Native DeFi On Bitcoin: What Are dTokens?

Many people are inclined to think decentralized finance on Bitcoin will never happen. However, they would be sorely mistaken, as numerous projects facilitate Bitcoin DeFi today. one such project is DeFiChain, and its decentralized assets (dTokens) make for an exciting opportunity. 

Native DeFi For Bitcoin Is Here

In an earlier article, we briefly went over the DeFiChain ecosystem and how it will bring native decentralized finance to the Bitcoin network. Unlike other networks built for DeFi, DeFiChain is anchored to the Bitcoin network to leverage its security and provenance. However, the native DeFiChain layer provides fast, intelligent, and transparent decentralized financial services and products for anyone to access. 

Achieving that goal requires a diversified approach to attract as many users as possible. The DeFi industry is exciting, even if DeFi on Bitcoin remains in the early developmental stage. DeFiChain focuses on high transaction throughput and Turing-incompleteness to reduce attack vectors. Additionally, it brings innovative concepts to decentralized finance, giving DeFi on Bitcoin a competitive edge over other ecosystems. 

Moreover, the ecosystem is an example of how Proof-of-Stake and Proof-of-Work can coexist. DeFiChain’s network is built on Bitcoin and uses that network’s Proof-of-work for security and immutability. However, the native chain’s consensus algorithm revolves around Proof-of-Stake to achieve carbon neutrality and provide a seamless user experience. 

The dTokens Experience

One crucial aspect of the DeFiChain ecosystem is its decentralized assets or dTokens. Contrary to other tokenized efforts, the dTokens do not mimic the price of any underlying assets they might represent. For instance, a dTSLA token doesn’t automatically have the same value as the TSLA stock. The price of dTokens hinges on supply and demand across the DeFiChain DEX and may go below or above the stock’s valuation. Keep in mind that dTokens do not represent ownership of the underlying asset, and they are not securities. 

Additionally, the dTokens can be mined by anyone on the DeFiChain blockchain. It requires locking a minimum of 50% DFI, although users can add more in BTC, USDT, or USDC into a dedicated vault. The minting of dTokens is possible through a decentralized loan, which remains collateralized by cryptocurrency as it was intended. Decentralized pricing oracles determine minting prices.  

Once a dToken is minted, it can be held as an investment, traded on the DeFiChain DEX, or serve as a liquidity mining asset on the decentralized exchange. It is also worth noting one does not need to take out a decentralized loan to obtain dTokens, as they can be purchased directly on the DEX. That latter option is an excellent avenue for investors exploring DeFi on Bitcoin without worrying about collateralization and loan interest aspects. 

Keep in mind that dTokens will only exist within the DeFiChain ecosystem and may not necessarily be found anywhere else. These are not decentralized stocks or ownership assets but rather tokens reflecting various variable factors in a decentralized way. They are a great way of empowering users who want to diversify their portfolios and help others do the same. 

Vault Liquidation Remains Possible

With users putting funds – in DFI and BTC/ETH/USDT/USDC – into a Vault, they can mint dTokens as they please. However, there is a minimal collateralization ratio. Furthermore, if the capital falls below the threshold, the Vault can be liquidated. When that happens, other users can buy the assets in your liquidated Vault in an auction. 

Investors are ultimately responsible for their investments, whether it is buying tokens outright or minting them natively. Those who buy from the DEX need to carefully verify the displayed price, as these tokens are independent of price oracles and only fluctuate by supply and demand. If demand exceeds the supply, DEX prices will rise and create arbitrage opportunities. 

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JP Buntinx

JP Buntinx has been writing about cryptocurrency since 2012. His interest in crypto, blockchain, fintech, and finance allows him to cover a broad range of different topics.

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JP Buntinx

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