Cardano has introduced Cardinal, its first decentralized finance (DeFi) protocol tailored for Bitcoin users.
Announced by Cardano founder Charles Hoskinson on June 9 via X, Cardinal was developed by Input Output, the team behind Cardano’s research and development.
🧵1/ Introducing Cardinal Protocol 🟧
A new primitive for Bitcoin:
→ Wrap any BTC UTXO
→ Find DeFi yield with it: lending, staking, borrowing
→ Trust-minimized (1-of-n honest operator)We made history with the 1st cross-chain Ordinal wrap!
— Romain Pellerin🇫🇷🇺🇸 (@rom1_pellerin) June 9, 2025
This new protocol enables Bitcoin holders to participate in DeFi activities like lending, staking, and borrowing without relying on centralized bridges or traditional custodians. Cardinal operates by wrapping Bitcoin, specifically its unspent transaction outputs (UTXOs). UTXOs are leftover portions of Bitcoin from previous transactions that represent ownership. The protocol converts these UTXOs into wrapped tokens, maintaining a 1:1 peg with Bitcoin. Users can securely and fraud-resistantly redeem their wrapped BTC at any time.
What sets Cardinal apart from traditional wrapped Bitcoin solutions is its trust-minimized architecture. Rather than relying on a central custodian or a federated network, Cardinal leverages MuSig2, a cryptographic protocol that enables multiple participants to jointly sign transactions. This enhances security and decentralization, reducing the need for intermediaries.
Cardinal ensures that the original Bitcoin remains securely locked on its native blockchain, maintaining system integrity even if only one participant acts in good faith. A standout feature of the protocol is its stance on rehypothecation. Unlike traditional financial systems and some crypto platforms, where custodians may reuse user assets without full transparency, Cardinal grants users full control of their holdings while preserving the underlying Bitcoin.
The protocol also integrates BitVMX, an off-chain execution framework that supports decentralized, complex operations on Bitcoin. When combined with Cardano smart contracts and Bitcoin’s native scripting language, this setup enables seamless and secure asset transfers between the two networks without relying on centralized bridges.
Despite these technical strides, Cardano’s DeFi ecosystem has seen a drop in total value locked (TVL), falling from a peak of $415 million in May to approximately $334 million by June 10, according to DefiLlama.
In another development, Nubank, a financial institution in Latin America supported by Berkshire Hathaway, has enhanced its crypto offerings by adding Cardano (ADA), Near Protocol (NEAR), Cosmos (ATOM), and Algorand (ALGO) to its platform.
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