Cardano Seeks to Boost Liquidity With New Bitcoin Bridge, But Challenges Persist
In this article:
– Cardano taps into BitcoinOS and the Grail Bridge to bring BTC to its blockchain.
– Despite efforts, DeFi on Cardano remains limited, with minimal BTC bridged via previous niche services.
– ADA remains at $0.34, as the chain continues to lag behind Ethereum, Solana, and other Layer 1 networks.
Cardano is aiming to draw liquidity from Bitcoin (BTC) by developing a new native bridge. Charles Hoskinson, the founder of Cardano, enthusiastically welcomed Bitcoin to its “home” on the network.
Cardano Hosts Bridged Bitcoin to Boost Liquidity:
Cardano plans to host bridged BTC as a strategy to enhance liquidity. Charles Hoskinson, in a recent announcement, described the move as Bitcoin “coming home” by integrating with Cardano’s Layer 1 blockchain.
Despite existing for years and undergoing multiple upgrades, Cardano still struggles to generate significant traffic compared to other L1s. Currently, Cardano has $214 million in total value locked (TVL), a modest amount relative to its $11.99 billion market cap. While Cardano briefly experienced a surge in activity due to NFT hype, its valuation is now seen as disproportionate to its TVL.
Outside of the brief period of community excitement, Cardano has often been labeled a “ghost chain.” It still lacks native decentralized exchanges (DEXs) or robust DeFi offerings, with only a few hundred to a few thousand daily active users across its applications.
Cardano Leverages BitcoinOS Grail Bridge:
Cardano is positioning itself to attract new liquidity flows from Bitcoin Layer 2 projects. BitcoinOS, a platform aiming to build scalable Layer 2 solutions with zero-knowledge proofs (ZK-proofs), is a key partner in this initiative. It collaborates with other L2 leaders like Merlin Chain, Nubit, CoinEx, and Sovryn.
- The Grail Bridge utilizes two validators to monitor transfers between L1 and Cardano or other L2s, with a long-term goal of implementing ZK-proofs for all transactions. After a successful test run this summer, BitcoinOS proved its technology was compatible with Bitcoin. The underlying open-source BitSNARK technology is accessible to third-party developers, though adoption has been slow.
- Mass adoption of ZK-proofs remains a challenge, so bridges like Grail still rely on partially centralized validators. Cardano, even after the Stage 1 Chang hard fork, retains elements of centralization.
- BitcoinOS offers the Grail Bridge to any L2 project built on the Bitcoin blockchain, enhancing liquidity for its DeFi ecosystem. Cardano’s move comes as Bitcoin L2 projects gain traction, but these projects have yet to attract significant BTC holdings. Babylon leads with around 24K BTC, largely due to campaigns promoting non-custodial BTC staking. However, liquidity is still scattered across protocols, and many traders remain cautious about engaging with bridges.
Overcoming Challenges and Cardano’s Ambitions
Cardano faces skepticism around locking BTC, especially since its DeFi apps have relatively low liquidity. While BTC continues to gain value, it is uncertain whether traders will risk their coins on Cardano’s platforms, given the thin daily volumes and limited user base.
- Previously, Cardano received niche forms of wrapped BTC through apps like Indigo Protocol and Aneta. However, these services were small, with limited liquidity and DeFi applications, making them risky for users.
- Cardano aims to be the smart contract layer for Bitcoin’s L1, but it has yet to gain traction even as a general-purpose smart contract platform. With less than 50K daily active accounts, Cardano sees only a fraction of Ethereum’s activity. About 1.7% of ADA tokens are actively traded, while the majority are locked for staking and passive rewards.
ADA Trading and Market Performance
ADA continues to trade within a narrow range, currently priced at $0.34. Despite being listed on major exchanges, trading volume has settled around $250 million per day. Open interest for ADA has shown a slight uptick, recovering to over $200 million, with more than 70% of positions now being long. This marks a shift from a previously dominant trend of short positions.
- ADA remains a liquid asset, often used for small rallies, but lacks the initial hype that once drove its price. Despite ongoing efforts and promises of new projects utilizing the Cardano L1 chain, ADA’s price movement remains largely range-bound.
