THORChain Pioneers Direct Connection for Bitcoin in DeFi

Wrapped Bitcoin has been a common work-around for Bitcoin holders who want to trade, lend, or use their capital in decentralized finance (DeFi) ecosystems. However, this approach changes the asset users hold and introduces custodial risk, smart-contract risk, bridge risk, or some combination of the three.

One protocol, THORChain, has proved that it is possible to exchange assets without wrapped tokens. This cross-chain liquidity protocol allows users to send native Bitcoin (BTC) from a Bitcoin address and receive an asset like Ethereum (ETH) at an Ethereum address without minting wrapped BTC or bridging it onto the other network.

THORChain uses liquidity pools to accomplish this, pairing each supported asset with RUNE, its native settlement asset. When someone exchanges BTC for ETH, the protocol routes the transaction from BTC into RUNE and then from RUNE into ETH internally. This process simplifies the structure while allowing supported assets to be exchanged with one another.

The user's perspective on a native BTC swap resembles an ordinary decentralized exchange transaction. The user selects BTC as the input, chooses the asset and destination address they want to receive, reviews the expected output, and sends the transaction from their wallet.