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.
— 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.
Source: https://www.cryptopolitan.com/charles-hoskinson-calls-cardano-the-home-of-bitcoin-btc-after-bridge-launch/