Hashi Protocol Aims to Unlock Bitcoin DeFi Opportunities

The Hashi Protocol, a Bitcoin-focused lending and yield protocol developed by Mysten Labs and launched on the Sui Network devnet. BitGo, Bullish, FalconX, Ledger, Fordefi, Cubist, and Erebor Bank have committed to supporting the project. 

The platform allows Bitcoin holders to borrow stablecoins and earn yield against native BTC on-chain. They do not have to rely on wrapped tokens or centralized intermediaries. 

Only 0.5% of Bitcoin’s total supply has been deployed in decentralized finance. According to Sui’s announcement, Hashi offers a trustless, smart-contract-based model for investors to earn yield, borrow, and lend using native BTC. 

The protocol is developed by Mysten Labs, a web3 infrastructure company founded in 2021. They also created the Sui Layer-1 blockchain and the Move programming language, aimed at creating scalable, secure, and decentralized applications. 

How does Hashi work? 

The protocol allows BTC-backed lending, enabling users to borrow stablecoins against Bitcoin holdings, and institutional partners supply liquidity. It allows Bitcoin to run on its native network and become programmable on Sui. Each Sui address is paired with a 2-of-2 multisig address on the Bitcoin network to ensure transparency and verifiability across both chains. A devnet is expected in the near term, and a mainnet launch is planned later this year. Sui Network will also introduce audits and formal verification before the public launch. Institutional partners will handle custody, infrastructure, and capital markets functions. It also plans for insurance coverage on BTC collateral and Bitcoin-backed bond issuance. 

According to Adeniyi Abiodun, co-founder and CPO at Mysten Labs, the protocol is designed to address structural limitations that have prevented Bitcoin’s use in centralized finance, particularly reliance on intermediaries and limited collateral transparency. 

The system plans to introduce on-chain verification and programmatic collateral management to enable BTC lending more suitable for institutional use. Abiodun said, “We are replacing ‘trust me’ workarounds with on-chain verification.”

The rollout will include participation commitments from custodians and infrastructure providers, such as Ledger and Cubist. The Sui-based DeFi protocol will support lending, custody, and collateral management after the platform’s launch. 

As mentioned before, additional features include insurance coverage for BTC collateral and plans to issue Bitcoin-backed bonds. The project is currently in the developmental phase, and a devnet and mainnet launch is expected soon. 

The Rebound of Bitcoin-backed Lending Markets 

Bitcoin-backed lending markets fell after the collapse of crypto lenders such as BlockFi and Celsius Network in 2022. The rehypothecation, where an individual’s Bitcoin is lent out for extra profit, and opaque risk management, where platforms like Celsius operated like a “black box,” exposed to significant losses.  

In recent years, Bitcoin-backed lending has revived again as regulators and companies explore models that stress transparency, collateral management, and reduced counterparty risk. 

The US Federal Housing Finance Agency had directed Fannie Mae and Freddie Mac to explore whether cryptocurrencies can be classified as borrower reserves in mortgage risk assessments, recognizing digital assets like Bitcoin without the need to convert to US dollars.  

In January, Coinbase reintroduced Bitcoin-backed loans in the United States. It allows eligible users to borrow up to $100,000 in USDC against BTC held on the platform. Companies like Ledn also offer loans against Bitcoin while maintaining stricter custody and risk controls. 

Also Read: Bybit Reduces USDC Spot and Futures Fees in Latest Update