Forward the Original Title ‘BTC DeFi is Nonsense’

All of BTC’s “DeFi” is extremely centralised or wildly impractical, from BitVM, BitcoinOS, Rootstock, and Sovryn! We uncover the truth & expose their lies. A shocking tale of deception & delusion, as the revelations from this research even surprised me, it is that bad!

Get ready, as this article drops major bombshells of truth about BTC’s “DeFi” for the first time: 💣

Kicking it off with the statement; that BTC is utterly incapable of supporting DeFi whatsoever. Yet, there are several BTC DeFi projects that claim to bring this functionality to BTC…

In this article, we expose these projects for the ridiculous trade-offs they make, along with the lies and deception accompanying their marketing, as their claims are tantamount to fraud. This is because, contrary to what some might claim, all of these projects are incredibly centralised right now. Putting users at risk and defrauding investors of hundreds of millions of dollars of capital by misleading them.

BTC cannot support DeFi because it lacks programmability, specifically: It lacks a Turing-complete virtual machine. This is why real complex DeFi, such as like what we see in ETH & SOL for example, is technically impossible over BTC.

Claiming that BTC supports DeFi is a straight-up lie, as the “De” in DeFi stands for decentralised!

BitVM

Bitvm is both impractical and centralised; it uses optimistic two-party computation, with a “prover” and a “verifier” similar to how many Ethereum L2’s work. However, unlike most highly centralised ETH L2’s, BitVM is far worse. Because the “verifier” in BitVM is also permissioned!

In most ETH L2’s, such as Optimism, the user can at least still submit a fraud proof if the centralised “prover”/sequencer cheats and attempts to steal from the user. This is not the case with BitVM, as there is only a single “verifier” that is also totally permissioned.

In reality, what we are dealing with is two computers… Run by trusted parties selected by a single authority. This is about as centralised as it gets!

BitVM2 aims to make the “verifier” permissionless. However, this is only true after the initial setup, which still requires a “1-of-n honesty assumption.” This means the initial configuration still requires a defined set of permissioned participants. However, we are evaluating what is deployed now, making such promises moot anyway, as talk is cheap.

To make things even worse, the BitVM system is incredibly inefficient, to a preposterous degree. We must understand the problem better to see why this is such a hacky solution:

BTC does not have an expressive, Turing-complete programming language. However, it is theoretically possible to express anything with a simple on-off switch… This is effectively what BitVM attempts to do by stringing together opcodes & posting them in the case of a dispute within a taproot transaction. Because, in this case, we can combine opcodes as logic gates using Boolean logic.

The problem, as you can probably already tell, is that such a solution is also entirely impractical, as it is less efficient by several orders of magnitude… Which means that processing such logic requires ridiculously powerful computers, creating significant centralisation pressures, even if these two computers were permissionless…

This also severely bottlenecks the system’s capacity, as equivalent processing for a Turing-complete VM would only require a fraction of the resources. This is also what makes BitVM inherently unscalable in comparison. Even while ignoring that BTC lacks the capacity to even support something like BitVM at scale the first place. Helping to explain why BitVM has to adopt such an optimistic model, as the processing required is simply far too demanding. Leaving BitVM in a terrible place, now & into the future.

Rootstock

Rootstock is also completely centralised, as it relies on a permissioned federation—a group of trusted entities responsible for the two-way peg between BTC and the rootstock sidechain. This means that the federation can censor and steal all user funds! It is basically a bank at that point, the very thing BTC was created to at least partially replace.

To their credit, they are the most transparent about this fact, unlike some of these other projects. Even if we might disagree with their vision, we can say that Rootstock is respectable, in that they are at least honest in their own communication. So props to Rootstock for that!

Soveryn

Soveryn relies on Rootstock for smart contracts & the security of its two-way peg (RBTC). This means it is just as centralised as Rootstock, which it is built upon!

Yet, on the website it claims to be decentralized and have “Bitcoin native trading”. What the Hell?!? This is a serious case of misrepresentation. This will become a theme, as our next target; BitcoinOS has some of the same people behind it.

https://sovryn.com/

BitcoinOS

BitcoinOS is the worst of the bunch, as it is the least honest, by being the most grandiose with its claims, combined with the least amount of transparency.

There are glaring holes in its documentation, as it completely ignores the off-chain execution that would absolutely be necessary if we were to deploy almost anything on BitcoinOS. This is an extremely suspicious oversight, as it is this aspect of the design that introduces massive trust trade-offs:

Unlike BitVM, which sells itself more as an intermediary step to solve these bigger problems in the future, BitcoinOS pretty much claims to have solved it all now. Privacy, trustless bridging, interoperability, and “true” roll-ups (L2) far superior to anything ETH has…

https://www.bitcoinos.build/

These claims are ridiculous, to say the least, considering how far behind Bitcoin is objectively in terms of the technology. It uses a similar setup to BitVM with a “prover” and “verifier”. However, it is not documented anywhere if the verifier is permissionless; this is a massive red flag! 🚩

Considering it is not in any of the whitepapers, nor is there any trace online on how to actually become a verifier in a permissionless fashion. We therefore should now confidently assume that the verifier is actually just permissioned. This is a clear case of BitcoinOS lying by omission! 🚩

This shocking lack of documentation is forcing us to reason around the gaps of information. Since there is no other way to verify this besides from analysing the code line for line. However, when evaluating a system that will protect real money. The burden of proof falls on the project; as such, the extreme lack of disclosure here is completely unacceptable.

Let’s now focus on BitcoinOS wild claims of solving roll-ups (L2), as this is mentioned 22 times in the 10-page BitcoinOS whitepaper:

In reality, BTC is way worse at hosting L2’s, because, as I explained earlier, the rules of the L2 cannot be enforced by a smart contracts on the L1. This is not possible on BTC because it lacks native (L1) Turing complete programmability.

Bitcoin OS claims to have completely solved this problem, even exceeding the trade-offs achieved by ETH L2’s, yet they are unable to explain how…

Because, just like BitVM, BitcoinOS is only a “platform” for L2’s, meaning all of the vulnerabilities of BitcoinOS will be inherited by any “BTC L2’s”. Translation: Anything launched on BitcoinOS now is totally centralized!

At the same time, any L2’s launched using BitcoinOS and BitVM, for that matter, still suffer from the same inherent challenges & problems that ETH L2’s suffer from. That some members of the BitcoinOS team are claiming that this is not the case is yet another massive red flag! 🚩

In the case of a roll-up; ordering, TX & proof verification must happen off-chain, as BTC’s L1 is just not capable of that type of computation. Therefore, there has to be some form of a federation, centralised sequencer, or multi-sig enforcing the rules of the L2. Or maybe even some other form of additional external consensus. The fact that this is not even addressed by BitcoinOS is another red flag, as these are all massive hidden centralisation risks! 🚩

To add insult to injury, if we look at what a Bitcoin OS roll-up would even look like. It turns out that the proof the roll-up has to regularly post on-chain would have to occur every six blocks. This means moving in & out of such roll-ups will take hours… Furthermore, the size of the proof is unworkable at 400KB! That is 10% of BTC’s total capacity for a single roll-up! There is also no reason to believe that roll-ups built over BitVM would be significantly different.

This means that BitcoinOS is only an extremely slow & expensive data availability solution for BTC L2s. Making it wholly uncompetitive, as this cost is passed down to users! With roll-ups barely inheriting any of the L1’s guarantees, as enforcement is done externally. This is also where the docs fall dreadfully silent, hiding the ugly truth.

This means that BTC “DeFi” is not just totally centralised & insecure, but also slow & incredibly expensive. 🦖

“L2 Scaling” is Nonsense

A lot of this BTC “DeFi” is an extension of the “L2 scaling” narrative. Broadly speaking L2/modular “scaling” is an attempt to scale & extend the functionality of the L1 through additional layers built on top.

This never works in practice as pushing traffic to another competing chain does not scale the chain at all… It only signs the competitive death warrant of that chain’s demise when it comes to real usage, as it provides some of the justification to never scale that L1.

While also often totally perverting the incentives of that chain’s leadership through the corrupting influence of L2 tokens & equity. This also ties it all back to why we are currently watching ETH fail before our very eyes, as it has now lost its lead to SOL in terms of real usage.

This is not a critique of “L2 scaling,” as I have already covered it extensively elsewhere. The focus here is on BTC “DeFi”; however, considering that all of their claims rest on this L2/modular narrative. It was at least worth addressing briefly, as there are far more negative trade-offs associated with “L2 scaling” than what we have not covered here. If you would like to learn more about this subject, check out the article linked below:

https://x.com/Justin_Bons/status/1791519793230626928

One more thing that is unique regarding BTC’s “L2 scaling” plan, is that mass self-custody actually becomes impossible. Because in order to control your own private keys, a user would still have to perform several on-chain transactions, to onboard on to these L2’s. The on-chain capacity is just not there for that to ever be a real possibility.

To give a few examples to drive home this point, using very conservative figures: If every holder wanted to move their coins now, the queue would be over two months long! If everyone in the world only did a single TX, the queue would be over two decades long! Meaning self-custody is completely out of the window. The masses, so to speak, will have to be onboarded through custodians instead, totally defeating the initial raison d’etre of Bitcoin. Here is some of the math I did on this more recently:

https://x.com/Justin_Bons/status/1858564191197520221

I have also written extensively on BTC governance, consensus, & the long-term security budget, which threatens to bring down BTC completely in 8 to 12 years from now, something I also briefly touched on in the article I linked above. So, check that out separately, as we are still attempting to focus this particular article more narrowly on criticising BTC “DeFi”.

No Hope for Change

We also have good reasons to conclude that BTC will not change its design to accommodate DeFi either, as this is what a deeper political analysis reveals. While also exposing the extreme centralisation of decision-making within BTC, where Core can effectively gatekeep any changes.

This subject is also, again, way beyond the scope of this particular article. However, it is still worth dedicating a short chapter to. The fact that such benign changes, such as OP_CAT, are still being blocked, and more importantly, the blocksize itself: Is the best possible evidence that something as radical as a Turing-complete VM is completely out of the question.

You can find a deeper analysis of BTC governance here:

https://medium.com/cyber-capital/theory-on-bitcoin-governance-three-stage-model-v-1-0-98a8b83095b0

The “Scam” Cycle

In my experience, as a full-time crypto researcher for over 12 years, I have observed a certain cycle taking place:

Where, every few years, there is a new wave of projects that claim to bring DeFi to BTC. Which end up raising hundreds of millions of dollars from investors, after which these projects gradually die out & disappear…. Only for another wave to start back up again a few years later, with a new batch of investors who are most often completely unaware of the history of this “scam” cycle.

BTC has barely changed at all over the last decade. It is irrational to think that somehow, BTC is now capable of DeFi, when there has been so much money on the line for so long attempting to enable this functionality with the current codebase. It reeks of cope, as so many want that to be true, reality unfortunately does not always bend to our will.

Conclusion

The idea of DeFi over BTC is obviously a compelling one. However, BTC in its current form is just not capable of supporting real & competitive DeFi whatsoever. The truth might hurt, but it is inescapable.

This makes all BTC “DeFi” projects highly suspect, as there has been ZERO evidence so far that this is even doable in any practical way in the first place. Exposing a very ugly side to crypto.

Soveryn and BitcoinOS are particularly bad actors from this batch of projects as their claims are wildly inaccurate, fraudulent, even. Due to the sheer grandiosity of their claims, while also completely ignoring the trade-offs! Combined that with glaring holes in the documentation & along with a long list of accompanying red flags… A cypherpunks nightmare. 🚩

We can give Rootstock props here, as they are honest about the centralisation (federation) in their own communication. I definitely do not agree with their vision, but I can respect their conduct and how reality matches their claims, and they even have a usable product! 💪

BitVM sits between these two projects for me, it is definitely the most innovative & interesting by far, yet it still falls far short of their own stated goals. 🎓

Researching BTC L2’s actually makes me appreciate how incredibly transparent and open ETH L2’s are about their flaws in comparison! There is no “L2 Beat” for BTC L2’s! An ironic revelation considering the history of narratives between BTC & ETH.

The bottom line remains: There is no such thing as “BTC DeFi”!

It is a fantasy, a mass collective delusion, driven by cope, greed, & ignorance much like BTC itself. The spasms of a meme coin pretending to be something it is not.

That so many people can be that wrong is a fascinating subject by itself, which speaks more to the tragedy of the human condition within society. However, if you study history, you will also know that the truth does eventually rise to the top. It is a process that can take a long time, it is something we have to fight for, but there is hope, plenty of it as a matter of fact. 🕊️

We do not have to put up with BTC’s mediocracy; there are plenty of alternatives, since we have evolved leaps & bounds while BTC remained stuck in the past.

There is a thriving DeFi economy on-chain right now, that is generating billions of dollars of revenue every year. Stop playing pretend & support the real cypherpunk revolution now. 🔥

Disclaimer：

1. This article is reprinted from [X]. Forward the Original Title ‘BTC DeFi is Nonsense’. All copyrights belong to the original author [@Justin_Bons]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.

2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.

3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.