Building defi on bitcoin: Jeroen Develter’s insights on second-layer innovation
Why bitcoin for defi?
Ethereum has long been the go-to chain for DeFi because of its established tooling, robust developer community, and integrated liquidity. Bitcoin, on the other hand, often appears more rigid due to its focus on security and minimal script functionality. Jeroen acknowledged these factors but argued that the lack of flexibility in Bitcoin’s main layer doesn’t preclude innovation. Instead, it pushes developers to seek off-chain or layer-two solutions that harness Bitcoin’s security and liquidity without altering its core protocol.
One of the primary motivations is Bitcoin’s brand recognition and liquidity depth. Many investors and traders hold BTC as a core position, yet they’re unable to leverage it in more advanced applications like lending, yield farming, or collateralization without moving to Ethereum-based wrapping solutions. For Jeroen, building on Bitcoin is about tapping into that massive user base directly.
Working around technical constraints
A major theme in the conversation was the technical challenge of implementing DeFi-like functions on Bitcoin. Unlike Ethereum’s Turing-complete environment, Bitcoin’s scripting language is deliberately limited. Jeroen explained that this isn’t necessarily a dead end, but it does mean DeFi projects must find creative ways to introduce conditional logic or multi-step transactions.
Some possibilities include sidechains or second-layer networks like the Lightning Network, which already demonstrates how to manage transactions off-chain without burdening the Bitcoin ledger. Other projects explore covenants—conditional spending rules enforced by the Bitcoin script—to replicate some aspects of smart contracts. These methods can be complex to implement, but they also maintain Bitcoin’s design ethos of simplicity and security.
The importance of trust minimization
Jeroen emphasized that any DeFi on Bitcoin must adhere to trust-minimized principles. Since Bitcoin users are accustomed to a certain level of security and decentralization, simply porting solutions from other chains might dilute what makes BTC unique. This means systems must reduce reliance on oracles or external validators that could fail or collude.
By prioritizing trust minimization, developers ensure that BTC holders who engage with DeFi aren’t forced to trust unfamiliar third parties. For example, atomic swaps can allow cross-chain exchanges without a central intermediary. Similarly, multi-signature schemes can facilitate more complex DeFi operations while preserving user control over private keys.
Use cases on the horizon
So what does DeFi on Bitcoin look like in practice? Jeroen cited a few potential use cases:
- Lending and borrowing: Bitcoin’s deep liquidity could support lending pools, where BTC holders earn yield while providing liquidity to borrowers—similar to what’s already seen on Ethereum.
- Staking-like contracts: Though not staking in the proof-of-stake sense, users might lock up BTC in specialized scripts to earn fees or engage in collateralized loans.
- Synthetic assets: Some protocols could collateralize BTC to mint stablecoins or synthetic tokens that track other commodities or indices, broadening the utility of Bitcoin beyond price appreciation.
- Payment channels: The Lightning Network has already shown that instant, low-fee transactions are possible. Adding DeFi elements could allow users to manage liquidity or open channels that generate passive income.
While some of these concepts already exist in nascent forms, Jeroen envisions them becoming more refined and user-friendly, with higher adoption rates as developers refine second-layer tooling.
Balancing innovation with bitcoin’s culture
The conservative approach of Bitcoin’s community means that changes to the base layer are slow and subject to extensive debate. Jeroen pointed out that this cultural dynamic can be both a hurdle and a safeguard. On the one hand, it limits radical on-chain modifications. On the other, it forces solutions to be robustly tested and thoroughly reviewed.
Layer-two solutions and sidechains serve as a middle ground, allowing experimentation without tampering with the main chain. Jeroen noted that successful projects in this realm are likely to respect Bitcoin’s ethos, ensuring that they align with principles like decentralization, censorship resistance, and a strong commitment to security.
Overcoming adoption barriers
Despite the promise of DeFi on Bitcoin, challenges remain. One is user education. Many BTC holders are more comfortable with a buy-and-hold strategy than navigating the complexities of decentralized applications. Another concern is tooling, as developer libraries and frameworks for Bitcoin-based DeFi are relatively immature compared to what’s available for Ethereum.
Jeroen believes the industry can overcome these barriers by simplifying user journeys—abstracting away complex operations and offering intuitive interfaces. Additionally, open-source collaboration could accelerate the creation of developer toolkits, lowering the bar for new projects to emerge.
Regulatory outlook
Any conversation about DeFi inevitably touches on regulation. Bitcoin, often viewed as a commodity or store of value, might face different rules than Ethereum. However, as soon as advanced financial instruments come into play—like lending, trading, or synthetic assets—regulatory scrutiny intensifies.
Jeroen advised that projects aiming to remain fully decentralized must plan carefully to avoid inadvertently creating a point of central control or regulatory vulnerability. This often means distributing governance tokens, employing audited smart contracts, and staying transparent about how user funds are managed.
A glimpse into the future
Toward the end of our conversation, Jeroen shared a vision of a multi-layered Bitcoin ecosystem. The base layer remains secure, serving as the ultimate settlement ledger, while second-layer solutions handle high-speed transactions and complex logic. This layered model, in his view, merges Bitcoin’s robust security with the evolving needs of decentralized finance.
Whether Bitcoin can rival Ethereum’s DeFi ecosystem remains uncertain, but one thing is clear: the appetite for building advanced financial tools on top of BTC is growing. If projects like Jeroen’s gain traction, we could see a wave of innovation that broadens Bitcoin’s use cases beyond a store of value or a hedge against inflation.
Final thoughts
The notion of Bitcoin-based DeFi might once have seemed far-fetched, but ongoing developments show that it’s more than just a theoretical possibility. Jeroen’s insights highlight both the technical complexities and the cultural nuances that developers must navigate. Yet the potential rewards—a truly secure, liquid, and widely recognized foundation for decentralized finance—could be monumental.
This conversation underscores that, while Ethereum may currently lead the DeFi charge, Bitcoin isn’t content to stay on the sidelines. If you’re intrigued by the possibility of a more dynamic BTC ecosystem, or you simply want to see how second-layer innovation might reshape the crypto landscape, this episode offers ample food for thought.
Listen to the full conversation
To delve deeper into Jeroen’s views and the technical details of Bitcoin-based DeFi, tune in on:
- Spotify: Listen here
- Apple Podcasts: Listen here
Feel free to share this episode with fellow crypto enthusiasts or anyone curious about how Bitcoin’s “store-of-value” narrative might evolve.
