Cardano Debuts Cardinal Protocol to Use Bitcoin in DeFi Without Custodial Risks

Highlights:

• Cardano has introduced Cardinal to let Bitcoin users access DeFi without using custodians or middlemen.
• Cardinal wraps Bitcoin into pegged tokens on Cardano that users can redeem at any time.
• BitVMX ensures bridge safety by posting fraud proofs if any operator tries to cheat the system.

The research and development team of Cardano, Input Output Global (IOG), recently released a new protocol named Cardinal. With this upgraded system, Bitcoin’s unspent transaction outputs, including Ordinals, can now work with Cardano’s decentralized finance (DeFi) market. The protocol avoids custodians and federations, offering more security for users.

🧵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!

📜 https://t.co/DKT10LsrwA

— Romain Pellerin🇫🇷🇺🇸 (@rom1_pellerin) June 9, 2025

Romain Pellerin, IOG’s Chief Technology Officer, shared the update through a detailed post on X. He described Cardinal as a protocol that keeps Bitcoin locked under MuSig2, a multi-signature scheme. Meanwhile, Cardano mints the pegged token, and users can redeem it whenever they wish. Through this process, users can protect their Bitcoin or Ordinal assets and use them on Cardano.

The system locks down the original satoshis on Bitcoin with MuSig2 and relies on a group of changing operators. A hashed timelock contract (HTLC) manages the return of funds. On Cardano, a smart contract creates a 1:1 pegged token that represents the locked Bitcoin. If any operator fails to follow the rules, BitVMX, a verification system, publishes fraud proofs on Bitcoin.

Wrapped Bitcoin Enters Cardano DeFi via Cardinal Protocol

The Cardinal Protocol uses Cardano’s extended UTXO model to wrap Bitcoin UTXOs and turn them into usable tokens on Cardano. The wrapped assets function like non-fungible tokens (NFTs) and maintain a 1:1 peg with the original Bitcoin.

Unlike existing bridges such as BitGo’s wrapped BTC, Cardinal does not allow rehypothecation. Each wrapped asset remains under user control, and the bridge operates without single points of failure. This design brings Cardinal closer to Bitcoin’s original security model.

BitVMX provides off-chain verification by checking if operators follow the rules. If the criteria are not met, it makes fraud proofs and adds them to the Bitcoin blockchain. NFTs retain their ordinal provenance after crossing the bridge, and their inscriptions can still be checked. With these assets on the Cardano ledger, they can be used in DeFi platforms like lenders, automated market makers, and systems that use collateral.

Ordinals can be passed around to others without affecting their ownership or data. Cardinal allows Bitcoin holders to use DeFi without depending on third-party services. Users can currently participate in auctions, earn rewards via liquidity farming, and move their assets as they like with the protocol.

Cardinal May Expand Beyond Cardano

Cardinal currently addresses some infrastructure tasks. However, it is still not a finished product. Pellerin said that making wallet integration easier would be beneficial and that zero-knowledge proofs could help the industry. He urged software developers to take part in progress on burn-proof generation and proof-of-state.

Although the team has already wrapped and unwrapped the first ordinal between the Bitcoin and Cardano networks, the team still considers the system under development. The project’s GitHub page outlines a chain-agnostic design that could support Ethereum, Solana, and Avalanche in the future.

Cardano’s founder, Charles Hoskinson, also shared the news with his followers. He stated that Cardinal is the first DeFi system for Bitcoin built directly on Cardano. He called attention to the successful cross-chain wrap. Moreover, he highlighted its potential for expanding Bitcoin’s role in decentralized finance.