- Cardinal Protocol enables decentralized Bitcoin lending and staking on Cardano by wrapping UTXOs into yield-generating digital assets.
- Multi-signature security using MuSig2 removes the need for custodians, supporting secure cross-chain Bitcoin DeFi operations.
- Cardano’s eUTXO model enhances smart contract capabilities and allows seamless interoperability with other blockchain networks.
Cardano has launched the Cardinal Protocol, enabling secure decentralized finance for Bitcoin without needing custodians. The protocol allows Bitcoin users to engage in activities such as lending, staking, and borrowing through wrapped unspent transaction outputs.
The core mechanism behind Cardinal is the Wrapped UTXO primitive. This feature converts Bitcoin’s UTXOs into digital assets that remain pegged 1:1 to the original BTC. These wrapped assets can then be used in DeFi applications and are fully redeemable through a trust-minimized peg-out process.
Secure Multi-Signature System Supports Decentralization
Cardinal uses the MuSig2 multi-signature system to lock Bitcoin securely. This eliminates the need for third-party custodians and removes the risk of asset rehypothecation. The pegging system includes verifiable fraud proofs, providing confidence in asset security.
The choice of Cardano for this protocol aligns with its extended UTXO model, which shares similarities with Bitcoin’s system. This compatibility allows for more efficient and secure smart contract functionality. The Cardinal system also supports integration with other chains, including Ethereum, Solana, and Avalanche.
Ordinal Assets Gain Utility Within DeFi
Beyond standard DeFi tokens, the protocol also enables Bitcoin Ordinals to function across DeFi ecosystems. These can now serve as collateral, be auctioned, or participate in lending, maintaining full on-chain provenance. Users can trade or stake these assets on Cardano’s MinswapDEX and SundaeSwap platforms.
Cardinal is built to support off-chain verification using BitVMX technology. It combines Bitcoin’s hashed time lock contracts with Cardano’s smart contracts, allowing full support for cross-chain peg-ins, peg-outs, and asset ownership transfers. The protocol is adaptable to various non-fungible asset cases.
Plans are underway to introduce zero-knowledge proofs for increased transparency and scalability. Enhancements may also include recursive state proofs and improved user interface options through wallet integrations. These additions are expected to strengthen the protocol’s functionality across multiple ecosystems.
