- Cardinal Protocol enables Bitcoin UTXOs to access DeFi on Cardano without custodians using MuSig2 and BitVMX.
- Users can lend, borrow, or farm wrapped BTC via Cardano DEXs like Minswap and SundaeSwap.
- Cross-chain support includes Ethereum, Solana, and Avalanche, with Ordinals retaining history across platforms.
A new development from Cardano has made it possible for Bitcoin to be used in decentralized finance without custodians. Charles Hoskinson, founder of Cardano and Input Output HK, introduced Cardinal Protocol, a cross-chain system that wraps Bitcoin UTXOs and connects them with DeFi capabilities on the Cardano blockchain.
Unlike traditional bridges, Cardinal applies a trust-minimized model using a 1-of-n honest operator assumption, aiming to secure user funds through cryptographic methods rather than centralized control. This marks the first instance of a decentralized finance protocol that enables wrapped Bitcoin operations directly on Cardano, establishing a milestone in blockchain interoperability.
Wrapped Bitcoin and Cross-Chain Utility
At the center of Cardinal Protocol is its ability to wrap any Bitcoin UTXO. This wrapped form opens access to lending, borrowing, staking, and farming features on Cardano. Notably, these UTXOs can be unwrapped to retrieve Bitcoin or Ordinals, with the system preserving transaction history during transfer. The protocol’s architecture depends on MuSig2, a multi-signature scheme, to handle peg-in and peg-out operations. These actions are verifiable and transparent, removing the need for custodial trust.
Cardinal’s design also allows cross-chain compatibility beyond Cardano. According to CTO Romain Pellerin, the system supports Ethereum, Solana, and Avalanche networks. The ownership model employs pre-aggregated addresses tied to different operator subsets, helping maintain asset control without compromising system security. These mechanisms protect Bitcoin assets while allowing full utilization of Cardano’s smart contract capabilities.
Bitcoin DeFi Access with Ordinal Provenance
Cardinal Protocol integrates with existing Cardano-based decentralized platforms. Users can interact through MinswapDEX, SundaeSwap, or Fluid Tokens to lend, borrow, or farm using Bitcoin. Furthermore, Cardinal’s support for BitVMX enabled off-chain verification that works in tandem with Cardano’s smart contracts. Through these tools, users can move Bitcoin-based assets across chains or use Ordinals as collateral for loans.
This added functionality enhances digital asset liquidity. Ordinals, in particular, retain full provenance during exchange or auction, even outside the Bitcoin network. As a result, users can participate in DeFi activity while maintaining asset history and identity across ecosystems.
Future Extensions and Technical Improvements
While the current version of Cardinal enables decentralized Bitcoin-DeFi interaction, further technical improvements are underway. Pellerin mentioned the need for wallet connections and enhanced liquidity tools. Additionally, implementing zero-knowledge proofs may improve transaction privacy and verification processes.
Cardinal’s introduction creates new options for Bitcoin holders within Cardano’s decentralized ecosystem. By reducing reliance on custodians and applying trust-minimized security, the protocol opens multiple possibilities for cross-chain asset usage.
