How Portal-to-Bitcoin is unlocking Bitcoin’s potential in cross-chain DeFi

Bitcoin’s success as a digital store of value is undeniable. Still, its utility beyond storage and transfer is a common point of criticism. 

The Bitcoin ( BTC ) ecosystem relies on custodial, exogenous infrastructure to trade, lend against or issue derivatives of BTC. This is compounded by the fact that cross-chain bridges for the asset may be limited or have high custody risk.

Recent technical advances have spurred a flurry of developer activity in the Bitcoin L2 ecosystem . This may lead to an explosion of Bitcoin-native decentralized finance (DeFi) in coming years. As of October 2024, Ethereum dominates DeFi with about $47.5 billion in total value locked (TVL), while Bitcoin’s TVL lags at $1.9 billion. If Bitcoin captured just 10% of Ethereum’s market share, it could potentially add $4.8 billion in TVL. This highlights Bitcoin’s untapped potential in DeFi and the need for seamless cross-chain interoperability to close the gap.

Against this backdrop, projects such as Chainlink CCIP , LayerZero , Portal-to-Bitcoin and Threshold Network aim to bridge disparate blockchain environments. Portal-to-Bitcoin stands out by facilitating cross-chain operations through atomic swaps, which eliminate some custodial risk. Cointelegraph’s latest report examines Portal-to-Bitcoin’s approach to cross-chain swaps, which offers a unique solution to Bitcoin’s integration into DeFi ecosystems.

Portal-to-Bitcoin: A native Bitcoin solution for cross-chain non-custodial swaps

Portal-to-Bitcoin is a protocol that introduces a solution for swapping native Bitcoin cross-chain without the need for wrapped assets or custodial bridges. Its architecture avoids conventional lock-and-mint models and relies on atomic swaps, specifically, Multi-Party Hash Time-Locked Contracts (MP-HTLCs) to facilitate swaps.

When a user initiates a swap, funds are locked in an HTLC on one blockchain (e.g., Bitcoin network), and the counterparty creates a matching HTLC on another chain (Ethereum network). Both contracts rely on the same cryptographic hash and enforce a time limit for the swap to complete. If either party reveals the shared secret (preimage), the swap finalises; otherwise, both parties recover their assets. 

To match users' swaps, Portal-to-bitcoin uses an Automated Dynamic Market Maker (ADMM). The ADMM is similar to the Uniswap v3 , but designed to manage liquidity and execute swaps efficiently across chains. This system is also capable of processing range and market orders. The ADMM minimizes costs and front-running risks by batching transactions per block.

To secure its infrastructure, Portal-to-bitcoin operates a validator-based system that is supported by its unique Notary Chain. The Notary Chain uses a Threshold Signature Scheme (TSS) to ensure that no single validator can control critical cryptographic keys. Although there is still a degree of trust required, the distributed structure ensures that no small subset of validators can misappropriate funds.

Charting a Course for Bitcoin’s DeFi Evolution

By solving the key issues of trust and custody, Portal-to-Bitcoin presents a viable solution for Bitcoin’s broader cross-chain DeFi integration. This potentially unlocks significant value in the space. An in-depth dive into various cross-chain technologies and full insight into Portal to Bitcoin’s unique architecture can be found in the full version of the report.

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