The era of decentralized finance (DeFi) on Bitcoin is approaching. With the emergence of protocols like Ordinals, Runes, BRC-20, and TAP, we have glimpsed the potential of DeFi on the world's oldest blockchain. The community is eager to trade alternative tokens, often referred to as "shitcoins," directly on Bitcoin. However, the current infrastructure remains underdeveloped. That is about to change.
Trading tokens on Bitcoin today is often a cumbersome experience. On platforms like Unisat and Magic Eden, sellers must list tokens at specific prices and quantities, then wait for a buyer willing to match those exact terms. This model lacks the flexibility and speed that traders expect.
Several teams are working to introduce automated market makers (AMMs) and DEX-style trading to Bitcoin, aiming to replicate the seamless experience familiar to Ethereum Virtual Machine (EVM) users. Since Bitcoin uses a UTXO model rather than an account-based model like EVMs, some functionalities require re-engineering. Interestingly, the UTXO model offers certain technical advantages, especially when using partially signed Bitcoin transactions (PSBTs) to enable atomic swaps.
When evaluating each platform, key considerations include the user experience during swaps, the degree of decentralization, permissionless access, and other trade-offs.
Many teams are innovating with PSBTs and Sighash types. Sighash mechanisms determine how transaction inputs and outputs are signed, with six types ranging from the secure but inflexible "Sighash All" to the less secure but highly flexible "Sighash None — Anyone Can Pay." Popular markets like Unisat and Magic Eden currently use "Sighash Single" for their PSBTs, leaving transactions vulnerable to Maximal Extractable Value (MEV) attacks like sniping. Using "Sighash All" ensures all inputs and outputs are fully signed, protecting against such exploits.
Other factors like liquidity, slippage, fees, incentives for liquidity providers, and trading volume are also important. However, since most platforms discussed are in early stages, these metrics are still emerging.
Fluid Tokens
Fluid Tokens operates as an order book-based decentralized exchange (DEX). Currently, users can trade Runes against Bitcoin, with Runes-to-Runes functionality coming soon. The platform facilitates peer-to-peer trading. Market makers create off-chain commitments (e.g., selling 1000 $DOG for 0.001 BTC), which are published as limit orders. When a taker matches an order, they initiate a PSBT outlining the predefined terms. The original maker is notified and signs the PSBT to finalize the transaction.
This design is fully permissionless and peer-to-peer. The trade-off is a multi-step process that can slow down trading. To prevent order manipulation, Fluid currently allows only one maker commitment per address per trading pair. All transactions use "Sighash All" in PSBTs, ensuring MEV and snipe protection. Fluid prioritizes security and decentralization, albeit with a less fluid user experience. Their market launch is expected in the coming weeks.
Saturn BTC
Saturn BTC is an order book-based on-chain exchange, initially launched for rare satoshis in mid-2023. They recently introduced Runes trading, focusing on a centralized exchange-like experience. Users can place limit orders on-chain or market buy/sell existing orders without worrying about UTXO management. Saturn also offers a "swap" feature, which executes against existing orders rather than using liquidity pools.
To enable this seamless experience, Saturn requires users to deposit funds into a multi-signature "trading account" co-signed by the user and Saturn. This custodial approach involves trust in the platform. Orders are signed with "Sighash None" PSBTs, granting Saturn control until finalized with "Sighash All" for broadcast. The platform features TradingView charts, partial order fills, and multi-wallet support. Saturn offers a user-friendly DEX with a centralized trade-off.
UniTap
UniTap is a decentralized exchange built for the TAP ecosystem. The TAP meta-protocol enables various DeFi functions directly on Bitcoin Layer 1, assisted by a distributed indexer system.
UniTap is developing a market for trading TAP-based assets and facilitating swaps between TAP and Runes. They are also working on a bridge from Runes to TAP. The exchange is fully non-custodial. Sellers create PSBTs using "Sighash Single" to specify exact terms, generating precise sell orders. To improve matching, UniTap aggregates similar orders in a marketplace. Currently, TAP-to-TAP trading is live, with cross-protocol swaps planned for the near future. UniTap will soon launch a dedicated wallet supporting all TAP operations.
Dotswap
Dotswap is an AMM-style swap platform on Bitcoin Layer 1, supporting BRC-20, ARC-20, and Runes tokens. The trading experience resembles Uniswap. Users can swap between BRC-20 and Bitcoin, Runes and Bitcoin, with Runes-to-Runes swaps coming soon.
Atomic swaps are permissionless and non-custodial, using "Sighash All" PSBTs for snipe protection. The trade-off is that liquidity pools are custodial. Funds are held in a multi-signature system developed internally with partners like Safeheron and BitGo. Dotswap uses a centralized sequencer to protect transaction ordering and pricing.
Dotswap also features a Runes token launchpad similar to pump.fun. Participants use Bitcoin to buy new tokens, with most funds directed to liquidity pools. Launch contributors own a share of the pool and earn fees. Dotswap has processed over $40 million in volume, leveraging its advanced custody solution.
Ordiswap
Ordiswap is an on-chain AMM for BRC-20 and Runes tokens. Users can swap tokens, provide/remove liquidity, and create new pools. It was the first AMM launched in the BRC-20 space last year.
When swapping, users send Bitcoin to Ordiswap's liquidity pool. A script details the swap, which is read by an off-chain indexer. The corresponding tokens are sent in a subsequent transaction. This requires trust in the Ordiswap API. The team combines off-chain servers, oracles, indexers, and Bitcoin nodes to enable AMM functionality. Liquidity pools are custodial, with security partnerships underway. Their V2 BRC-20 swap has seen around $500,000 in volume. Atomic swap functionality is in development.
RunesDex
RunesDex is a recently launched AMM on Bitcoin Layer 1 for Runes and Bitcoin trading. Well-funded and rapidly developing, it is currently in mainnet alpha testing. Transactions are non-custodial and permissionless, but liquidity pools are custodially held, with private keys stored in AWS vaults. Partnerships for improved custody are underway.
The platform plans to launch a pump.fun-style launchpad, a Runes tracker, and a bridge for cross-chain meme coins. PSBTs use "Sighash All" for snipe protection. Liquidity providers earn fees in Bitcoin, with an automated UTXO splitter for smooth swaps. Full launch is expected soon.
Runeswap by Swapsats
Swapsats' Runeswap is an AMM-style platform for Runes and Bitcoin trading. Developed by the team behind the Ordinals Eggs collection, it offers permissionless swaps with custodial liquidity pools.
As a collector-focused team, they prioritize community benefits like reduced fees and revenue sharing for holders. The interface emphasizes user experience. Currently in alpha testnet, mainnet launch is anticipated in the coming weeks.
RunesFi
RunesFi aims to be a one-stop infrastructure hub for Bitcoin assets. Plans include a Runes block explorer, launchpad, incubator, engraving tool, and importantly, a DEX for Runes and BRC-20. The DEX is in testnet, with mainnet expected by late 2024.
Other DEXs like Omnisats and Motoswap are in development, promising greater decentralization. Unisat has announced a BRC-20 swap module with liquidity pools, expected within six months. Magic Eden is also hinting at future swap features.
Frequently Asked Questions
What is a Bitcoin Layer 1 DEX?
A Bitcoin Layer 1 DEX enables direct token trading on the Bitcoin blockchain without intermediaries. Unlike EVM-based DEXs, it leverages Bitcoin's native features like PSBTs and UTXOs for security and decentralization.
How do Bitcoin DEXs handle liquidity?
Most use custodial liquidity pools managed via multi-signature systems, as Bitcoin lacks smart contracts. This trade-off ensures permissionless trading while relying on trusted partners for fund security.
Are Bitcoin DEXs safe from MEV attacks?
Platforms using "Sighash All" in PSBTs are protected from MEV sniping. However, designs using other Sighash types may be vulnerable, so users should verify the protocol's mechanics.
Can I trade Runes and BRC-20 tokens on these DEXs?
Yes, platforms like Dotswap and Ordiswap support both standards. Cross-protocol swaps (e.g., Runes to BRC-20) are emerging, with bridges and dedicated markets in development.
What are the main trade-offs between order book and AMM DEXs?
Order book DEXs like Saturn prioritize user experience but may require custodial steps. AMMs like Dotswap offer permissionless trading but rely on centralized liquidity pools. The choice depends on your priorities.
How do I start using a Bitcoin DEX?
You'll need a Bitcoin wallet supporting the relevant token standards (e.g., Ordinals, Runes). Connect to a DEX, ensure you understand the custody model, and start with small trades to familiarize yourself with the process. 👉 Explore more strategies for safe trading
Conclusion
Building applications on Bitcoin is challenging, especially when replicating EVM functionalities. Teams embracing Bitcoin's unique mechanics—like PSBTs and Sighashes—are more likely to succeed than those forcing EVM paradigms.
Current solutions balance various trade-offs. Order book DEXs like Saturn prioritize user experience with some centralization, while Fluid champions decentralization despite friction. For AMMs, custodial liquidity pools are a common compromise, allowing permissionless trading while relying on trusted partners. Dotswap leads in development and liquidity solutions, but competitors like RunesDex and Ordiswap are advancing rapidly.
The future of Bitcoin DeFi depends on innovation within its native constraints, offering new opportunities for traders and developers alike.