A debate has arisen over the use cases of the Bitcoin Lightning Network and whether the network will support DeFi implementations and NFTs.
In the article On Impossible Things Before Breakfast, DeFi was discussed, where "Terra's latest case study" and a vision for the future for the Lightning Network were revealed. The article was penned by Ross Stevens, founder and chairman of Bitcoin-focused financial services firm NYDIG, Bitcoin supporter and Castle Island Ventures partner Nic Carter, and Allen Farrington, former investment manager of Baillie Gifford & Co.
The article said that "all algorithmic stablecoins" will collapse, and that is true no matter how well-intentioned. In addition, the authors predicted that the majority of DeFi projects would eventually collapse.
The article states that the problem with DeFi is that it lacks a lending institution and thus “recreates problems that central banks have solved” in the fiat economy. Bitcoin, on the other hand, “solves problems created by central banks,” according to the authors.
“Lightning accelerates the development of the existing Lightning-based ecosystem of financial products called LiFi, which strengthens the security, transparency and decentralized nature of Bitcoin.”
They said "stablecoins, NFTs and tokenized securities" are current strong LiFi assets use cases.
DeFi implementations have so far not been as successful on the Bitcoin network as they have been on other blockchains such as Ethereum (ETH) and Solana (SOL). Similarly, NFTs are rarely seen in Bitcoin, although they do exist indirectly.
Sharing the article on Twitter, MicroStrategy CEO and prominent Bitcoin supporter Michael Saylor said that Terra's collapse has led many to wonder whether Lightnign Network will offer a more decentralized form of DeFi. While the article received Saylor's approval, other members of the community voiced their criticism.
Among those commenting on the subject on Twitter is Eric Wall, the investment manager of crypto hedge fund Arcane Assets. “I'm still laughing,” Wall said, referring to the idea of NFTs being included in the Lightning Network. Meanwhile, developer and Bitcoin supporter Udi Wertheimer said that it is physically impossible for NFTs to exist in lightning. While others criticize the idea of NFTs and DeFi being included in the Lightning Network, Bitcoin Development Center editor Alex Berge said "it's just as ridiculous as Terra/Luna".
Still, some users argued that “stablecoins and fully secured loans against BTC are valuable,” arguing that DeFi could be implemented sustainably on the Lightning Network, at least on some level. However, Berge finds that even such a simple approach to DeFi is difficult to implement in a decentralized way.