Can Bitcoin Fix Cardano DeFi? FluidTokens’ Bifrost Explained

0:00 So my question here is, with the potential of moving Bitcoin to the Cardano ecosystem, will this change the Cardano DeFi landscape?

0:11 I strongly believe that the short answer is yes. However, let me explain why.

0:15 Hi, everyone.

0:16 Welcome back to another Builder's Bench, where we talk to projects in the Cardano ecosystem that are building some amazing things. I have Raul here joining me from Fluid Tokens, a project I haven't spoken to for a while but i had the opportunity to work with over the few years and get a really deep exposure to but row welcome to the podcast.

0:38 Again thanks for that it's uh it's very nice to be back here and yes actually feels like centuries.

0:46 Yeah one one year in crypto feels like 10 so i'm not surprised i i'm haven't gone gray yet but it feels like i should have been there's A lot of things happening at the moment. And I know you guys have been so busy and probably the biggest focus that I've seen fluid tokens take on at the moment is looking into the whole cross-chain and interoperability side of things with Bitcoin. I think that's where I want to start our conversation off with the Bifrost side of things, atomic swaps. I covered this in a previous video.

1:18 Yes.

1:19 But I'd love to understand a little bit more about this. Let's talk about what it is and what you guys are building. Then I want to talk about some of the technical things so people understand what's happening under the hood. So can we get an overview of what we got here?

1:34 Absolutely.

1:34 Let's start from the beginning. In 2024, we started our journey into the Bitcoin space because we found a lot of similarities, not just in the architecture, but also in the ethos and in the community in the Bitcoin space.

1:51 And then we.

1:51 Started to explore how could we enable some interoperability between Bitcoin and Cardano. Bitcoin has an issue.

2:01 It's slow.

2:03 Not that much scalable and well there is no smart contracts over there on Cardano instead as you know currently there is not much liquidity and activity on DeFi however we have a very nice ecosystem and really a diversification of possibilities into DeFi so every ecosystem has its own issues but each of one can complement each other and This year, we started by releasing AtomicSwap as very first step.

2:37 And basically, it's use a very simple and basic, let's say, smart contract, both on Cardano and also some very, very primitive smart contract on Bitcoin. Because on Bitcoin, even if you don't have smart contracts, you can do some very basic stuff. And what happens is basically you can swap transactions your native BTC against any asset on Cardano without third party. So you don't have to trust someone to say, send me the money, send me the Bitcoin, and I will swap for you. No, you can send your BTC, wait for the other party to send the other amount.

3:21 If the other party doesn't send anything, you can claim back your BTC safely without asking permission. And that's also on the other side. So Everyone is safe. Everyone is happy. Of course, this means that if you are swapping ADA against BTC, you are receiving BTC in a BTC.

3:39 Wallet and you are getting ADA in an ADA wallet.

3:44 However, it's very important because with atomic swaps, you get the speed of the slowest chain.

3:53 What does it mean?

3:55 That we can swap at Bitcoin speed because that's the slowest. And we don't need to go on a bridge or somewhere else. And that's very important because that means that we can swap any amount, any amount of BTC at very fast speed, like one block confirmation in Bitcoin.

4:15 And that's it. We both are happy and satisfied.

4:19 So that is the atomic swap part. Probably the most interesting and the one that everyone is waiting for is Bifrost. Bifrost started, I believe, in May 2025 as an idea. Matteo was speaking with the Lanter team.

4:40 They are the team behind Scalus.

4:43 That's a program, a language to make smart contracts on Cardano, like ICANN as a reference. And The question was how it is possible to achieve a bridge that doesn't rely on custody to someone. So I want to move my BTC on Cardano, but I don't want to give my BTC to someone that maybe is not reliable, could get hacked, and I don't trust it. The idea was, okay, on Cardano, we have smart contracts. On BTC, we don't have. What are the primitives on BTC that we could use? On BTC, there is this very, very interesting approach where it's a sort of multi-signature, however, where that is very, very light on chain, but can allow you to have potentially even a million of participants in the multi-signature round. And this

5:43 is interesting because it means that you could have a multi-signature given a to stake pool operators where everyone has a signature power based on their stake delegation. So at this point you get a multi-signature wallet that has control over the Bitcoin but is controlled by stake pool operators. So it inherits all the security of Cardano blockchain on BTC.

6:13 So you don't have anymore to trust someone. You are giving, let's say, the custody of BTC over the Cardano blockchain. So the only way that you could have to hack the system is to take over Cardano. And luckily enough, we know that Cardano is decentralized. So that's an optimistic approach, but it's a very good trust assumption over there.

6:43 Very interesting. So that's how it works. Okay, so Essentially, the signature, so on the Bitcoin side, you have a multi-sig, and that Bitcoin is, so that, is that how the Bitcoin gets locked up and not spent again? Because of that multi-sig that is controlled by hundreds, thousands of state pool operators on the Cardano side, it doesn't get used.

7:10 Exactly. It's locked. Right.

7:13 Because that was the big thing. I was wondering how on earth is the Bitcoin locked and not spent again? Because there's no smart contract. So to explain to other people, within the regular EVM space with wrapped assets, they get locked into a smart contract and then a new token is minted such as wrapped BTC. And that smart contract on the EVM side or wherever it is, that's the thing that gets hacked. And we've seen that over and over again, Wormhole, Nomad, all these big names out there, hundreds of millions of dollars of assets hacked and liquidated.

7:50 So that's how you stop it, with a multisig that's controlled by the state pool operators in the Kadana ecosystem. If you want to take over that, you have to take over the Kadana ecosystem to hack that multisig and release the Bitcoin.

8:04 Exactly. Great. I got it, cool.

8:10 The other cool thing is that, you know, stake pool operators over time may change, and this multisig is flexible. meaning that every epoch you are able to change the part that are involved. And in this way, the BTC is always controlled by the Cardano network that at the moment is the Cardano network. So we are not trusting staple operators of 10 years ago. We are trusting staple operators that are currently involved in the Cardano operations.

8:44 Okay. How does.

8:46 the system work out which Kodano state pool operators to actually use? I'm assuming the state pool operators would need to run some sort of software for Bifrost, some sort of scripts to join the multi-sig. And then how do you know which ones are active? You've worked through that process?

9:04 Yes, yes, yes.

9:05 So at the moment, we are currently in testnet phase. And we are collaborating with a few state pool operators to test the software that, as you say, As a stake pool operator, you run this additional software in parallel with your stake pool, and you are able to participate with Bifrost. And you, as a stake pool operator, when you registered, you provided an address where you actually keep your pledge or an address where you keep your reward as a stake pool operator. And basically using that as authentication, you can prove that it's really you running the software and you can be part of Bifrost and therefore get the key that you need and be part of any transaction that it would involve. Bitcoin transactions in the bridge

10:02 in this case.

10:03 Okay.

10:04 Very cool indeed. Is there some sort of threshold of how many state pool operators need to sign the multi-sig to make it valid? I'm trying to look for attack vectors here. Could I fire up like 1,000, 2,000 stake pools? This will cost, but there are potentially ways.

10:25 So currently, I believe that we have set a threshold of 67% of the total staking in Cardano. So, yes, yes. It's not about the number of stake pool operators. It's about the stake delegation threshold. The man of Ada. Yeah, exactly. So in that way, it really means that at that point, you are not taking over just Bifrost, but you are just taking over on all Cardano network.

10:57 Okay, and that's extremely difficult.

10:59 Okay, understood. All right.

11:01 Well, this is all really exciting stuff and to have explained how it all works and it totally makes sense to me. So I'm getting really excited about this potential future here where we can see Bitcoin assets over onto the Cardano ecosystem. And this kind of leads me on to another big question, not just in Cardano DeFi, but in DeFi in general. We're seeing numbers drop. Just today, I saw the stats and the revenue on chain for Solana is dropping dramatically from its all-time highs. And you look at Cardano as well, and you just look at that and it's kind of painful because to see how much revenue is being generated on-chain. So my question here is, with the potential of moving Bitcoin to the Cardano ecosystem,

11:52 will this change the Cardano DeFi landscape? And does it have the potential to fix things in DeFi and in Cardano DeFi specifically?

12:03 Yeah.

12:03 So I strongly believe that the short answer is yes.

12:08 However, let me explain why.

12:10 So even when you check out the current space in the Bitcoin, you probably get worried because you see the Bitcoin blocks that are almost empty. Like there happens very, very few transactions like that.

12:25 And so someone could wonder.

12:27 OK, but are really Bitcoiners willing to come on the Cardano space to do DeFi? Is really DeFi something that they are really interested in doing? And the answer is yes and no. No, because there are some OG Bitcoiners, let's say, that they don't want to touch Bitcoin at all. They want to keep it in their wallet. And they are, let's say, the cyber thugs of Bitcoin. They are against banks, but not just banks, any sort of other blockchain that is not Bitcoin. So probably that's not our target. However, when you check out what's happening, for instance, on the Bitcoin layer two side, and without looking too far, checking what's happening on Bitcoin Lightning, the volumes and the people in the community moving over there and doing transactions is

13:24 actually very, very high.

13:26 However, what's happening? On Lightning, you are operating off-chain.

13:32 As soon as you want to withdraw your funds and so on, you need to go on Chainback. Well, we can provide the same experience that these users are looking for and even providing more opportunities because in Lightning, you don't have smart contracts. You have only very, very basic primitives. On Cardano, you have way more speed and scalability and also smart contracts. So there is That's the target that we want, and we need to make sure that once we open the doors to them, we offer the DeFi opportunities they are looking for on the Cardano space. However, not just that, we also have to learn from them and look for solutions that provide scalability in the same way that Lightning is doing, because Lightning is able to

14:25 process So many transactions, so much volume, because everything happens off-chain, like in a layer 2. And that's what I see that we currently lack on Cardano, but hopefully it's coming in the next month.

14:42 In the next month. What are you hiding from me here?

14:46 I say hopefully. It's not coming from us. All right, all right. Okay, okay, okay.

14:51 All right. Some sort of solution. I'm sure people are working on this kind of thing. Now, you mentioned opportunities that these Bitcoiners are looking for. And what type of opportunities are they looking for? And can the Kadana ecosystem provide them? I know like, you know, the big one is like yield. You bring over your Bitcoin, stake it, get more yield. Where does that yield come from? Click our fingers and make yield? I don't know. That's not really possible, right? So in your opinion, what are they looking for and what can we provide them from the Cardano side?

15:29 Absolutely.

15:29 So what we currently see that's already been used by Bitcoiners is, as I say, they really don't want to sell their Bitcoin because they trust in the value that it will occur in the future a lot. So what they want to do is borrow against, their Bitcoin. So this is the first market that they are looking for.

15:51 And there are two ways right now that are live. One is to do that in a custodial way, but the trust assumption there is insane. You are giving your BTC to someone, that someone is giving you a small amount of stable coins for you to use, and you hope that the BTC is still redeemable when you come back.

16:14 That's a very big trust assumption.

16:16 On Lightning instead, or on other layer tools that have a bit more of smart contract capabilities, they are achieving this. However, it's limited in time because since everything is happening off-chain, every, let's say, every month, everything needs to settle back on BTC. So, You can create this quasi smart contract experience, but then after one month, you need to pay back. You need to close your loan because the layer two needs to settle back on the Bitcoin. And you don't have smart contracts to pay back. On Cardano instead, we can offer more flexible smart contracts. And as you know, there are many lending opportunities. I am biased and I say free tokens, but there are others over there that can offer you

17:09 the possibility to borrow stable coins against your BTC. And then the next step is, okay, but am I able to earn yield with these stable coins that I just borrowed against? Because if that's the case, I'm literally getting yield with my BTC. So this is the opportunity that we want to create. Of course, it cannot come, let's say, it cannot be artificial because at that point it's not organic and not sustainable. However, using different protocols, you are able to achieve this.

17:44 There is a bit of a barrier there in terms of you've got to go to one platform, get your stablecoins, go to another platform, provide liquidity, and then manage that whole process.

17:55 Yeah.

17:56 The composability there and the user experience is a little bit disjointed for someone that is very newbie into the ecosystem and just has Bitcoin and wants to try and get some yield. If they could just press a button and does all that in the background, that'd be amazing. Something you can work on, maybe. But eventually, if we could get to that type of experience for people, let them know what's happening in the background, but let them just press a button, let it happen. I think that'd be absolutely amazing.

18:25 No, indeed.

18:25 And I believe that the fact that Cardano is UTXO also helps in this case, because as you know, in a transaction, you can have multiple UTXOs coming from different platforms, for instance, and going to different platforms. So you could eventually combine all this and do it in one click solution.

18:45 Okay.

18:46 The future is definitely looking bright and I'm looking forward to the launch of Bifrost and seeing Bitcoin eventually come over to the Cardano ecosystem. We've been wanting this for quite a while. There's been a lot of talk about it. And it seems like we're almost there. So 2026 is definitely the year for Bitcoin DeFi on Cardano.

19:07 All right.

19:07 Bro, is there anything else you'd like to share with us at the moment?

19:12 Yes. Let me share one thing I would like to share. Oh, yeah. Part of the screen.

19:17 And basically, users are going to be able to connect their Bitcoin wallet. In this case, we have X-verse, Unisat, but there will be other integrations coming. And also, of course, since we are connecting Cardano and Bitcoin, you will be able to select your.

19:39 Cardano wallet.

19:41 And essentially, we wanted to create an experience very, very easy for the user to understand. So you are able to connect your wallet Once it's connected, let me check, you will be able to select the amount that.

19:57 You want to move over.

20:00 And so here we can see the balance. And this is interesting because you are not sending your BTC directly to the Bifrost multisig. This is a magic happening on the Bitcoin space. Basically, I'm sending my BTC in a taproot address, it's called. And if Bifrost, for any reason, doesn't get my BTC, doesn't see my transaction and so on, this address is able to make me able to.

20:32 Withdraw my transaction whenever I want.

20:36 So this is a kind of a redeemable deposit, similar to when you create an order on a DEX. However, it's happening directly on Bitcoin. And again, Fluid Tokens has no control over it. So your funds, your BTC, are always controlled by you and your keys.

20:54 And this is the most important.

20:57 Very cool indeed.

20:58 All right.

20:59 I'll put links to that. So if anyone else wants to give it a go, give the team some feedback, test it out, get an understanding of how it works, please do join the Fluid Tokens Discord server. Like I said, I'll put links down below. All right, Raul, this is really exciting stuff. And I'm so looking forward to the future here of Cardano DeFi, especially with Bitcoin DeFi coming to play now. We've been waiting, like I said, for this for such a long time. Hope we do see a lot of the DeFi opportunities and Bitcoiners pay attention to this all as well.

21:32 Any final closing thoughts? No, I would say thanks a lot, Peter. There are many things happening in the background with Fluid. So if you would like to stay up to date make sure to follow us on Twitter and also on Discord if you want to ask any question regarding Fluid Tokens or Bifrost.

21:51 And we are there and also the Lantra team is also there to answer other technical questions. Awesome.

21:58 Like I said, guys, all the links down below for you for all of that. And Datrul, thank you so much for joining me on the podcast episode and talking through everything that Fluid Tokens is doing.

22:07 Thanks to you again, Peter. Bye. Awesome.

22:14 Thank you.