Will DeFi Come To Bitcoin's ecosystem?

This installment of Off The Chain is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 40,000 other investors today.

To investors,

There is an interesting dynamic playing out in decentralized digital currencies. 

Bitcoin has historically been recognized as money, including the ability to serve as a store of value and a medium of exchange. But recently, there have been quite a few people who have started to push a narrative that Ether, the token associated with Ethereum, is money as well.

This narrative has gained popularity as more developers leverage the smart contract platform to create decentralized financial infrastructure (known as DeFi). Some examples of these include:

  1. Maker — a project focused on increasing access to financial services around the world. It includes a decentralized stablecoin (Maker DAI), collateral loans, and community governance. The project is built on top of Ethereum, but does not leverage Ether as money (it uses DAI).

  2. Dydx — a project that describes themselves as “a decentralized exchange for margin trading and eventually derivatives. With dYdX users can trade, borrow, and lend any supported asset. dYdX is powered by smart contracts on the Ethereum Blockchain, which eliminates the need to trust a central exchange while trading.”

It is hard to argue that increasing access to financial services for hundreds of millions of people around the world is a bad thing. It is the exact opposite. Now anyone with an internet connection can gain access to the same financial services that you or I have.

But while these Ethereum-based infrastructure applications (DeFi) are starting to see more traction, we still haven’t seen many decentralized financial infrastructure built for Bitcoin. In fact, most of the infrastructure built around Bitcoin is centralized. An example would be Blockfi — a portfolio company that allows a user to deposit Bitcoin and receive USD loan against the collateral, or to earn interest on the deposit. They also support Ether and GUSD.

There are plenty of “Bitcoin companies,” which is just a fancy way to say they exclusively exist to focus on Bitcoin. Companies like Samourai Wallet, Amber, and Zap all come to mind in this category. Each of these are centralized though.

This is an important aspect of the industry to understand. If Bitcoin is decentralized, but the infrastructure surrounding it is centralized, there are many complexities that are introduced (censorship, seizure, etc). In Ethereum’s case, if you have decentralized infrastructure, but the unit of account (Ether) does not embody all the characteristics of sound money, then you have many of the same complexities introduced.

Here is one way to look at the current environment:

So what are the options moving forward to reach the ideal state of decentralization, both in the unit of account and the infrastructure?

There are two options — (1) create a way for Bitcoin to become usable in the Ethereum ecosystem or (2) create decentralized financial services infrastructure around Bitcoin. The first option is likely to be technically easier, but it is less ideal in my opinion. The idea of bringing Bitcoin to the Ethereum ecosystem seems like more of a band-aid solution, rather than a sustainable, scalable end state. Thankfully, the idea of creating decentralized financial infrastructure around Bitcoin isn’t a complete insane endeavor though.

It definitely won’t be easy. It is harder to write smart contracts on Bitcoin. It is harder to create applications on top of the network. And there are very few talented teams currently pushing the pace of innovation here. That doesn’t mean that a future world of Bitcoin and decentralized infrastructure supporting it is impossible. Quite the opposite actually. 

Nothing is impossible. And the hard things are almost always worth doing. I’m actively looking for people who are building decentralized financial services infrastructure around Bitcoin. Think about what the Ethereum community has built in the DeFi space and imagine the same types of services but built specifically for Bitcoin.

If you know of anyone working on this, please let me know. If you have the technical ability to build these types of products, please reach out. And if you completely disagree with my view of how the future could unfold, please respond to this email with your detractions. 

The future is decentralized. The question is who will have a hand in building the new financial system and are the current developers focused on building for the wrong base unit of account?

Only time will tell.


The “Off The Chain” podcast has been downloaded in every country in the world, with more than 1,500,000 combined downloads. You can listen to the latest episode with Mark Yusko, Founder & CIO at Morgan Creek Capital Management here: Click here for Off The Chain podcast


Trial Back on After Craig Wright Breaks Bitcoin Settlement Agreement: Australian-born technologist Craig Wright has attested that he cannot finance his court settlement negotiated with the Kleiman estate. According to a court document filed in the Southern District of Florida Oct. 30, Wright pulled out of the settlement agreement in which he would forfeit half his intellectual property and bitcoin mined prior to 2014. With the agreement broken, trial motions are now back on. Read more.

French Kids Will Now Learn About Bitcoin at School: High school students in France may be among the first people in the world to actually understand how cryptocurrency works.French high school children will soon learn about Bitcoin, after the cryptocurrency was added to the syllabus for Economics and Social Sciences. Le Ministère de l’Éducation Nationale, the French education ministry, has outlined Bitcoin‘s inclusion in the curriculum, noting how it will use the cryptocurrency to help students think about the characteristics of money. Read more.

A Major Bitcoin Exchange Has A ‘Massive’ Problem: Seychelles-based bitcoin futures exchange BitMEX has sparked panic among bitcoin traders and investors after accidentally exposing thousands of its users' emails–with the exchange's Twitter account then compromised shortly after. BitMEX this week sent out thousands of its users' email addresses along with a weekly newsletter after inadvertently CC'ing recipients instead of BCC'ing them. Read more.

Reggie Middleton Reaches $9.5 Million SEC Settlement Over ICO Fraud: The SEC said it has reached a settlement with Reggie Middleton, organizer of the fraught $14.8 million Veritaseum initial coin offering. In a filing with the New York Eastern District Court, Middleton agreed to the consent decree of the final judgment, without having to admit or deny the allegations, while waiving any right to appeal. The defendant agreed to pay approximately $9.5 million to settle the case. Read more.

Telegram Releases Test Crypto Wallet Despite SEC Lawsuit: Telegram, the messaging app company turned blockchain startup, has released an early desktop wallet for its “gram” token. Now users can download the test app for MacOS, Windows and Linux 64 bit on Telegram’s official website and get their keys on the TON testnet. The wallet asks users to save 24 seed words and create a password for payments, after which the wallet is ready to receive and send grams. “Now you have a wallet only you control – directly, without middlemen or bankers,” the app says to new users. Read more.

Uploads 2f1572285807667 3hograq71t2 2a74713c2fd36058476ed61def3c17bd 2fdominik%2bschiener%2bgraphic.jpg?ixlib=rails 2.1


Dominik Schiener is the Co-Founder of IOTA, a disruptive technology that enables machines to store and send money frictionlessly between one another. In 2017, Dominik co-founded the IOTA Foundation and established Germany’s first nonprofit foundation that enables and fosters permission-less ecosystems powered by distributed ledgers.

In this conversation, Dominik and I discuss:

  • Privacy and data ownership

  • What is needed to make DLT a reality

  • The future of data privacy

  • The eventuality of a machine-to-machine currency built on DLT 

I really enjoyed this conversation with Dominik. Hopefully you enjoy it too.


Interested in crypto research? Look no further. The premier research firm in the space, Delphi Digital, has two subscription offerings for individuals and institutions alike. Take a look at their Bitcoin and Ethereum reports to get a taste of their analysis. [Click here]

If you enjoy reading “Off The Chain,” click here to tweet to tell others about it.

Nothing in this email is intended to serve as financial advice. Do your own research.