Cardano Launches Cardinal Protocol for Bitcoin DeFi Integration

Cardano has introduced a significant upgrade for Bitcoin, marking a historic advancement in the decentralized finance (DeFi) landscape. Charles Hoskinson, the founder of Cardano, announced the launch of the first-ever Bitcoin DeFi protocol built for Cardano, named Cardinal. This protocol allows users to wrap any Bitcoin UTXO and utilize it across various DeFi applications, including lending, staking, borrowing, trading Ordinals, or using them as collateral, without relying on centralized custodians or federations.

The Cardinal Protocol employs MuSig2-based multisig wallets and Bitcoin’s HTLCs (Hashed Timelock Contracts) combined with Cardano smart contracts to securely lock Bitcoin and issue wrapped tokens on Cardano. This approach ensures that users can redeem their BTC at any time using a fraud-proof exit process, with the wrapped version of Bitcoin always pegged 1:1 and fully backed.

This innovation flips the typical wrapped Bitcoin (wBTC) model by keeping Bitcoin locked on-chain using secure multisigs, eliminating risks such as rehypothecation and third-party failure. It also allows Ordinals to move cross-chain while retaining their provenance, enabling Bitcoin NFTs to enter DeFi for borrowing, lending, trading, or farming without losing their original identity.

The team behind Cardinal has completed a full end-to-end wrap and redemption flow across Bitcoin and Cardano mainnets, demonstrating a trust-minimized and verifiable on-chain process. The protocol is chain-agnostic and can be extended to other blockchains like Ethereum, Solana, and Avalanche in the future.

Cardano’s eUTXO model, low fees, strong smart contract controls, and native NFT support make it an ideal platform for managing wrapped assets like Ordinals. Early integrations include staking via Indigo Protocol, lending through Liqwid Finance, loans with, farming on Minswap and SundaeSwap, and Ordinal trading on jpg.store. This opens up real utility for Bitcoin holders without compromising ownership of their assets.

Ask Aime: Understanding the impact of Cardano's Bitcoin DeFi protocol on the DeFi market?

Future improvements for Cardinal include lighter clients, ZK-proof systems for improved fraud resistance, better wallet integrations, and support for more types of assets and liquidity tools. Cardinal represents a modular and secure bridge that gives Bitcoin real DeFi power without compromising trust, potentially benefiting both Cardano and the broader Bitcoin DeFi ecosystem.