Trust-Minimized Bitcoin DeFi: What Is the FAssets System?

By Adriana Hamacher

The future of decentralized finance (DeFi) holds enormous potential for Bitcoin (BTC) and non-smart contract tokens, but there’s a catch: a significant proportion of blockchain assets can’t interact directly with DeFi protocols due to a lack of smart contract support.

Enter Flare’s FAssets system, designed to unlock this value by enabling tokens like Bitcoin, XRP, and Dogecoin to participate in DeFi on Flare and beyond.

Developed by Flare Labs, FAssets convert cryptocurrencies like Bitcoin into ERC-20 versions on Flare. These synthetic tokens mirror the value of the originals, allowing users to earn yield, access rewards, and utilize assets across decentralized applications (dapps).

Why does decentralized finance need Bitcoin?

Bitcoin, often considered “digital gold,” has an estimated market cap of around $1.6 trillion. If even 10% of this value could be tapped for DeFi, it would introduce an additional $160 billion in liquidity.

Bridging Bitcoin to smart contract-capable blockchains unlocks use cases like collateralized lending, decentralized trading, and interest generation—opportunities otherwise limited by Bitcoin’s capabilities.

Is bridging Bitcoin difficult?

Bitcoin’s architecture prioritizes security and decentralization, but this comes with trade-offs in composability and speed. Bitcoin’s 10-minute block time also limits scalability and its potential for real-time interactions in fast-paced DeFi.

Custodial solutions like Wrapped Bitcoin (WBTC) have gained traction, but they call for centralized custodians, which introduces risks and undermines decentralization.

Existing trust-minimized bridges aim to increase security by distributing control across multiple participants, reducing reliance on a single party. But they can come with complex setups, such as cryptographic proofs or multi-signature schemes, that can be challenging.

How do FAssets work?

Rather than relying on custodians or multi-signature schemes, FAssets use Flare’s decentralized infrastructure to validate transactions securely, creating a trustless environment so that users do not have to rely on a centralized intermediary.

The FAssets architecture (Image: Flare)

From the FAssets dashboard, users first select an agent to provide collateral. They pay a small fee and transfer their BTC, XRP or DOGE to the agent. The Flare Data Connector verifies the transaction on the original blockchain, and corresponding FAssets are minted as ERC-20 tokens on Flare, ready for DeFi or bridging to other networks.

Each FAsset is backed by an overcollateralized mix of assets, including BTC, stablecoins, Ethereum (ETH,) and Flare’s token, FLR, and held in smart contracts that guarantee the redeemability of the underlying asset.

What can you do with FAssets?

• Unlock asset value: Non-smart contract tokens like BTC, XRP, and DOGE can interact with smart contracts directly on Flare, expanding their utility.
• Perform trustless transactions: Unlike many wrapped assets, FAssets don’t rely on centralized intermediaries.
• Reduce risk: FAssets distribute risk across multiple participants, enhancing security.
• Earn rewards: Users and dapps earn FLR for bringing value to Flare through FAssets.

How does FAssets maintain security?

The FAssets system is supported by Flare’s enshrined oracles: the Flare Time Series Oracle (FTSO) and Flare Data Connector (FDC.) The FTSO supplies accurate, decentralized price feeds and collateral ratio calculations, which are essential for precise liquidation triggers. Meanwhile, the FDC verifies transactions on the underlying chain (Bitcoin, XRP Ledger or Dogecoin), confirming that payments sent to mint FAssets are valid and securely deposited to agents.

During times of high market volatility, FAssets’ overcollateralization and liquidation mechanism ensure that the system can handle price fluctuations of underlying assets while the minting and redeeming operations continue to function smoothly.

What’s next for FAssets?

Since its launch in June 2024, the FAssets Open Beta has introduced millions in TestXRP, TestBTC and TestDOGE  to Coston, Flare’s testnet, proving resilient through network outages and price fluctuations. In September, TestBTC was added to the Open Beta, enabling users to mint and redeem FTestBTC on the Flare Coston network. Bifrost Wallet fully supports all FAssets operations, with further wallet integrations underway.

The next launch on Songbird, Flare's canary network, is underway. The Songbird Test by Flare Labs aims to refine the FAssets model for Flare's mainnet by testing XRP, BTC, and DOGE with permissioned agents, a $2M issuance cap per asset, and loss coverage of up to $300,000 to ensure system reliability, usability, and security.

Keen users can participate in the test and become eligible for retroactive airdrops.

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