Bitcoin Cash DeFi Projects

unlocking the potential of decentralized finance

Bitcoin Cash is programmable money, this means developers can write smart contracts which are more complex than a normal spending transaction. Multi-Signature wallets are the simplest example of smart contracts but clever finance or recurring payment applications can also be written! The notable team working on BCH smart contracts, more specifically DeFi, is General Protocols, they developed the Anyhedge smart contracts which enables onchain future contracts. An exciting usecase of AnyHedge is that it allows merchants to stabilize the value of their BCH without having to sell for trusted stablecoins. Their protocol and smart contract is usable by anybody but they made it into a end-user product themselves with BCH Bull. The AnyHedge functionality however is more general and has been integrated in the Paytaca Wallet recently. Other smart contract applications on BCH include the inheritance contract Last Will & the recurring payment contract Mecenas both by Licho, a social gambling game RefreshTimer.cash as well as the recently retired non-custodial escrow by Local Cryptos.

The promise of DeFi

"DeFi" or Decentralized Finance means financial applications without middlemen. It's a different paradigm that levels the playing field by removing barriers to entry and, because there are no middlemen, is non-custodial. The non-custodial nature of DeFi applications provides an incentive for cryptocurrency holders to withdraw from an exchange to take part in them. These finance applications increase the liquidity a cryptocurrency and can use the speculative climate of the cryptospace to offer useful hedging contracts to merchants for example. Currently the most popular DeFi applications are automated market makers, algorithmic stablecoins and borrowing & lending applications. There is a lot a room for growth, with sythetic assets on a decentralized network traditional finance products like stocks would be tradeable without the limits of legacy finance. The execution of DeFi smart contracts is trustless but outside datasources called oracles are often required to provide (price) data to the blockchain. The need to trust an oracle is the Achilles' heel in smart-contract construction and requires reliance on reputation.

Solutions like Bitcoin Hivemind introduce decentralized oracles corporations.

Advantages of BCH

Bitcoin Cash has undergone multiple hard fork upgrades which expanded its smart contract capabilites, most important of which are the native introspection opcodes to create covenants, the opcode "checkdatasig" to enable the verification of oracle data, the change to 64bit integers and the re-enabling of opcodes like OP_MUL and OP_CAT. Together these enable complex smart contracts which are not possible on BTC. Compared to more powerful smart contract blockchains like ETH, Bitcoin Cash has the advantage of using a UTXO model while ETH has an account based model with a global state. Put simply this means BCH scales much much better than the ETH architecture so it will not have the same fee problem with increased usage. Currently things like ICOs and AMM-style DEXes are still not possible but they are planned to be enabled with the Cashtokens v2 upgrade in may 2023.

To get a better idea of the difference in smartcontract capabilities read: "Smart contracts on Ethereum, Bitcoin and Bitcoin Cash".

BCH Bull

"BCH Bull", is the in-house project by the General Protocols team that uses their AnyHedge smart contract. The AnyHedge smart contract in principle allows BCH denominated futures on any asset with an oracle price feed. Currently BCH Bull is in Beta phase and lists 5 different assets for users to long or hedge against. Hedging your BCH against your local currency pair stabilizes its value without having to sell for trusted stablecoins. BCH Bull falls under the umbrella term "DeFi" because it is a non-custodial finance application. BCH/USD futures to hedge or 3x long Bitcoin Cash with AnyHedge were already usable through the Detoken webwallet made by another team but the project closed down in August 2021 after little over half a year of operation.

The BCH Bull Beta is currently live at bchbull.com.

May 2023 upgrade

The next upgrade will continue this focus on the smart contract capabilites of Bitcoin Cash. The most important proposal for next upgrade is Cashtokens v2 which would be the biggest improvement to the scripting system yet! As the name suggests, the proposal enables native tokens on BCH (both fungible and non-fungible) which means the tokens are scalable and contract verifiable unlike layer 2 token systems like SLP. But importantly Cashtokens v2 also enables contract-verifiable messages for onchain applications! To demonstrate the capabilities of the proposal the author, Jason Dreyzehner, made a full proof of concept implementation of a DEX, called Jedex a decentralized exchange which runs fully onchain! The Jedex smart contract follows a modular approach so it consists of 8 separate smart contracts. Because of this it does not run into the rather strict VM limits for smartcontracts in terms of opcodes and bytesize. Cashtokens V2 would be the biggest upgrade for BCH to date and make Bitcoin Cash the most advanced UTXO-based smart contract blockchain! There are three other minor improvements planned for may 2023 namely upgrading P2SH to 32bytes(instead of just 20 bytes) to mitigate hash collision attacks, making correct use of transaction version a consensus rule and lastly allowing transactions smaller than 64 bytes.

Other BCH improvement proposals (CHIPs) up for discussion and future inclusion can be found on the Bitcoin Cash research forum. Some prominent ideas to extend this focus on smart contract features to enable complex and scalable decentralized applications on Bitcoin Cash include enabling bounded loops and redesigning the virtual machine limits to get rid of the 201 opcode limit and of the 520 bytesize limit for smart contract developers.

A major driver for the CastokensV2 proposal is that it enables "Prediction Markets on Bitcoin Cash" which has the potential to be one of the most important innovations in the cryptocurrency space.