Mysten Labs launched the Hashi testnet on July 22, 2026, opening a public testing environment for what it calls native Bitcoin collateral on the Sui blockchain. The protocol targets an estimated $1.4 trillion in dormant Bitcoin by enabling lending, borrowing, and credit products without wrapped t...
"Every major asset class eventually develops deep credit, lending, and liquidity markets. Bitcoin is no different." — Adeniyi Abiodun, Co-Founder & CPO, Mysten Labs
Mysten Labs launched the Hashi testnet on July 22, 2026, opening a public testing environment for what it calls native Bitcoin collateral on the Sui blockchain. The protocol targets an estimated $1.4 trillion in dormant Bitcoin by enabling lending, borrowing, and credit products without wrapped tokens or cross-chain bridges. More than 25 institutional partners — including BitGo, Cumberland, Ledger, and FalconX — are participating in the testnet phase.
The launch arrives at a difficult inflection point for Bitcoin DeFi. BTCfi sidechain TVL contracted 74% in Q1 2026, according to Spark Research data. Less than 0.5% of circulating Bitcoin participates in any form of DeFi. Wrapped BTC (wBTC), the sector's dominant bridge asset at $7.5 billion market cap, remains dependent on centralized custody through BitGo. Hashi's claim to differentiation rests on a 2-of-2 multisig architecture and a legal opinion from Fenwick stating that deposits and redemptions should not constitute taxable events under U.S. law.
Whether Hashi can convert testnet participation into mainnet TVL remains unproven. Sui's own DeFi ecosystem has contracted from a $2.6 billion TVL peak in late 2025 to approximately $1 billion as of early July 2026. The SUI token trades at $0.77, down 86% from its January 2025 all-time high of $5.37.
Bitcoin's market capitalization stood at approximately $1.3 trillion as of July 22, 2026, with BTC trading near $66,500. Of the roughly 19.7 million BTC in circulation, less than 0.5% participates in any form of decentralized finance, according to DeFiLlama's BTCfi tracking category. For comparison, Ethereum DeFi utilizes approximately 15% of circulating ETH supply.
The BTCfi sector experienced rapid growth in 2024, expanding from $304 million in TVL in January to over $9.1 billion by October 2025, a 30x increase driven largely by the Babylon staking protocol. That momentum reversed sharply. By Q1 2026, sidechain-based BTCfi TVL had contracted by 74%, according to Spark Research's BTCfi landscape report published in 2026. Several once-prominent protocols shut down or pivoted entirely.
The surviving BTCfi landscape is concentrated among a handful of players:
Venture capital activity in BTCfi totaled $175 million across 32 deals in 2025, per Spark Research. The sector's core challenge persists: Bitcoin holders are structurally passive. Unlike ETH holders who actively seek yield, BTC holders have historically prioritized custody security over capital efficiency.
Hashi operates as a protocol-level primitive on the Sui blockchain, first introduced in March 2026 by Mysten Labs. Its core proposition: users deposit native BTC into special Bitcoin addresses controlled by the protocol, without wrapping or bridging.
The deposit flow works as follows:
Mysten Labs positions this as distinct from wrapped BTC solutions because the mechanism does not rely on a single custodian. wBTC, the market leader with ~$7.5 billion in market cap and 116,000–120,000 BTC supply, depends on BitGo's custodial infrastructure and represents 62% of all wrapped BTC on Ethereum, per CoinGecko data.
The distinction is architectural, but the practical difference requires scrutiny. Hashi still requires trust in the validator set and guardian infrastructure. The question is whether its trust model is measurably better than BitGo's institutional custody — not whether it eliminates trust entirely.
Hashi's security model centers on what Mysten Labs calls the "Guardian Layer," a defense-in-depth mechanism for protecting Bitcoin collateral.
All Bitcoin UTXOs in the system are secured by a 2-of-2 multisig requiring:
This dual-key requirement means that neither validators alone nor guardians alone can unilaterally move Bitcoin from the collateral pool. The Guardian Layer includes configurable safeguards designed to slow or halt potentially malicious transactions before collateral leaves the system.
The protocol also provides:
The architecture attempts to address the single-custodian risk that has plagued wrapped BTC products. However, the security of MPC systems depends heavily on the distribution and independence of key shares — details that the testnet documentation has not fully disclosed. The number of MPC participants, their geographic distribution, and the threshold structure remain areas where more transparency is needed before mainnet.
Hashi has assembled a partner network of more than 25 organizations across six categories, expanded from initial backers to include over 40 organizations according to the July 22 testnet announcement:
Custody & Wallet Infrastructure: BitGo, Blockdaemon, Cobo, Fordefi, Cubist, Ledger, SwissBorg
Liquidity & Trading: Bullish, Cumberland, Erebor, FalconX
DeFi Protocols (on Sui): AlphaLend, Bluefin, Current, Scallop, Suilend, Fluid, Navi
Asset Management: Concrete, Inveniam Capital, Wave Digital Assets
Infrastructure & Security: CF Benchmarks, Soter Insure, Asymptotic, Certora, OtterSec
Wave Digital Assets has committed to developing a three-year Bitcoin-yield bond product on Hashi, one of the few concrete product commitments disclosed by any partner. Cumberland and SwissBorg were among the most recent additions announced alongside the testnet launch.
The partner roster is broad but the depth of commitment varies. Listing a custody provider or auditor as a "partner" differs materially from having them actively deploy capital. The conversion from testnet partnership to mainnet liquidity provision will be the relevant metric.
Hashi enters a BTCfi market that has consolidated around three distinct approaches:
| Approach | Example | TVL | Trust Model | |----------|---------|-----|-------------| | Wrapped tokens | wBTC | ~$7.5B market cap | Single custodian (BitGo) | | Decentralized wrapping | tBTC, sBTC | $578M–$437M | Threshold signers / STX miners | | Native staking | Babylon | ~$4B | Bitcoin script covenants | | Protocol-level collateral | Hashi | $0 (testnet) | 2-of-2 multisig (MPC + Guardian) |
Hashi's competitive positioning relies on three claims:
The first claim requires qualification. While BTC remains in Bitcoin addresses, it is locked in protocol-controlled multisig addresses, which is functionally similar to depositing into a bridge contract. The key difference is the trust model governing those addresses, not the absence of lockup mechanics.
Babylon, the current TVL leader, operates on Bitcoin itself using script-level covenants, which is arguably more "native" than Hashi's cross-chain model. Stacks' sBTC uses a decentralized signer network without relying on a single custodian, positioning it as a middle ground.
Fenwick & West, the Silicon Valley law firm, concluded that Hashi's deposit and redemption mechanics should not constitute taxable events under U.S. tax law, according to Mysten Labs' testnet announcement. This represents a notable strategic move.
The tax treatment of Bitcoin bridges and wrapping protocols has been a persistent source of uncertainty for U.S.-based institutional participants. If a BTC-to-wBTC conversion is treated as a taxable disposition, the friction cost for large holders becomes significant. Hashi's legal positioning — that deposits are not dispositions — could reduce this barrier.
However, a law firm opinion is not an IRS ruling. The legal analysis has not been tested in enforcement or litigation. Institutional participants will likely require their own counsel's review before treating Fenwick's conclusion as definitive.
The protocol also references Bitcoin-denominated on-chain insurance through partner Soter Insure, though terms, premiums, and coverage limits have not been publicly disclosed.
Hashi's success is inseparable from the health of the Sui ecosystem. The relevant metrics present a mixed picture.
Network Activity:
DeFi Ecosystem:
Token Performance:
The SUI token faced additional pressure from a July 2026 community emission schedule, raising questions about whether DeFi activity can absorb routine token unlocks without further price dilution.
For Hashi, these numbers matter. A protocol designed to attract institutional Bitcoin capital must demonstrate that the underlying chain can sustain liquidity depth and trading activity. A $1 billion DeFi ecosystem is substantial in absolute terms but small relative to the institutional capital Hashi aims to attract.
MPC Key Distribution: The number of MPC participants, their identities, and the threshold structure for signing have not been fully disclosed. For institutional participants, this is foundational information.
Mainnet Timeline: No specific mainnet date has been announced. The gap between testnet launch and mainnet deployment is undefined, creating uncertainty for partners planning product roadmaps.
Sui Dependency: Hashi is built exclusively on Sui. If the Sui ecosystem continues to contract, the addressable market for Bitcoin-collateral products shrinks proportionally. Sui's current $1 billion DeFi TVL is a fraction of Ethereum's or Solana's.
Validator Incentive Alignment: Sui validators must run Bitcoin full nodes to participate in Hashi. The cost-benefit calculation for validators — additional infrastructure expense in exchange for protocol fees — has not been publicly modeled.
Competitive Response: wBTC's dominance (62% of all wrapped BTC on Ethereum) and Babylon's TVL leadership ($4 billion) mean Hashi must compete for a user base that already has functioning alternatives. Switching costs for institutional participants are non-trivial.
Liquidity Bootstrapping: Testnet partnerships do not guarantee mainnet liquidity. The history of BTCfi is littered with protocols that attracted partnerships but failed to convert them into sustained TVL — as demonstrated by the sector's 74% TVL contraction.
Hashi represents Mysten Labs' highest-stakes product bet: that a protocol-level Bitcoin collateral system on Sui can capture meaningful share of Bitcoin's $1.3 trillion market cap, where two years of BTCfi experimentation have produced less than 0.5% penetration.
The technical architecture is distinct. The 2-of-2 multisig with Guardian Layer safeguards offers a different trust model than either centralized custody (wBTC) or decentralized threshold signing (tBTC/sBTC). The tax opinion from Fenwick addresses a real institutional friction point. The partner roster is credible.
The execution risk is equally real. Hashi launches on a chain whose DeFi ecosystem has shrunk 62% in six months, with a native token down 86% from its peak. BTCfi's overall contraction — 74% sidechain TVL loss in Q1 2026 — demonstrates that institutional-grade architecture does not guarantee institutional-grade adoption. The gap between testnet participation and mainnet deployment remains undefined.
The data suggests that Bitcoin DeFi's problem is not primarily technical. It is behavioral: Bitcoin holders prefer custody security over capital efficiency. Whether Hashi's specific combination of architectural safeguards, tax positioning, and institutional partnerships is sufficient to change that calculus is a question that only mainnet deployment can answer.