Bitcoin Cash is programmable money, this means developers can write smart contracts which are more complex than a normal spending transaction. Bitcoin Cash smart contracts are either written in raw BCH Script or in CashScript, a high level language with syntax similar to solidity that is compiled down to BCH Script itself. Multi-Signature wallets are the simplest example of smart contracts but clever finance or recurring payment applications can also be written!
With the CashTokens upgrade there has been new Web3 DeFi applications in Bitcoin Cash, you can find a list on Tokenaut.cash!
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 (AMMs), 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 still often required to provide (price) data to the blockchain.
Cauldron DEX is the primary AMM for trustlessly trading CashTokens!
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.
The Cashtokens upgrade has been the most important
and impactful upgrade to Bitcoin Cash. The upgrade was activated May 2023.
As the name suggests, CashTokens enables native tokens on BCH (both fungible and non-fungible)
which means the tokens are scalable and consensus validated just as BCH itself and unlike layer-2 token systems such as ordinals.
But importantly Cashtokens enables local state and contract-verifiable messages for smart contract which is a huge improvement to the BCH scripting system!
Complex decentralized applications such as ICOs, DOAs, AMM-style DEXes and sidechains are
now all technically possible due to the Cashtokens upgrade.
The CashTokens upgrade was the most important upgrade to Bitcoin Cash, read the announcement blogpost by Jason dreyzehner.
Anyhedge & BCH Bull
The notable team that pioneered work on smart contracts on BCH, more specifically DeFi, is General
Protocols, they developed the Anyhedge smart
contracts to enable on-chain future contracts, this is usable in their BCH Bull today!
The AnyHedge smart contract in principle allows BCH denominated futures on any asset with an oracle price feed.
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.
The BCH Bull production release was in April 2023 and now it lists 6 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.
The website of the BCH Bull website is bchbull.com, and the non-custodial app is at
app.bchbull.com.
There is a great independent video explaining the mechanisms behind the anyhedge contract "How AnyHedge works"".
Decentralized Stablecoins
Stablecoins are one of the most used products in all of crypto but the popular ones are issued by companies
which hold the dollars in a bank account, meaning they can freeze or blacklist your funds.
A decentralized stablecoin instead gets its value from cryptocurrency locked in a smart contract, so there is
no issuer to trust and no address that can be censored.
ParyonUSD (PUSD) is such a stablecoin on Bitcoin Cash, built with CashTokens.
Users create over-collateralized loans with BCH as collateral to issue PUSD, which stays redeemable for the
underlying BCH at any time.
The protocol builds on the design of Liquity V2 and has three core functions.
You can borrow against your BCH to access liquidity without selling your holdings, at a minimum collateral
ratio of 110% and a market-driven interest rate.
You can stake PUSD in the Stability Pool to earn interest and a share of the liquidation fees, paid out in BCH.
And you can redeem PUSD for BCH at the current market price, which is the mechanism that keeps the coin
anchored to its one dollar peg.
An oracle price feed provides the BCH price to the contracts, and the smart contracts have been audited.
Because PUSD is a regular fungible CashToken it works in the many wallets and DEXes that already support
CashTokens, with negligible transaction fees.
Prediction Markets
A major driver for the Castokens proposal is that it enables Prediction Markets. The idea to do prediction market on Bitcoin dates well back, solutions like Bitcoin Hivemind explorerd the idea to run the prediction markets on Bitcoin sidechains. Unfortunately the development of this sidechain technology was stalled for a very long time and has still not activated. The Hivemind design uses decentralized oracles corporations to resolve the outcomes of real world events. Decentralized prediction markets have the potential to be one of the most important innovations in the cryptocurrency space.
To understand more about Prediction Markets read the blogpost "Prediction Markets on Bitcoin Cash" by Jason Dreyzehner.