollar hacker bounty attached to it and it hasn't been broken.

Now it's coming back to Bitcoin. Test it.

And I've got something else to add there where for example, you know, Ethereum is really interesting, cool technology where we saw DeFi flourish and I I think we owe a hat to Ethereum where we're like there's a lot of cool things that came out of it. lending and borrowing uh you know yield farming NFTTS NFTs are a unique asset by the way that isn't competitive with money you know these were innovations that Ethereum no you know what's funny is Bitcoin looked at some of these in the early days like for example NFTTS didn't start on Ethereum they started on counterparty way back in the day so but you know so essentially when you look at u ethereum defi and bitcoin defi yes ethereum can do a lot more cool stuff on the base layer But it forgets that the core point of the whole thing is to have a sound money, an underlying asset with a credible monetary policy. Uh the Ethereum team constantly changes their monetary policy, which instead of suits, you have developers doing it. And so with the Bitcoin's monetary policy, it's a much more sound foundation to build on. And so I think, you know, when you look at a better foundation to build on, it's going to be on Bitcoin.

Even though Ethereum can do all of this cool stuff, I do think Bitcoin L2s, I do think potential changes to Bitcoin's base code, for example, adding OPCAT or other software proposals, you can get this, I would say, much more uh expressive ecosystem on top of Bitcoin.

Matt, you've built on both. Tell us, do you really think in five years that everyone here is going to associate DeFi with Bitcoin way over Ethereum? That's going to be the mental model.

Yeah, I have terrible news for you and for everyone here in the crowd because you guys aren't the ones that matter for this discussion. It doesn't matter if at token 2049 we're like well actually Ethereum is good at this but SA does this but Suie does the whole world when they think of crypto not just DeFi think Bitcoin first that's today not in 5 years so I I would probably guess that if you were to talk to family members who aren't in the trenches with the rest of us they already think Bitcoin is DeFi and it's incumbent on everyone else as number 2 3 5 6 120 to convince the world otherwise. So I think and this isn't h I'm not happy about this as an engineer or as an entrepreneur but as a realist bitcoin has already won and someone else needs to throw it down if they want mainstream adoption in DeFi.

But let's talk about another group of people that may be represented in this room um but that certainly is represented in the news a lot and that's moving markets around which is institutions. People are calling this the capital market cycle for crypto. We have ETFs. We have digital asset treasury companies. Um we have all kinds of different publicly traded vehicles.

And then we also have um folks like BlackRock coming in and tokenizing assets and choosing blockchains to build on. It certainly seems like a lot of those institutions are choosing Ethereum as that infrastructure. What is the pitch to institutions to build on Bitcoin and to move RWAS, let's say, to move their existing assets onto the Bitcoin blockchain?

So, I'll say the the pitch I'm hearing is inbound from DATs that have Bitcoin on their balance sheet. Yeah.

And they say, "How do we defy it? How do we make it go further?" And so, it's not our pitch to them that Bitcoin is awesome. They already know Bitcoin's awesome. they are already holding Bitcoin on their balance sheet.

And if you're going to be the most boring DAT in any stock market, you're going to go with the well tried, well- tested playbook, the Michael Sailor playbook, the whole Bitcoin playbook. And so that's the playbook that's actually accepted right now in DATs. It's the the base layer, the the table stakes for DATs. and taking, you know, more risk is viewed as like the Bitine holding ETH or holding Solano or some of these other tokens is it's new to the market versus what Michael Sailor playbook has been doing for years. And so the market actually has comfort with Bitcoin that it doesn't with other tokens.

But what about asset tokenization?

Oh, Mustache. I think institutions that take our space seriously that have in-house engineering teams that are building something that we would call values aligned that's censorship resistant and they're just choosing the tech. I think the work you did at the Enterprise Ethereum Alliance, you it we've it's been there and I think a lot of um the the the thing is the people that allocating the capital though who don't have huge engineering teams and who aren't dev first and who aren't tech first and who are money first feel differently. So when I look at something on Ethereum and then I look at something on Bitcoin, a lot of the stuff that's been built on Bitcoin, Bitcoin has Lindy, but a lot of these L2s and these other solutions don't. In fact, a lot of them are EVM based.

So I think we're going to run into a world where Bitcoin the asset wins, Ethereum, the technology, wins. Uh the question of where that leaves ETH is to the reader. Um, but yeah, so I I do think institutions though like the tech. I mean, I'll throw a little bit of additional color in here, which a real world asset when you bring it on chain, it's called like wrapping it or bringing it on chain and and so you have trust assumptions. You know, if I take my car or a watch and I put it on the blockchain, you know, we've got some sort of authority that gives it validation that someone goes, okay, I verify or validate that this real world thing exists on chain.

because of that inherent weakness. Stable coins, centralized stable coins have the same problem like Tether, uh, Circle, they can fully censor transactions and whatnot. I've got a feeling that in the long term all the big banks, you know, I I'm not sure how competitive public blockchains will be versus private ones or semi-private ones due to RWA already being completely censorable and, you know, really putting it on a blockchain really only allows it to have more fluidity. You you could dump it into different smart contracts, etc., but inherently it'll be semi-entralized.

So you're saying that RWAs will come on chain via private instances of the Bitcoin blockchain?

No, I'm saying that you know I don't think many of the public blockchains will acrue the RWA value because I just don't see the big banks going like sure cool put on a public blockchain and not something like that's like something semi-controlled by them. I know this is a 2017 narrative, but I find it kind of crazy that they would do that when they could just go build something else that's like completely under their control.

Let's talk about building. Um, so we have some builders on stage. Um, one thing that I've been seeing a lot in the market recently is infrastructure that settles out to the Bitcoin blockchain at the base settlement layer. Um, and a lot of those things look like sidechain architectures um that use the Bitcoin blockchain for security and final settlement, but that use all kinds of other things um for momentto- moment transactions. Is that the architecture that's going to end up successful here?

Uh what's the what's the actual structure of the most investable, highest value kind of ways to use Bitcoin security and settlement? What should people here look out for?

Well, uh, uh, speaking for myself, I think, uh, and him, uh, my project, I think there's a natural fan out from the L1 blockchain, Bitcoin, Ethereum, etc. into overflow blockchains, blockchains that are more specialized. And that's uh what I call the Darwinian uh font of innovation. The Darwinian trial by fire is there are just like there are you know uncountable numbers of tokens most of those don't survive the Darwinian trial by fire just like venture capital you have power law apply and in this case very extreme where 0.1% of the competition will succeed and the rest will fail.

You're seeing the same thing right now with L2, side chains, etc., where you're finding out which infrastructure best lives at a secondary layer and then you're relying on Bitcoin, the strongest network, to settle it at the end of the day. So, you know, I'm very biased, but I'm very positive that that's a workable hierarchical infrastructure.

Yeah. And when you look at L2s and how they're constructed, there's a lot of different ways to construct them. you know, you've got side chains. You've got lightning, which are state channels. Uh there's other rollups and all sorts of other ways to create L2s.

This is where I think on Ethereum is really valuable to see how that ecosystem flourished and developed last cycle. Um in the Bitcoin world, we're we're seeing kind of this new emergence of these uh I would say like a huge L2 boom. And I, you know, I I kind of take an agnostic approach as an investor in the category where I think there's a lot of different ways to go build an L2. I think the problem isn't technology. Uh because side chains have existed for a super long time.

And if you look at Ethereum, the first Ethereum L2 was a side chain, Polygon. And you know, Liquid started at the same time as as uh or maybe a little bit before Polygon. And for some reason, Liquid wasn't successful. I think it's a marketing problem. I think with a token, you can use that token to bootstrap user acquisition.

And through that, that's how I think Polygon demonstrated that a side chain can, even though it's quite a primitive L2 can work. So, yeah, I think I think there's a lot of different ways to build an L2. I don't think there's going to be a winner take all and uh I'm certainly excited to see all the builders uh build out these L2s. So, funny

architecture.

Yeah, funny. No, I'm I remember the question. I'm collecting my thoughts. Ethereum has been a Bitcoin side chain since we launched TBTC in 2020. And that sounds weird because I think people are like, "Oh, I'm not your side."

Well, you you I didn't ask your permission, right? We just did it. Um, some people would argue uh well, some people would argue that a couch is a side chain, but other people would say WBTC was the first Bitcoin side chain. Um, if you look at where Bitcoin is being deployed, and I learned this lesson the hard way as an engineer who's reformed, it's not getting deployed to the most decentralized thing. It's getting deployed to the most compelling thing.

And so for me, I don't think there's this narrative that BitVM is going to unleash a whole bunch of liquidity or that some innovation. Bitcoin doesn't win by innovating. Bitcoin's primary strength is that it doesn't and I think that makes it difficult for us to build on it because it is much easier to build on Ethereum and and Salana and I can list many other projects. Um I don't think this is going to be decided by tech. I would love it if it were some fancy BitVM plus CK plus OPCAT combo where everything is trust minimized, but I think it's gonna depend on who can give users what they want because what I've seen is the Bitcoiners I mean some of them want the same things we all want at token 2049 to find the next cool trending whatever and get in the hyperl lighter plasma you know but a lot of them uh they're using Bitcoin to protect their savings.

And so it's just a completely different crowd. Um, and so I think the winner is going to be the one that makes people, it gives them what they're actually looking for and it makes them feel safe.

Let's talk about Plasma actually as a good example for a moment because they had this, you know, sellout 500 million uh, you know, ICO. They're building a stable coin, but it settles to the Bitcoin blockchain. Um, so what do you think the impact of the stable coin narrative is on Bitcoin and Bitcoin dominance in DeFi? Are stable coins going to come on the Bitcoin blockchain?

Well, they they started on the Bitcoin blockchain.

Yeah, Omni, right? The uh Counterpoint and Omni and Mastercoin, all of those protocols, they were actually uh Tether was born on the Bitcoin blockchain. it graduated or moved to uh uh DeFi and Ethereum and stuff like that. Stable coins are necessary liquidity high level. They're uh a necessary abstract for trading against for basing a lot of protocols uh in uh you know trading liquidity.

It's uh they're here to stay. Um I I like to list what are crypto's killer apps just writ large. Number one, Bitcoin. Period. End of sentence.

Number two, stable coins. You know, they're and what is my definition for a killer app is it punches through beyond token 2049 to people on CNBC, to people on the mainstream media. They talk about Bitcoin. They talk about stable coins on the news. And so they've they punched through.

They have stable they have staying power and they're absolutely necessary for uh uh so many uh uh little crypto innovation projects. uh at the end of the day their their infrastructure fundamentally uh base level infrastructure and it's going to be with us forever. Is it going to live on Bitcoin? To your question that's that's much more debatable. I think uh Bitcoin is an oified base layer that you build on top of and so I think more stable coins will tend to be in you know insert bias L2s.

Uh yeah what do you guys think? I mean, yeah, I think of stable coins are a core necessary part of any DeFi. If you want to borrow dollars using your Bitcoin as collateral, you have to have a stable coin on a chain. Now, is that on the base layer or is that an L2? It's going to be more L2 activity than base layer activity.

Base layer is quite primitive with its uh, you know, smart contract functionality. I mean there are ways to bring stable coins to Bitcoin's base layer. For example, Omni back in the day, but you also have like Lightning can bring stable coins to Bitcoin's base layer. Quasi bring it to Bitcoin's base layer. But you, you know, you could have a run, you could have a Rune stable coin.

There are ways to do it, but if I were a betting person, I would bet that a lot of this activity is going to happen on Bitcoin L2s, which are much more expressive. it's easier to bring an existing USDC USDT on chain. Um, and it's like transaction cost minimized is the Bitcoin base layer. If we start to see it gain any sort of I would say high intensity activity, it's going to get pretty expensive to transact. Same with the Ethereum base layer.

So, I I really think the L2s are where Bitcoin DeFi blossoms. You know what's funny about this question is we're talking about the two leading apps in our space being the thing that's about overturning USD and then the thing that's about extending USD dominance and eking out a little bit more and getting more you know marginal buyers

bring other you could bring other currencies on chain

I mean but no one's wanted them yet. I I I I think that too but we haven't seen the demand. So I think my question for me it's not will the stable coins land on Bitcoin. Will the stable coins land on any credibly neutral chain? That's what we've had so far on Ethereum, right?

And it's been good and what we had for a brief minute with Tether on Bitcoin, but now we're seeing uh Stripes launching in L1. We're going to see I mean, you know,

well, if it's already wraps, but Tron, I think, does more USD volume than Ethereum, so it's already been moving further out on that curve. So, sorry, keep going.

No, no, exactly. Yeah, Tron Tron has done uh payments I would argue better than Ethereum, but it's also EVM compatible. So, there's this big question of like where are the stable coins going to settle and does it matter? And for me, the most important thing is fixing the money and fixing the money isn't getting everyone to use USD, right? That's a step.

The real step is getting everyone to use Bitcoin. Um so our approach here has been well if you want a censorship resistant stable coin the only way to do it is to make it bitcoinbacked right so I look at ethereum and how it grew and die was and maker was huge uh for early ethereum before USDC and USDT were really there and that's why we're uh that's why we've launched the bitcoin back stable so that's the world I kind of see is I think that tether and circle and stripe and all these companies are all going to have this internian warfare on where the stable coins go. Eventually, it's all going to come back to Bitcoin. So, that's what I'm preparing for.

And just to pull out, uh it it is it USD in 10 years or not? Yeah.

Um one of the really really interesting things to me as a geopolitics nerd is that the US government has run out of buyers for US treasuries. Y

and guess who's the big buyer now? Circle.

Circle.

Exactly. you know it's right behind uh Germany as one of the largest holders of tea bills uh is is tether right and um China decelerated its buying of uh of US tea bills and now it's stable coins so it's the new Marshall plan

oh it is and it's this is uh it's either you know optimistically for America and this is getting a little bit political um America wants the dollar to be dominant and they see stable coins and crypto as a vehicle for that dominance.

But everywhere I've been this year, everywhere with a strong fiat currency that's not the US dollar is finding ways to tokenize it and bring it on chain right now. That's the question. You know, I think we are going to have many more currencies on chain, but let's let's divert from stable coins to another important aspect of DeFi. Um and actually Vitalik wrote a blog about this basically saying that um low yield defi is open for business and basically saying he feels comfortable with with that product. But on Ethereum there's native yield.

All these folks who are interested in Bitcoin DeFi, how can they evaluate where the yield comes from? What is a good source of yield in Bitcoin DeFi? I think the the meta question is uh you're you're addressing which is excellent is you got to investigate the yield. No two yields are the same. Some yields are you know 100x leveragebased

and they never share exactly what the risk is. How do you evaluate the risk associated with the yield number? So for all these good people when they're using Bitcoin DeFi, how should they think about it? So we we have a lot of discussions right now about yield with regards to Hemi and Bitcoin and how to bring Bitcoin staking, how to bring Bitcoin yield in a lowrisk way to users. And there are a number of different ways like lending markets.

They're lower risk. They don't involve leverage. There's some other techniques that you can use low risk. Uh but then it quickly dials up to pretty high risk. And so there's kind of just two tanches.

There's there's stable and you're getting basis points and there's leveraged and you're getting percentage points. That's what I'm seeing right now. So Judith Kachchow, former Goldman Sachs derivatives trader. She created Ledger X, the first options trading platform in in Bitcoin and she used to head up Kraken's OTC derivative desk. She distills this dilemma down really succinctly where she says that all yield is simply monetizing you for some tail risk event.

So whatever the risk may be there's some risk baked in there and you're trying to figure out are you getting compensated for that risk and that's a very subjective thing. So all in all, basically understand what your risk is and then decide if the yield is worthwhile, not the other way around. Don't look at the yield and use that as your like your guide for what to do. Start with the risk that you're willing to take. You know, for example, like if you sell covered calls, you know, you're selling your upside.

It's a very explicit sort of compensation for your risk. Um, but you know, that's just one example. Every single one of these has an example of what you're risking to earn it. So understand the risk is my advice.

Um guys, if there's one thing you take away from this discussion, if you don't know where the yield comes from, you're the yield, right? And this is even more true um with Bitcoin because there's the the the native yield for Bitcoin is based on lending. That's how we've always gotten yield on Bitcoin. It all boils down to lending. And you can do all sorts of more esoteric financial structures.

But um you know I I think I I think that some people think that maybe this gives ETH a benefit, right? Because people want yield, but T-Bells have yield too, right? And so, um, I think it's going to take a little while for Bitcoin Fi to kind of catch up with the fact Ethereum had all of this time where people kind of learned what a rug was. And, uh, Bitcoin is going to have to learn too. It's going to be rough for a little while.

And I will I will have a cod to yield is that I don't think yield is well priced at all right now because in DeFi, the biggest risk is capital risk. And so if your capital goes to zero due to a rugpole or something like that, the yield absolutely does not compensate for that in any way, shape or form. And so it's really a binary, you know, it's safe or it's not safe in terms of capital preservation. And that's the first stage of evaluation. And then you look into, okay, where does the yield come from and stuff like that.

I mean,

so it's very binary.

Yeah. I mean to that point on Vitalik's blog post, we don't have that safe low yield DeFi and Bitcoin yet because we're all trying to grow. So all of these projects have similar trade-offs where we have to be like, well, what can we say is safe?

I I'd actually push back on on this a little bit. One is that the native yield on Ethereum, what's the real return?

Of course, if it's inflation yield and there's not real yield, I can give you infinity yield if you'd like and it's risk-free, but you're just eluding the underlying base number of tokens. Exactly.

That's inflation yield. It's not real yield. A real yield is your net rate of return after inflation or newly printed coins. So, you know, what is a safe rate of base level return would depend on what Ethereum's real rate of return is. I don't know it off the top of my head.

Um, the other part is Bitcoin does have actually baked in pretty risk-free ye risk free yield that you guys probably don't remember because it's kind of this is some old stuff, but like coin joins coin joins offer you pretty risk-f free yield. Basically, you offer up your coins to be tumbled or mixed with other people and

that's got a different risk. There's risk there, too.

Pretty risk.

Well, fits that that's not a protocol risk though. True.

That that's a regulatory risk. Yeah.

Uh or you can provide liquidity for lightning channels. So if people want to open up lightning channels, they don't have enough Bitcoin, you can sort of like quasi lend it to them, but it done in a trustless manner. So the Bitcoin base layer uh or Bitcoin's basic activities of providing liquidity for tumbling or for channel management is basically risk-free. And so I would argue Bitcoin does indeed have a risk-free yield at a base level.

Well, generalized is service fees. You got lending and you got service fees. And that's like like like trading pairs. you could also get lowrisk yield from that.

So, Bitcoin is the biggest, but it also has the most capital that isn't currently in any kind of DeFi or in any kind of pool. Maybe it's because of those capital risk concerns. Maybe it's because people are thinking of it as a store of value rather than a productive asset. All kinds of reasons for this. But if somebody here is actually interested in starting to put their Bitcoin to work and starting to try to earn in DeFi with that Bitcoin, I assume the three of you have your Bitcoin in DeFi.

What is the number one Bitcoin DeFi app that you use every day that you have the most of your own Bitcoin in?

Lending Markets. That's that's how you can earn pretty decent yield on BTC is uh collateralize BTC. borrow USD at low yield and then deposit at a higher yield and cycle back.

Well, since I'm an investor in this space, I can't I can't put one of my companies on a pedestal. I love all the

I love all my children equally. So, look, uh, you know, Mezzo's doing great work there. Botanics just launched. Uh, you know, their yield is real yield. They're calling it kind of cold hard yield where the layer 2 generates a yield based in economic activity.

And so you can earn I think I forget what the percentages. Actually I don't want to throw out percentages because you know that's a whole rabbit hole but you know Botanics is out there. You've got on Bitcoin on Bitcoin's base layer using discrete log contracts. You can actually lend your you can borrow Bitcoin using your ordinal as collateral or you can lend Bitcoin to someone who wants to borrow it. Uh it's called liquidium is a DAP on the Bitcoin base layer and the yields on that are crazy.

you're also taking a lot of risk. But, uh, those are some good examples of, I think, interesting places to look for yield.

So, I don't have to be fair. And, uh, my house is financed by Bitcoin. Um, I use, uh, non-custodial lending to do that. Uh, and the tools that I've used, I started with, uh, Curve USD, uh, variable rates, but very early. Cool.

Uh, A. So, both of those are on Ethereum. And then I'm actually refinancing because they're giving me rates from 10 to 24% not appropriate for a house. Um, and I'm using Messo's MUSD and that's a 1% fixed rate. So if you guys are interested in buying a house, deploying more capital from your Bitcoin, I'd love to talk to you after.

And uh, yeah.

Fabulous. Thanks everyone.

Thanks Amanda. Thanks guys.