Cardano attempts to tap liquidity from Bitcoin (BTC) by building a new native bridge. The chain’s founder, Charles Hoskinson, went so far as to welcome Bitcoin to its ‘home’.

Cardano will host bridged Bitcoin (BTC) in a new bid to increase liquidity. Charles Hoskinson, Cardano’s founder, sent out a message that Bitcoin was ‘coming home’ by running on the L1 chain. 

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— Charles Hoskinson (@IOHK_Charles) October 25, 2024

Cardano has been seeking ways to build up real traffic on its blockchain, which has existed for years and gone through multiple upgrades. For now, Cardano has a more limited impact compared to other L1, as it locks only $214M in total value. Cardano saw activity briefly spike when the chain became popular for its NFT hype. In 2024, Cardano may be considered overvalued, as its market capitalization is at $11.99B, disproportionate to its low value locked.

Outside of that usage and the community hype, Cardano was seen as a ghost chain. The L1 is far behind on launching native DEX or DeFi. Cardano apps only have a few hundred to a few thousand active daily users.

Cardano receives BTC through BitcoinOS Grail Bridge

Cardano positioned itself to tap the new inflows into Bitcoin L2 projects. BitcoinOS aims to build trustless, zero-knowledge proofs on Bitcoin, creating a scalable L2. BitcoinOS partners with L2 leaders like Merlin Chain, Nubit, CoinEx, and Sovryn. 

The Grail Bridge uses two validators to monitor transfers from L1 to Cardano or other L2. The end goal is to use ZK-proofs for all transactions. BitcoinOS ran a test ZK-proof this summer, showing its technology was compatible with Bitcoin. The open-source BitSNARK technology is available to third-party builders on Bitcoin, only facing the challenge of limited L2 adoption. 

At this point, mass-adoption ZK-proofs may not be viable, so bridges require partially centralized validators. Cardano itself remains partially centralized even after the Stage 1 Chang hard fork. 

BitcoinOS already offers the Grail bridge to any L2 aiming to build on the Bitcoin chain. The bridge offers to move coins onto any L2 project, providing liquidity to its DeFi ecosystem. 

Cardano made its move at a time when Bitcoin L2 projects started to accelerate. However, most L2 on Bitcoin draw in relatively small amounts of actual BTC. The leader for now is Babylon, which attracted around 24K BTC through its campaigns for non-custodial BTC staking. Liquidity remains fragmented across protocols, with no guarantee on the behavior of traders. BTC is now valued at more than $1.3T, but L2 protocols only tap a very small fraction of that liquidity, as holders prefer to store their coins for the long term, remaining skeptical of bridges.

Other L2 have limited holdings, with the Lightning Network and Merlin Chain the leaders in locked holdings. Cardano will have to overcome the skepticism about locking up BTC with new protocols, especially after only hosting relatively illiquid DeFi apps. While BTC becomes more valuable, it is uncertain if traders would be willing to put their coins at risk on Cardano’s apps, which have extremely thin daily volumes and only a few dozen users each. 

Previously, Cardano could receive niche forms of wrapped BTC, from apps like Indigo Protocol or Aneta. However, those wrapping tools were small and risky, with limited liquidity and applications for DeFi. 

Cardano itself has the ambition to become the smart-contract layer for Bitcoin’s L1. However, Cardano has failed to attract even general smart-contract creation to compete with Ethereum. Cardano has under 50K daily active accounts, only about 10% of Ethereum’s activity. Only 1.7% of all ADA tokens are in active trading turnover, while a big part of ADA is locked for staking and simple passive rewards for securing the network. 

ADA is also trading near its usual stagnant range of $0.34. Despite representation on most major exchanges, ADA trading slowed down to a baseline of $250M daily.  Open interest for ADA increased slightly in the past day, recovering above $200M. More than 70% of ADA positions are long, recently shifting from a ratio of dominating short positions. 

ADA remains an actively traded asset where even small rallies are used for gains, due to the relatively high liquidity. However, the token lacks the initial hype and continues on its range-bound sideways drift, despite the promises of more projects using the Cardano L1 chain.

In a recent episode of the SlateCast, Sunny Aggarwal, Co-founder of Osmosis Labs and Polaris, joined CryptoSlate’s Editor in Chief Liam “Akiba” Wright to discuss the future of cross-chain decentralized finance (DeFi), the rise of multi-chain ecosystems, and his new venture, Polaris. Aggarwal delved into the innovations within Cosmos, the role of Bitcoin in decentralized finance, and Polaris’s goal to unify trading across various blockchain networks.

Bitcoin’s Growing Integration with DeFi

Aggarwal started by discussing the evolving role of Bitcoin within the Cosmos ecosystem. He emphasized that the decentralized finance landscape is increasingly incorporating Bitcoin, which he sees as essential for a comprehensive DeFi ecosystem. “Bitcoin DeFi is continuing to grow and happen,” he said, referring to the expansion of DeFi layers, such as ThorChain, that bring Bitcoin into decentralized applications.

Osmosis, Aggarwal’s previous project, has integrated various Bitcoin bridges, including Wrapped Bitcoin (WBTC), NOMIC, and CKBTC. These integrations provide additional trading options for users and help expand Bitcoin’s use case in Cosmos. “Alloyed Bitcoin is live on Osmosis and is one of our most traded assets,” Aggarwal noted, highlighting how these new offerings have significantly increased activity within the platform.

Polaris: A Unified Platform for Multi-Chain Trading

Aggarwal’s latest venture, Polaris, aims to tackle one of DeFi’s greatest challenges: fragmented liquidity across chains. Centralized exchanges allow users to trade across multiple assets, such as Bitcoin, Ethereum, and Solana, on one platform, while decentralized exchanges (DEXs) have traditionally been limited by chain-specific liquidity pools. Polaris seeks to overcome this limitation by creating a platform that aggregates liquidity across ecosystems, allowing users to execute cross-chain trades seamlessly.

“On centralized exchanges, you can trade Bitcoin, ETH, and SOL all in one spot, but on DEXs, you need different sites for each, and that’s a terrible experience,”

Aggarwal explained. Polaris’s innovation lies in its user-friendly interface, which aggregates liquidity across chains and removes the need for users to manage separate wallets for each blockchain. Instead, Polaris leverages advanced multi-party computation (MPC) to allow users to trade with assets across ecosystems using their existing wallet, ensuring a seamless experience.

User Experience and Security: Key Priorities for Polaris

User experience (UX) and security are at the core of Polaris’s mission to provide seamless cross-chain trading. “The goal is to enable one-click trading across different chains,” Aggarwal stated. To achieve this, Polaris has integrated multiple liquidity aggregators, such as Jupyter, Rango, and 0xAPI, into a single platform, allowing users to access diverse liquidity pools without having to understand the complexities of each chain.

Security remains paramount for Polaris, with Aggarwal describing the MPC-based mechanism that Polaris employs.

“Private keys are sharded across eight validator nodes, and five out of eight nodes are required to authorize transactions,” he explained.

This setup protects users’ assets, ensuring that even if some nodes are compromised, the system maintains high security standards.

Expansion Plans and Multi-Chain Roadmap

Currently in alpha testing, Polaris has ambitious plans for expansion. Aggarwal revealed that the beta version is expected to launch early next year, starting with support for Ethereum, Solana, Cosmos, and Tron. The platform will continue to add new ecosystems each month, broadening access to assets across different chains. Initially, Polaris targets crypto-savvy users, but the team is working on UI improvements to attract Web3 newcomers.

“Right now, we’re focusing on getting feedback from experienced users,”

Aggarwal shared. As Polaris evolves, it aims to provide a simplified experience accessible to users at all levels, with future plans for mobile apps and easy-to-navigate interfaces.

“The Holy Grail is a platform where users can hold one key and seamlessly interact with dApps across ecosystems,” he noted.

A Timely Launch Amid Market Shifts

In light of fluctuating market conditions, Aggarwal expressed optimism about the timing of Polaris’s launch. He emphasized that the project aims to be well-prepared for a potential bull market rather than reacting to it midway.

“We want to be ready for the bull market, not just reacting to it halfway through,” he said, highlighting Polaris’s goal to capture a significant user base as the market gains momentum.

The SlateCast episode with Sunny Aggarwal provided a comprehensive look into the challenges and opportunities within decentralized cross-chain trading. Polaris stands out as a pioneering platform in the DeFi space with its focus on security, user experience, and multi-chain compatibility. It is positioned to potentially play a pivotal role in shaping the future of DeFi across multiple blockchain networks.

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