Cardano Introduces Cardinal Protocol for Bitcoin DeFi Integration

Cardano has introduced Cardinal, a new protocol designed to connect Bitcoin users to its decentralized finance (DeFi) ecosystem. The announcement was made by Cardano founder Charles Hoskinson during the Bitcoin 2025 conference on 9 June. This initiative aims to draw liquidity from Bitcoin’s extensive network into Cardano’s smart contract infrastructure, marking a strategic shift for the platform.

Cardinal allows users to lend, borrow, and stake Bitcoin without leaving the native Bitcoin chain or using traditional custodians. This is achieved by wrapping unspent transaction outputs (UTXOs) and converting them into tokens that are pegged 1:1 with Bitcoin. This process enables Bitcoin holders to use their assets on Cardano’s platform without relying on centralized bridges or custodians, ensuring a trust-minimized environment where users can reclaim their Bitcoin at any time through a secure and verifiable method.

Unlike traditional wrapped BTC protocols that often depend on a central authority, Cardinal operates using MuSig2, a multi-signature cryptographic scheme. This technique allows multiple participants to cooperatively sign transactions while maintaining Bitcoin’s security guarantees. As long as at least one party in the network behaves honestly, the system remains secure, and the wrapped Bitcoin stays locked on the native chain.

One of Cardinal’s main differentiators is its stance on rehypothecation. In many financial systems, custodians re-use deposited assets—often without full user awareness. Cardinal eliminates this risk by preventing intermediaries from controlling user assets, giving holders complete visibility and ownership throughout the DeFi process. Cardinal’s smart contract framework avoids unnecessary centralization by leveraging BitVMX—an off-chain computation protocol. BitVMX allows users to perform complex operations involving Bitcoin without compromising on decentralization. When paired with Cardano’s Plutus smart contracts, this configuration allows seamless asset movement between the two blockchains.

At the Bitcoin 2025 event, Input Output (IO), the research and development firm behind Cardano, demonstrated a bridgeless BTC-to-Cardano asset transfer using Cardinal and BitVMX. The live demonstration served as a proof-of-concept, underscoring Cardinal’s capacity to bring Bitcoin-native liquidity to Cardano’s DeFi platforms. This move comes at a time when Cardano is aiming to boost its total value locked (TVL) and regain DeFi traction. By offering Bitcoin users direct DeFi access without leaving their native network, Cardinal could provide the liquidity injection needed to revive activity on the Cardano chain.

Cardano’s DeFi infrastructure has historically struggled to match Ethereum’s or Solana’s dominance. However, Cardinal represents a new model for integrating Bitcoin in a non-custodial, decentralized way. The protocol not only enables secure lending and borrowing with wrapped Bitcoin but also introduces interoperability across ecosystems—one of the key bottlenecks for DeFi expansion. Input Output has not yet announced a full-scale rollout date but plans to continue testing Cardinal under real-world conditions. The team will likely focus on increasing Cardinal’s adoption among Bitcoin users looking for DeFi exposure without compromising on custody or decentralization. The move also reflects a broader trend in the DeFi space, where newer protocols are prioritizing asset sovereignty, cryptographic security, and interoperability. If successful, Cardinal could set a precedent for how major blockchain ecosystems integrate Bitcoin and how Bitcoin evolves from a passive store of value to an active player in decentralized finance.