Cardano Introduces Cardinal to Bring Bitcoin into DeFi

• Cardano launches Cardinal, enabling Bitcoin use in DeFi without giving up custody or control.
• Wrapped UTXOs allow BTC to be staked, lent, or used as collateral across Cardano dApps.
• Ordinals can now serve as collateral and move across chains using a trust-minimized bridge.

Bitcoin holders will soon be able to enter DeFi without losing control of their coins. Cardano has unveiled a new protocol called Cardinal. It enables BTC owners to utilize their Bitcoin in decentralized finance (DeFi) systems, such as lending and staking. The system was built by InputOutput HK, Cardano’s main development team. Cardinal uses advanced technology to allow Bitcoin usage in decentralized finance, eliminating the need for custodians.

Instead of relying on wrapped BTC held by third parties, Cardinal uses a new model. This model is powered by Wrapped UTXOs and MuSig2 multisignature technology. It locks Bitcoin securely and mints assets on Cardano’s chain.

These assets mirror the value of Bitcoin and can be used in DeFi. Users can lend, borrow, farm, and stake using platforms like SundaeSwap or Fluid Tokens. They can also trade or auction Ordinals across blockchains.

The Wrapped UTXO system allows BTC to generate yield while remaining redeemable. Users can destroy their wrapped token to get Bitcoin or Ordinals back. BitVMX ensures that transactions are verifiable and safeguarded against fraud by enabling secure off-chain validation of wrapped Bitcoin assets. It facilitates both peg-in and peg-out processes, allowing Bitcoin to be seamlessly integrated into Cardano’s smart contract ecosystem.

Developers used Cardano’s eUTXO model, which shares similarities with Bitcoin’s UTXO system. This design allows for more efficient smart contract execution. Cardinal is cross-chain compatible with Ethereum, Solana, Avalanche, and more. It also includes support for Ordinals, Bitcoin-based NFTs. Users can stake or lend their Ordinals as collateral. They can also auction or move them across chains while keeping their historical records.

The system provides Bitcoin with access to yield generation without requiring intermediaries. It also limits the risk of asset rehypothecation. Wrapped UTXOs exist under user control with a fraud-proof exit process.

Romain Pellerin, CTO of InputOutput HK, described Cardinal as a major leap. He said future improvements could include wallet integration and liquidity tools. He also mentioned adding zero-knowledge proofs to strengthen security.

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The launch supports Robert Kiyosaki’s view of Bitcoin as “people’s money.” It opens a new chapter for Bitcoin use in decentralized finance. Bitcoin holders can now earn yield on Cardano without giving up control.

Cardinal also offers the first trust-minimized bridge for Bitcoin Ordinals. BTC NFTs are now able to be moved between different blockchains in a safe way. This marks a first for Bitcoin-based DeFi and NFT interoperability. It forms a link between Bitcoin and the advancing technologies of smart contracts and decentralized finance.

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