Bitcoin holders now have a new way to use their assets for decentralized loans without moving their coins off-chain or converting them into wrapped tokens. On July 22, Sui Foundation and Mysten Labs rolled out the Hashi testnet, a protocol designed to use bitcoin directly as collateral on the blockchain.
Maintaining Bitcoin on Its Native Network
Unlike existing solutions that wrap bitcoin into tokens on other blockchains, Hashi keeps the actual BTC on the Bitcoin network. It does so through a secure 2-of-2 multisig setup involving multiparty computation validators and a Guardian Layer that monitors withdrawals to prevent suspicious activity. This approach eliminates risks linked to custodial failure, token hacks, or bridge exploits, vulnerabilities that have caused significant losses in DeFi projects before.
Tracking of loans and collateral is done fully onchain, granting lenders transparency over how much bitcoin backs each loan. This contrasts with older systems where intermediaries’ promises stood between users and their actual funds.
Institutional Appeal and Tax Advantages
More than 25 institutional players, including Bitgo, Cumberland, and Wave Digital, are already testing Hashi. The protocol’s legal design aims to avoid triggering taxable events on deposits and withdrawals under U.S. law, a critical factor for institutions weighing active bitcoin deployment.
Mysten Labs sees Hashi as a gateway to tapping into bitcoin's $1.4 trillion market, enhancing capital efficiency without sacrificing security. The recent $3.5 million loss at Volo Protocol on Sui, due to wrapped bitcoin theft, highlights the demand for safer alternatives to wrapped BTC lending.
Hashi’s upcoming mainnet launch could mark a turning point for bitcoin-backed credit markets, removing reliance on bridges and wrapped tokens while offering a fresh framework for onchain loan markets.
