Role of Finality Bridge in Bitcoin’s Future

In an exclusive interview with BeInCrypto, Charlie Hu, a key contributor to Bitlayer, discusses the future of Bitcoin bridging technologies, including the Finality Bridge and the BitVM Bridge. These groundbreaking solutions aim to solve Bitcoin’s limitations in scalability, programmability, and DeFi integration, offering a more secure and efficient way to move Bitcoin assets across blockchain ecosystems.

Hu delves into the technical differences between traditional multisig setups and the innovative trust-minimized approach offered by the BitVM Bridge. He also highlights how the Finality Bridge enables Bitcoin holders to engage in DeFi activities, ultimately contributing to the growth of the DeFi space and improving liquidity.

The Role of the Finality Bridge and BitVM Bridge

The Finality Bridge and BitVM Bridge represent the next evolution in Bitcoin bridging technology. These solutions aim to enhance Bitcoin’s ability to interact with decentralized finance (DeFi) ecosystems, which has traditionally been a challenge due to Bitcoin’s lack of programmability. Charlie Hu explains that the BitVM Bridge is the third generation of Bitcoin bridging technology.

“The BVM bridge is the third-generation Bitcoin bridging solution technology. We have wrapped Bitcoin, which relies on an older multisig setup—a federation of signers where the majority must be honest. However, it’s clear that we can’t rely on wrapped Bitcoin as a long-term bridging solution. We need a new generation of technology that is more trust-minimized and doesn’t depend on the current multisig structure to bridge Bitcoin liquidity from Bitcoin Layer 1 (L1) to EVM (Ethereum Virtual Machine) or other programmable environments,” Hu told BeInCrypto.

Previous systems, like wrapped Bitcoin, relied on older multisig setups, where a federation of signers needed to maintain honesty to ensure security. However, this structure has proven to be unreliable and exposes users to potential risks.

“In contrast, the BitVM bridge is more trust-minimized. We only need to trust one signer to be honest, and that signer can unlock the funds through the two-way pegging mechanism,” Hu continues.

This improvement reduces the potential for malicious actors to compromise the system, addressing vulnerabilities exposed by recent incidents like the Bybit hack. Unlike wrapped Bitcoin, which relied heavily on multisig setups, the BitVM Bridge uses Bitcoin scripts and two-way pegging mechanisms to ensure more secure and efficient transactions between Bitcoin Layer 1 (L1) and Ethereum Virtual Machine (EVM) environments.

Enabling DeFi on Bitcoin

The limitations of Bitcoin Layer 1 in enabling decentralized finance are well-known. Bitcoin L1 does not support smart contracts, meaning it cannot facilitate lending, automated market makers, decentralized exchanges, or any other DeFi activities. Bitcoin’s UTXO-based cash system is primarily designed for payments, but it struggles with scalability and versatility in more complex scenarios.

To address these issues, the Finality Bridge offers a solution by connecting Bitcoin to more programmable, trust-minimized environments, like Layer 2 solutions.

“Without the bridge, you can’t really do DeFi. Bitcoin L1 doesn’t have smart contract capabilities or programmability. You can only make payments. To enable Bitcoin DeFi—where Bitcoin holders want to earn yield, engage in on-chain options, liquid staking, and other creative DeFi use cases—you need to bridge to a programmable, trust-minimized environment like a Layer 2 solution,” Hu explains.

Bitcoin L1’s scalability is constrained by its ability to process only seven transactions per second (TPS), which results in network congestion. This can lead to high fees and failed transactions as users compete to pay for limited block space.

“Many users experienced this during the 2023 ordinals mint,” Hu recalls. “People paid for gas fees, but their transactions failed because they paid too little compared to others who were paying higher fees. This led to a situation where everyone was fighting to pay higher fees, but in the end, they burned their Bitcoin and the transactions still failed.”

The Finality Bridge solves these problems by enabling Bitcoin to interact with Layer 2 solutions, thereby allowing Bitcoin holders to participate in DeFi activities and scale their transactions without the limitations of Bitcoin L1.

The Versatility and Future of the Finality Bridge

One of the significant advantages of the BitVM Bridge is its ability to bridge Bitcoin assets to a wide range of ecosystems, including both EVM and non-EVM chains. Through its recent partnerships with chains such as Arbitrum, Plume, Base, Starknet, and Sonic, the BitVM Bridge is positioning itself to be an essential component in the future of cross-chain interoperability.

Sonic, for example, utilizes Solana VM, which opens the door for Solana ecosystem integration, despite its indirect connection to Bitcoin.

“Our bridge is versatile, supporting both EVM and non-EVM chains, making it highly adaptable,” says Hu. “For example, Sonic (which uses Solana VM) connects us to the Solana ecosystem, even though indirectly.”

Looking ahead, the team plans to integrate more blockchain networks using Cross-Chain Interoperability Protocol (CCIP). However, the primary focus remains on the trust-minimized bridge from Bitcoin L1 to Ethereum L1. This forward-thinking approach allows the Finality Bridge to offer extensibility and compatibility with diverse blockchain ecosystems, fostering greater liquidity and enabling Bitcoin holders to fully participate in DeFi activities across multiple networks.

Trust-Minimized Bridges: A New Paradigm for Bitcoin

The term “trust-minimized” is often used to describe the Finality Bridge. While it is not entirely trustless, it significantly reduces the reliance on multiple signers for securing Bitcoin transactions.

In the past, bridging solutions like wrapped Bitcoin relied on multisig setups, which required the majority of signers to be honest. The Finality Bridge, however, only requires one honest signer from the operators of the BitVM bridge, significantly lowering the trust dependency compared to older systems.

“People argue that it’s not fully trustless, and the controversy stems from this,” Hu acknowledges. “While some claim it’s trustless, it’s more accurate to describe it as ‘trust-minimized.’ It’s not 100% trustless—it’s semi-trustless. We still need to rely on one honest signer out of the BitVM bridge operators. For example, if there are 100 operators, we only need one honest signer, which is 1%.”

This shift in the trust model is crucial in improving the security of Bitcoin bridging solutions. By reducing the number of trusted parties and relying on a single honest actor, the Finality Bridge offers a more resilient approach, ensuring users can securely move their Bitcoin across different blockchain ecosystems without fear of systemic collapse due to dishonesty among signers.

Finality Bridge and Native Yield Generation

The concept of native yield generation is central to the success of Bitcoin in DeFi environments. Through the Finality Bridge, Yield Bitcoin (Yield BTC) becomes an active participant in DeFi protocols, providing liquidity, staking, and lending opportunities. This yield generation is native and on-chain, meaning it occurs directly within the DeFi ecosystem rather than relying on off-chain or tokenized yield systems.

“DeFi is essentially built around core features like liquidity provision, staking, lending, and more,” Hu explains. “We’re bridging Yield Bitcoin to provide a one-to-one minted Bitcoin, which will enter various DeFi protocols through our bridge. This allows Yield BTC to participate in lending, liquidity pools, and other DeFi activities, generating yield.”

Yield BTC holders become liquidity providers in various DeFi protocols, earning yield in return.

“This yield is native, on-chain yield, not some tokenized or off-chain yield system. It’s real yield, generated within DeFi, without relying on incentivized tokens or other artificial mechanisms.”

The integration of Bitcoin into DeFi opens up new possibilities for Bitcoin holders who wish to engage in activities such as lending, liquidity pools, and other advanced DeFi strategies, thus contributing to the overall growth of the DeFi space.

The Finality Bridge’s Impact on the Broader DeFi Ecosystem

Liquidity is a fundamental component of any DeFi ecosystem, and the Finality Bridge plays a crucial role in injecting liquidity into this space. By enabling Bitcoin holders to participate in DeFi activities, the Finality Bridge helps increase the Total Value Locked (TVL) across different protocols. A higher TVL translates into a more thriving DeFi ecosystem, which ultimately benefits all participants, from individual users to developers and institutional investors.

“Simply put, without liquidity, you can’t have DeFi,” Hu says. “No matter how innovative a protocol is, it can’t operate without liquidity. You need seed liquidity, and you need to attract more liquidity from users, whales, and other sources.”

In the broader context of Bitcoin’s role in DeFi, the Finality Bridge is helping to evolve Bitcoin from a payment-focused asset to a fully integrated participant in the decentralized finance sector. As Bitcoin becomes more accessible and usable within DeFi, it will attract more liquidity and users, further strengthening the ecosystem and contributing to its long-term growth.

Target Audience for the Finality Bridge

The Finality Bridge serves a broad range of users, including individual DeFi participants, developers, and institutional investors. On the retail side, the bridge is aimed at Web3 wallet users who are familiar with DeFi concepts such as lending and staking. For institutions, while the discussions are still ongoing, there is potential for partnerships in yield-bearing products, especially if Bitcoin ETF staking becomes a reality.

“We have campaigns targeting on-chain Web3 wallet users, which represent the retail side—DeFi users who understand concepts like lending, staking, and other DeFi use cases,” says Hu.

The team is also preparing for the possibility of Bitcoin ETF staking approval, ensuring they are ready to quickly engage with institutions once the regulatory environment is favorable.

“Once approval happens, we need to be ready with signed MoUs, vetted proof of use cases, case studies, and a track record so we can quickly open up business opportunities.”