Square is building a DeFi business using Bitcoin

    18 Jul 2021

    Square CEO Jack Dorsey announced on Twitter the fintech company to create a new standalone business that will act as a platform for developers to build decentralized finance (DeFi) projects based on Bitcoin.

    The new business will combine the efforts of CashApp, Seller, and Tidal in the same goal of decentralized financial services.

    Dorsey named engineer Mike Brock as the head of the division, who previously led a development team that was working on integrating Bitcoin features for the Cash App back in 2018. Brock has experience with open-source projects through his work with enterprise open-source solutions provider Red Hat Inc.

    Square CEO said the company would be establishing Twitter and GitHub accounts to provide updates on the project.

    Last week, Square announced plans to build a hardware wallet for Bitcoin to make self-custody of the cryptocurrency “more mainstream.” Dorsey noted that as with the hardware wallet, development for the new financial services platform would be done completely in the open.

    Dorsey followed that tweet with a thread explaining that, like Square’s new Bitcoin hardware wallet, the developments will be completely open-source.

    “Like our new #Bitcoin hardware wallet, we’re going to do this completely in the open. Open roadmap, open development, and open source. @brockm is leading and building this team, and we have some ideas around the initial platform primitives we want to build.”

    Decentralized finance, or DeFi, applications are those that don’t rely on centralized authorities like banks but instead use blockchain-based smart contracts to execute transactions. Most are being built on the Ethereum blockchain.

    DeFi applications allow for financial transactions that are more easily accessible, efficient, and relatively low cost. They’ve also been highly attractive to yield seekers who can generate returns between about 15% and 30% by participating in the DeFi ecosystem – by “locking” capital in smart contracts.

    “DeFi platforms function similarly to traditional banks and financial services companies and could pose a disruption risk in the coming years,” Needham’s John Todaro said in a recent report focused on the DeFi opportunity. “In the current yield-starved environment, there has been an increased demand for DeFi platforms which offer significantly higher yields than traditional financial products.”

    But like cryptocurrency activity broadly, DeFi comes with many different kinds of risks, including regulation, asset volatility, and the technology itself. Because there aren’t banks or other third-party companies facilitating transactions, there’s no insurance on funds that could potentially get lost. Cryptocurrencies are volatile, which means assets put up as collateral could quickly decline in value if there’s a downturn, which could lead to positions being liquidated. And there could be errors in the original smart contract code.

    The current estimated value of funds locked into DeFi-related contracts is $55.21 billion, according to DeFi Pulse.



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