Cardano launches its first Bitcoin DeFi protocol ‘Cardinal’

Cardano has launched Cardinal, its first decentralized finance protocol designed specifically for Bitcoin users. 

The announcement was made by Cardano (ADA) founder Charles Hoskinson on June 9 via X. Developed by Input Output, the research and development team behind Cardano, Cardinal allows Bitcoin (BTC) holders to access DeFi services such as lending, staking, and borrowing without using traditional custodians or centralized bridges.

Cardinal functions by wrapping Bitcoin, particularly its unspent transaction outputs. UTXOs are bits of Bitcoin that have been left over from transactions and are used to represent ownership. They are converted into wrapped tokens by the protocol, which maintains a 1:1 peg with Bitcoin. Users can redeem their wrapped BTC at any time through a secure, fraud-resistant process.

What makes Cardinal different from typical wrapped Bitcoin solutions is its trust-minimized structure. Instead of depending on a central custodian or federated system, Cardinal uses MuSig2, a cryptographic system that allows multiple parties to sign transactions together.

This ensures that the original Bitcoin stays locked on its native chain and that the system functions securely, even if only one participant is honest.

Another key feature is Cardinal’s approach to rehypothecation. In traditional finance and some crypto systems, rehypothecation allows custodians to reuse user assets, often without full transparency. Cardinal avoids this by allowing users complete control over their assets while preserving the original Bitcoin.

In addition, the protocol makes use of BitVMX, an off-chain execution system that maintains decentralization while enabling complex Bitcoin operations. This configuration facilitates safe, easy asset transfers between the two networks when paired with Cardano smart contracts and Bitcoin’s built-in scripting capabilities.

The project was showcased during a live demo at the Bitcoin 2025 conference, where IO performed a bridgeless BTC-to-Cardano transfer using BitVMX. The event marked a major step in Cardano’s efforts to become a platform for Bitcoin-native applications.

Despite recent progress, Cardano’s DeFi total value locked has declined, from peak of $415 million in May to around $334 million by June 10, as per DefiLlama data. The team hopes Cardinal will help bring in new liquidity by offering Bitcoin holders more ways to use their assets within a DeFi environment, without leaving the Bitcoin ecosystem.