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 sending 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 DeFi is General Protocols which developed the Anyhedge smart contracts. The Anyhedge contracts are BCH denominated futures contracts. Going short in a USD/BCH contract contract is called "hedging" and is a way to stabilize the value of your BCH holdings without having to sell or convert to trusted stablecoins! Leveraging derivatives to solve the volatility problem this way is the central idea behind AnyHedge. The topic is covered in depth in the video "Smart Contracts on Bitcoin Cash with Rosco Kalis of General Protocols & AnyHedge".

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, 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".

Sidechains

The covenants technology described above also enables 2 way pegs for sidechains! Currently there's an "Ethereum-virtual machine" (EVM) compatible sidechain on Bitcoin Cash working to take leverage that capability. The project is called Smart BCH and allows Ethereum projects to be ported overvia the sidechain to the BCH ecosystem. Smart BCH aims to significantly lower fees by increaing the gas limit to enable low cost DeFi!

The noncustodial gateway for Smart BCH called SHA-gate is on the roadmap but not live yet.

Current limitations

Bitcoin Cash has also inherited 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’s a smart contract upgrade planned for May 2022. The changes are rather technical but make it a lot easier and safer for developers to write BCH smart contracts. Currently there’s hacky workarounds needed to do introspection, calculations with big numbers and even multiplication! The new upgrade which is already deployed on testnet introduces native introspection opcodes, 64-bit Integers and re-enables the multiplication opcode. The SHA-gate idea discussed above will also benefit from the native introspection changes and allow for a simpler and more robust implementation.

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

Longer term vision

Beyond the next upgrade, there's big ideas to enable scalable decentralized applications on Bitcoin Cash. 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 forum two proposals have been put forward to bring miner validated tokens to BCH! The first is called PMv3 and is a general buildingblock that enables recursion and simulating local state. It allows for different competing token standards to be created similar to the different ERCs on Ethereum. The proposal would make way for uniswap-like AMMs and ICOs right on the Bitcoin Cash mainchain! GROUP is a second and more specific proposal that wants to bring a hardcoded tokenprotocol to Bitcoin Cash. The two proposals are not mutually exclusive and could even go well together but more research into both is still required.

PMv3 is short for "Prediction Markets transaction version 3", which references one of the very promising decentralized applications it makes possible.