Bitcoin is the first and also the largest cryptocurrency by market capitalization. At a current $1.1 trillion market cap, BTC’s dominance of the whole crypto market is over 50%. And yet, DeFi - one of the biggest innovations in crypto, fails to captivate this massive liquidity due to a number of factors. But that story is before Lambda Finance.

In this article, we explore the various pain-points Bitcoin holders encounter in DeFi and how Lambda Finance solves them with the most capital efficient, low-risk lending protocol.

Bitcoin adoption in DeFi is low - Why?

Research shows that the majority of DeFi activity involves large transactions, typically from sophisticated users and institutions. Nevertheless, according to DeFi Pulse, as of mid-2024, Ethereum-based DeFi protocols account for over 60% of the total DeFi TVL (Total Value Locked), while Bitcoin's contribution through wrapped versions (like WBTC) is less than 2% of the total DeFi TVL.

This does not sound right, considering the majority of BTC holders are whales, long-term holders, and institutional investors. This leads us to the question: why are Bitcoin holders uninterested in DeFi activities? There are a few reasons.

First of all, Bitcoin was designed primarily as a decentralized digital currency and store of value, not as a platform for smart contracts and DeFi applications. This makes it less versatile compared to Ethereum, which was built with a focus on programmability and smart contracts. Most DeFi protocols and decentralized applications today are built on Ethereum, which is not a native platform for Bitcoin. As a result, to use these services, Bitcoin holders have to go through additional complexity and reliance on custodial services.

Second, because Bitcoin is not a priority asset for DeFi products, the number of use cases for Bitcoin within the DeFi ecosystem is extremely limited. Given the limited functionality of Bitcoin within DeFi ecosystems, it makes sense that Bitcoin holders are further discouraged from participating in DeFi activities.

Third, given the ethos of Bitcoin that prioritizes security and trustlessness, we can indicate Bitcoin holders have a low level of risk tolerance. On the other hand, DeFi often involves a lot of risks. In the first quarter of 2024 alone, approximately $336.3 million was lost due to various DeFi exploits and vulnerabilities. As DeFi hacks and scams continue to be a major concern, Bitcoin holders need a battle-tested, safe-and-sound DeFi instrument.

Welcoming Bitcoin holders to the world of DeFi

Lambda Finance is a lending protocol that enables the effective utilization of Bitcoin by allowing users to lend or borrow any assets in combination with btcUSD - our Bitcoin backed stable coin. btcUSD is the first & only licensed fork of crvUSD - a CDP stablecoin with innovative stability & loss protection mechanisms. If you are unfamiliar with btcUSD, please refer to our previous blog post.

Long story short, users can collateralize Bitcoin and Bitcoin equivalents on Lambda Finance to mint btcUSD and leverage their position (up to 9x) with competitively low funding and interest rates. Lending and borrowing are among the most fundamental financial instruments; however, over the years, there has been no “goldilocks” lending solution for Bitcoin because, to borrow, Bitcoin holders are forced to compromise on one or more aspects.

Understanding this, Lambda Finance introduces a novel mechanism called L.L.A.M.M.A (Lending-Liquidating AMM Algorithm). LLAMMA turns borrowers’ collateral into LP positions, enabling it to avoid hard (one-off) liquidations with continuous collateral rebalances (soft liquidations).

L.L.A.M.M.A splits collateral among a number of concentrated liquidity tranches known as “bands''. Each band represents different liquidity ranges where user assets are used as collateral. When BTC price falls within a band range, the collateral in the band is converted into btcUSD to cover closing of the portion of the loan represented by the band. When BTC’s price recovers, the protocol re-converts the btcUSD back into collateral.

With L.L.A.M.M.A and btcUSD at its core, Lambda Finance offers numerous benefits to Bitcoin holders:

• Enjoy the most capital-efficient lending solution with native support for Bitcoin.

• Lend Bitcoin at a high interest rate with $LAMBDA and ve(3,3) tokenomics, along with reduced risk of impermanent loss and price volatility with isolated markets. Additionally, lenders can choose from a variety of lending markets to diversify lending strategies based on risk tolerance and return expectations.

• Collateralize Bitcoin and leverage your position up to 9 times at low cost, low risk while effortlessly managing your position with the soft-liquidation mechanism.

• Each lending market is independently managed (isolated markets), ensuring that risk is isolated within specific pools, preventing cross-market contagion, and avoiding the impact on $btcUSD.

• Deep integrations with DeFi protocols such as Curve, Frax, and Aladdin DAO ecosystems provide myriads of liquidity and use cases for btcUSD, increasing its borrowing demand. We are excited to finally welcome Bitcoin holders to the world of DeFi!

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