Comprehensive Interpretation of BTCFi: From Lending to Staking, Establish Your Own Mobile Bitcoin Bank

Abstract

As Bitcoin's position in the financial market becomes increasingly solidified, the BTCFi sector is rapidly emerging as a frontier of cryptocurrency innovation. This research report deeply analyzes several key tracks of BTCFi, including stablecoins, lending services, staking services, re-staking services, as well as the combination of centralized and decentralized finance. The report discusses the operational mechanisms of each track, major projects and their progress, and compares the security, yields, and ecological richness of different asset classes.

Research has found that the market size of BTCFi has reached tens of billions of dollars and is showing a rapid growth trend. The participation of institutional investors has brought stability and maturity to the market. In the stablecoin sector, decentralized stablecoin projects such as Bitsmiley Protocol and Bamk.fi demonstrate innovative potential. In the lending space, projects like Liquidium provide non-custodial lending services. Staking and re-staking services like Babylon and Chakra are releasing the liquidity value of Bitcoin. The CeDeFi model, through projects such as Solv Protocol, combines the security of centralized finance with the flexibility of decentralized finance.

The report indicates that compared to ETHFi and SolFi, BTCFi, although starting later, has huge potential. It not only inherits the security and decentralization features of Bitcoin but also enhances the practicality and value of Bitcoin through innovative financial models. As the ecosystem continues to develop, BTCFi is expected to become an important bridge connecting traditional finance and the cryptocurrency world, providing global users with richer, safer, and more efficient financial services.

BTCfi Track Overview

BTCFi (Bitcoin Finance) is a series of financial activities centered around Bitcoin, including Bitcoin lending, staking, trading, futures, and derivatives. According to data projections, the BTCFi market could reach a scale of $1.2 trillion by 2030. Over the past decade, the BTCFi market has shown significant growth potential, attracting more and more institutional participants, such as Grayscale, BlackRock, and JPMorgan.

The participation of institutional investors not only brings a large influx of funds, increasing market liquidity and stability, but also enhances the maturity and规范性 of the market, bringing higher recognition and trust to the BTCFi market. This article will delve into several hot areas in the current cryptocurrency financial market, including Bitcoin lending, stablecoins, staking services, re-staking services, and the combination of centralized and decentralized finance known as CeDeFi.

BTCFi Track Segmentation

1. Stablecoin

Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged to fiat currencies or other valuable assets. They achieve price stability through reserve assets backing or algorithmic adjustments to the supply, and are widely used in scenarios such as trading, payments, and cross-border transfers.

Classified by degree of centralization, it can be divided into centralized stablecoins (such as USDT, USDC) and decentralized stablecoins (such as DAI, FRAX). Classified by collateral type, it can be divided into fiat/physical collateral, crypto asset collateral, and under-collateralized.

In the BTC ecosystem, the stablecoin projects worth paying attention to are mainly decentralized stablecoins. Here are several representative projects:

Project One, Bitsmiley Protocol

• The first native stablecoin project in the BTC ecosystem
• Based on the Fintegra framework, consisting of the decentralized over-collateralized stablecoin bitUSD and the native trustless lending protocol.
• Using CDP mechanism, similar to MakerDAO's DAI
• Alphanet will launch on BitLayer in May 2024, with a maximum loan-to-value ratio of 50%.

Project Two, Bamk.fi (NUSD)

• Issue NUSD ( Nakamoto Dollar ), which is a synthetic dollar on Bitcoin L1.
• Currently minted 1:1 with USDT, it will be supported by delta-neutral Bitcoin positions in the future.
• The project token BAMK is issued in the form of runes, with a total supply of 21 billion.

Project Three, Yala Labs

• Issue over-collateralized stablecoin $YU through self-built modular infrastructure
• Core products include $YU stablecoin, Metamint minting platform, and insurance derivatives.
• Collaborate with projects like Babylon to provide users with multiple earning opportunities

Project Four, Satoshi Protocol

• The first CDP stablecoin protocol in the BTC ecosystem, based on the BEVM ecosystem.
• Users can mint the USD stablecoin $SAT by depositing assets such as BTC and LST with a minimum collateralization ratio of 110%.
• Introduce a stable pool mechanism to ensure system stability

Project Five, BTU

• The first decentralized stablecoin project in the Bitcoin ecosystem, using the CDP model.
• No need for cross-chain bridges, complete all operations within the Bitcoin network.
• Provide an asset proof mechanism without the need for trading.

2. Lending track

Bitcoin Lending (BTC Lending) is a financial service that allows users to obtain loans using Bitcoin as collateral or to earn interest by lending out Bitcoin. Main projects include:

Project One, Liquidium

• P2P lending protocol running on Bitcoin
• Supports using native Ordinals and Runes assets as collateral.
• Implement secure non-custodial lending using PSBT and DLC technology

Project Two, Shell Finance

• BTC L1-based stablecoin protocol
• Supports BTC, Ordinals NFT, Runes, BRC-20, ARC-20 assets as collateral
• Adopt a peer-to-pool scheme to maximize utilization

3. Staking Track

Staking is typically recognized for its characteristics of security and stable returns. In the BTCFi field, the main projects include:

Project One, Babylon

• Layer 1 blockchain founded by Professor David Tse of Stanford University
• Locking Bitcoin on the Bitcoin mainnet to provide security for other POS consumption chains.
• Adopting Remote Staking technology to implement staking contracts with the help of UTXO.

4. Restaking Track

Restaking is the process of using liquid staked token assets to stake with validators on other networks and blockchains to earn additional rewards. Major projects include:

Project One, Chakra

• Modular Settlement Infrastructure Based on Starknet
• Using zero-knowledge proof technology to ensure trustless security and efficiency.
• Collaborate with the Babylon ecosystem to provide one-click staking Bitcoin services

Project Two, Bedrock

• Multi-Asset Liquidity Re-Staking Protocol
• Unlock the liquidity and maximum value of PoS tokens using its universal standards.
• Collaborating with Babylon to provide liquid staking services

5. Decentralized Custody

As BitGO, the entity behind wBTC, announced the relinquishment of control, discussions arose in the market regarding the security of Bitcoin's wrapped form. Emerging decentralized custody solutions include:

• tBTC: Developed by Threshold Network, it offers a more decentralized BTC wrapping solution.
• FBTC: A new type of synthetic asset on the entire chain, supporting full-chain BTC circulation.
• dlcBTC: Non-custodial BTC certificate utilizing Discreet Log Contracts (DLCs) technology.

6. CeDeFi

CeDeFi combines the characteristics of centralized finance (CeFi) and decentralized finance (DeFi). Major projects include:

Project One, Solv Protocol

• Unified Bitcoin Liquidity Matrix
• Provide multi-chain liquidity solutions through SolvBTC
• Cooperate with multiple digital asset custody institutions to provide "over-the-counter settlement" solutions.

Project Two, Bouncebit

• BTC Restaking chain, fully compatible with EVM
• Re-staking and on-chain Farming using LCT (Liquidity Custody Token)
• Use BTC + BounceBit hybrid PoS mechanism for verification

Project Three, Lorenzo protocol

• BTC liquidity financial layer based on Babylon
• Tokenize the staked Bitcoin into liquid principal tokens (LPT) and yield accumulation tokens (YAT)
• Provide DeFi participation opportunities for BTC holders

7. DEX AMM Swap

The development of decentralized exchanges (DEX) and automated market makers (AMM) in the Bitcoin ecosystem has been relatively lagging, but there are still some innovative projects:

Project 1, Bitflow

• DEX built on Stacks
• Supports trading of BTC, stablecoins and other assets.
• The goal is to build the BTCFi ecosystem.

Project Two, Dotswap

• BTC native AMM DEX on mainnet
• Supports trading of Runes, BRC-20, ARC-20, and CAT-20 assets
• Adopting Multi-layer Multi-signature Matrix (MMM) technology

Project Three, Unisat AMM Swap

• Focused on Ordinals and BRC-20 wallet applications
• Implementing inscription market trading based on order book
• Developed the Fractal mainnet, consolidating its position in the inscription field.

Comparison of Different Asset Classes

Security Comparison

• The BTC ecosystem places a higher emphasis on "security" than other ecosystems.
• ETH faces systemic risks such as excessive centralization and run risks.
• Solana is susceptible to external factors, resulting in significant price fluctuations.
• BTC