Bitcoin Cash
DeFi Guide

Unlock the potential of decentralized finance!

Bitcoin Cash is programmable money, this means developers can write smart contracts which are more complex than a normal sending transaction. Multi-Signature wallets are the simplest example of smart contracts but clever finance or recurring payment applications can also be written! The first DeFi product on BCH is Detoken using the smart contracts developed by Anyhedge which enables you to stabilize the value of your BCH holding without having to sell or convert to trusted stablecoins! The topic is covered in depth in the video "The Dawn of Bitcoin Cash DeFi: AnyHedge and DeToken".

The promise of DeFi

DeFi enables people to earn interest by making their money available for a liquidity pool in a trustless way. By paying out the fees DeFi incentivizes self-custody of funds because you need to withdraw from an exchange to take part in DeFi applications. 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. DeFi makes use of the trustless execution of smart contracts but outside datassources called oracles are often required to provide price data. This is an Achilles' heel in the trustless construction and relies on the reputation of the oracles.

Detoken is still working on an open liquidity pool but 24 hedge & long contracts are already available.

Advantages of BCH

Bitcoin Cash has undergone multiple hard fork upgrades which expanded its smart contract, most important of which is enabling covenants with the opcode "checkdatasig". This allows for spending restrictions on future outputs and is not possible on BTC. Basic opcode functionality previously disabled by Bitcoin Core was also reintroduced to BCH. 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 meaning it will not have the same fee problem with increased usage.

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

Current limitations

Bitcoin Cash also still has some big restraints on smart contracts which make the more complex applications impossible. Luckily protocol developers want to address these issues to boost application development and innovation on BCH. There'll probably be a significant smart contract upgrade May 2022. Just like on Ethereum tokens and smart contracts go hand in hand but unfortunately the current SLP tokens on BCH can't interact with smart contracts. On the Bitcoin Cash Research website proposals have been put forward to introduce miner validated tokens to BCH to facilitate interesting applications such as AMM-style DEXes.

Great blogposts by General Protocol detailling the current limitations of BCH scripting.