Jessy, Golden Finance

As the United States gradually becomes clearer about the regulation of virtual currencies, DeFi has also become a One of the main lines of the bull market.

Currently, what people are talking about about DeFi under US supervision refers more to RWA, US dollar stablecoins, PayFi, etc. that have real assets on the chain. . These practices are generally built on Ethereum and its second layer, or some high-performance new public chains. The relationship between all this and Bitcoin seems to be only encapsulated Bitcoin to participate in financial activities on the chain.

In order to change the embarrassing situation in which only encapsulated Bitcoin can participate in on-chain finance, BTCFi came into being. The so-called BTCFi refers to the technology surrounding Bitcoin and its The ecosystem, combined with the financial service platform and protocols built by decentralized financial technology, allows Bitcoin’s financial functions to be expanded.

Specifically, this enables Bitcoin itself to participate in on-chain financial activities, and the originally barren Bitcoin smart contract functions are enhanced. The Bitcoin ecosystem also has more complex DeFi protocols such as centralized exchanges, over-collateralized stablecoins, and re-pledge similar to other public chains. In addition to BTC itself, some BTC ecology-related assets, such as inscriptions, runes, RGB++, etc., have also participated in DeFi-related activities.

According to DeFiLlama data, the current total TVL of BTC is US$6.545 billion, while the total TVL of Solana is US$8.297 billion, and the total TVL of Ethereum is 68.31 billion. Dollar. It can be seen that BTCFi is still a blue ocean and has high development potential.

At present, star projects like Babylon have been born on BTCFi, which are mainly through Introducing a Bitcoin staking protocol that allows users to stake Bitcoin onto another PoS blockchain and earn rewards without using third-party escrow, bridging solutions or wrapper services. In addition, what other projects are worthy of attention?

According to DeFiLlama data, the total TVL of representative projects on the BTCFi track such as Babylon has exceeded US$5 billion. Among them, the lending and re-pledge agreement is the BTCFi ecosystemThe two core components of the system occupy the largest market share.

BTCFi protocol TVL ranking (data as of December 24, 2024)

According to DefiLlama predictions, the BTCFi market size will grow to approximately US$1.2 trillion by 2030. This year is a year of rapid development for the BTC ecosystem. At the beginning of 2024, the overall TVL of BTC was US$300 million, and by the end of 2024, it had reached US$6.5 billion, an increase of more than 20 times.

In the BTCFi track, lending protocols are one of the most important applications , Traditionally, Bitcoin, as a digital asset, has not participated in the lending market. However, the BTCFi protocol enables Bitcoin to be used as collateral for decentralized lending. Among the more typical projects are Liquidium, Shell Finance, etc.

Then there is the stablecoin protocol. The stablecoin protocol in BTCFi uses Bitcoin and its derivative assets (such as Ordinals and Rune) as collateral, and is issued with Bitcoin Price-pegged stablecoin. In practice on stablecoins, there are Shell Finance’s Bitcoin-linked stablecoins, Babylon’s Bitcoin-collateralized stablecoins, and so on.

The re-pledge mechanism is also an innovation in the current BTCFi ecosystem. This year, these projects have also made great achievements in terms of locked positions. The BTCFi ecosystem There are currently many re-pledge agreements in China. Users can re-pledge already pledged Bitcoin or other crypto assets to obtain additional rewards. BounceBit and the Lombard Protocol in the Babylon ecosystem are all protocols that support re-pledge.

Babylon

When it comes to BTCFi, Babylon must be one that is hard to ignore Project, this is the first project in the industry to introduce Bitcoin's own standard Staking, which is essentially a staking, security and liquidity protocol.

The main innovation is the introduction ofBitcoin's own standard Staking, technical upgrades achieved through Bitcoin improvement proposals, such as Schnorr signatures, Taproot upgrades, and Tapscript updates, etc., improve the efficiency and privacy of Staking transactions, allowing Bitcoin holders to operate without third-party escrow In this case, the BTC assets are locked in the Bitcoin main network in the form of command code contracts in the form of self-custody, and "security consensus services" are output on many BTC layer 2, and then the rich benefits of other expansions are obtained.

TVL currently exceeds US$5 billion and has a rich ecosystem. According to public information, its ecological projects cover Layer2, DeFi, liquidity staking, wallets and There are 91 projects in 7 categories including custodian, Cosmos, finality provider and Rollup infrastructure, including many well-known projects, such as BisonLabs and BSquared Network in the Layer 2 field; Kina in the DeFi field Finance, LayerBank, etc.; Bedrock, Chakra, Lombard, etc. in the field of liquidity staking. These projects have formed a huge ecosystem around Babylon and promoted the diversified development of the Bitcoin ecosystem.

Shell Finance

is the first decentralized lending built on the Bitcoin layer and stablecoin protocol, aiming to provide decentralized lending and stablecoin protocols for the Bitcoin ecosystem, allowing holders of Bitcoin and related assets to manage assets and obtain liquidity more flexibly.

One ​​of its core functions is lending services. Users can use Bitcoin, Ordinals NFT, BRC-20, Runes and other Bitcoin ecological assets as collateral to borrow A synthetic asset called BTCX is created. The process does not require trusting a third party and is implemented through a unique peer-to-protocol lending mechanism, with Shell Finance acting as the counterparty to the borrower as the protocol party. Unlike traditional lending protocols, Shell Finance charges borrowers a one-time loan fee instead of continuously charging interest through floating interest rates, achieving interest-free instant borrowing and providing unique income opportunities for inscription holders.

The second core function is the issuance of stable currency. Shell Finance is the first decentralized stable currency protocol on the BTC main network. Users mortgage the above-mentioned Bitcoin ecological assets.After giving birth, you can get stable coins. The launch of this stablecoin has improved the liquidity of BTC's first-tier assets and laid the foundation for the development of BTCFi. In the future, it will be expanded to UTXO model networks such as Bitcoin Fractal to further expand usage scenarios.

Technically, it uses Discreet Log Contract (DLC) technology and PSBT technology. The former was proposed by Tad Gredryja, the co-creator of the Bitcoin Lightning Network, which can The contract execution process is more private, secure and fully automated, such as automatic liquidation to repay the loan when the value of the pledged asset falls below a critical point.

On December 4, 2024, the Shell Finance mainnet has been launched.

Liquidium

An ordinal lending platform based on the Bitcoin blockchain that allows users Lend and borrow native Bitcoin using native ordinal numbers as collateral, eliminating the need for an intermediary or custodian.

This product supports a variety of collaterals. It not only supports Bitcoin Ordinals as collateral, but also plans to support BRC-20 tokens, etc., providing users with more The choice also further expands the application scenarios of Bitcoin assets.

Technically, it is based on the Bitcoin network, and all lending operations are performed directly on the first layer of the Bitcoin network. Launched on July 22, 2024, the project token LIQUIDIUM is the first governance token of the Rune Token standard on Bitcoin. The token aims to decentralize the Liquidium protocol and facilitate community participation in its governance.

BitSmiley

The project has three major components, the first one is the over-collateralized stablecoin Protocol bitUSD, benchmarked against DAI, users can over-mortgage native BTC to bitSmiley Treasury to mint the stable currency bitUSD;

The second one is the native trustless lending protocol bitLending, which uses point-to-point mode atomic swap technology to achieve transaction matching, and also introduces an insurance system to optimize the traditional loan clearing process;

The third one is innovative derivativesCredit Default Swaps (CDS), a biotech agreement, is essentially a risk transfer tool. On the BitSmiley platform, one party (usually the party worried about the risk of defaulting on its debt) pays a certain fee on a regular basis to another party (the party willing to bear the risk in order to obtain a certain return), similar to an insurance premium. If there is a default event on the agreed basic debt (such as debt arising from related Bitcoin ecological asset lending, etc.), the party bearing the risk must pay compensation to the party paying the fee according to the agreement, so as to manage and hedge the debt default risk. . Operationally, it integrates NFT cutting CDS and uses aggregate bidding methods to improve market efficiency and fairness.

Currently, its token SMILE has been listed on multiple exchanges, such as Bybit, Gate.io, Bitget, Matcha, etc.

Chakra

The technical innovations of the Bitcoin re-pledge agreement are as follows: First It is a self-custody pledge. Through the time lock script, Bitcoin holders can pledge without transferring assets out of their own wallets, avoiding third-party risks and following the principle of "not your keys, not your coins" to ensure asset security. . The second is to use zero-knowledge proof technology, specifically using Stark to implement the proof system. Bitcoin's pledge events are verified off-chain through zero-knowledge proofs to access on-chain information without being connected to the Bitcoin network and without the need for trusted settings, which enhances security compared to Snark.

By integrating decentralized Bitcoin liquidity, Chakra provides a more secure and smooth settlement experience. Users can easily stake Bitcoin with one click, utilize Chakra’s advanced settlement network, and participate in more liquidity income opportunities including the Babylon ecosystem’s LST/LRT projects.

Solv Protocol

Bitcoin pledge protocol, its core highlight is its cooperation with leading ecological protocols Cooperation provides diverse revenue scenarios.

The SolvBTC launched by this project is the first BTC product that allows self-generated income. Through staking, it creates a safe foundation for the originally idle Bitcoin in the user's wallet. income. SolvBTC captures staking income and restaking from BTC Layer2income, and the DeFi income of ETH Layer2, and seamlessly integrates various protocols at the application layer to provide Bitcoin holders with abundant income opportunities. The income is generated through three strategies: staking, restaking and trading strategy income.

We can understand it as a unified Bitcoin liquidity matrix that aims to unify Bitcoin’s decentralized trillions of dollars of liquidity through SolvBTC. It is equivalent to a revenue aggregator for Bitcoin assets. Whether it is BTCB, FBTC, MBTC... different BTC assets on different chains can be minted into SolvBTC to simplify the user's asset management experience.

This is also equivalent to integrating the liquidity opportunities of different Bitcoin assets. A SolvBTC travels around the chain to form a unified asset pool for holders. Bringing more diverse revenue opportunities.

Bedrock

Bedrock is a multi-asset liquidity re-pledge protocol.

In terms of BTCFi, it uses uniBTC supported by babylon for re-pledge. In the Babylon War, Bedrock performed outstandingly and successfully captured 297.8 BTC pledge quota, accounting for The total initial pledge of Babylon is nearly 30%.

Using this product, users can use wBTC to pledge on Babylon on the ETH chain. After staking their WBTC, they will receive a 1:1 certificate - uniBTC. Users' uniBTC can be exchanged for wBTC at any time. Babylon provides core technical support in the process. Users who stake wBTC and hold uniBTC can earn Bedrock and Babylon points. Partnering with Babylon through uniBTC, Bedrock provides liquidity staking services to support Babylon’s PoS chain. By minting uniBTC, we ensure the stability and security of the Babylon chain and further expand Bedrock products to the BTC chain.

Bouncebit

Dedicated to creating income infrastructure for Bitcoin and providing institutional-level incomeProducts, re-pledge application scenarios and CeDeFi services, its specific businesses include:

Bouncebit Protocol: users deposit BTC and other assets and can receive back the corresponding Liquid Custody Tokens and assets are managed on the Binance platform through multi-party computing secure custody accounts and mirroring mechanisms, generating revenue to reward users.

Bouncebit Chain: A Layer 1 blockchain that adopts the equity delegation service proof consensus mechanism and is fully compatible with the Ethereum Virtual Machine. Users can delegate tokens to verification nodes Make a pledge and the pledge certificate obtained can be used in DApps on the chain.

Share Security Client: Its logic is consistent with Eigenlayer, allowing the security of Bouncebit Chain to be rented, providing support for applications such as Bridge, Oracle, and Sidechain.

Bouncebit will be launched in early 2024, with a total financing of US$7.98 million. In May 2024, its native token is BB and will be listed on Binance.

Lorenzo protocol

A modular Bitcoin L2 infrastructure based on Babylon, designed to Provides a financial layer for Bitcoin liquidity.

Through Babylon's Bitcoin staking and timestamp protocols, it lays the foundation for a scalable and high-performance Bitcoin application layer and enhances Bitcoin's scalability. And enable functions such as the execution of smart contracts.

The project has an innovative token system, including Liquid Principal Tokens (LPT, such as stBTC) and Yield Accumulation Tokens (YAT). stBTC is anchored 1:1 to the pledged BTC, unifying the BTC liquidity of different ecosystems. The holder can redeem the principal after the pledge is completed; YAT has its own re-pledge plan, start and end time, and can be redeemed before expiration. After the transaction is transferred, the holder can receive POS chain rewards. YAT in the same pledge plan is also interchangeable, and its value comes from accumulated income and speculation on future income.

This project supportsMultiple staking methods, such as supporting rotation and leverage staking. Circular staking leverages external DEX partnerships, allowing users to stake BTC, borrow more BTC, and increase staking rewards; leverage staking simplifies the process by providing internal liquidity, allowing users to apply maximum leverage with a single click, improving capital efficiency and optimizing Pledge income.

The track currently has quite a few projects, and its total TVL has also experienced explosive growth in 2024. However, the BTCFi competition Tao itself has yet to really take the industry by storm.

At present, there are still many problems in the development of this track. First of all, the core problem is that the Bitcoin community is not interested in some technological upgrades and innovations. Discussions of plans are often difficult to reach consensus, which makes it difficult to advance projects related to the Bitcoin ecosystem.

At the technical level, there are also major difficulties. First of all, Bitcoin's own block scalability is insufficient and it cannot realize automated financial transactions like Ethereum. and complex business logic. Moreover, the interoperability between Bitcoin and other blockchains is limited, and most solutions rely on centralized institutions to achieve cross-chain interaction.

Moreover, the transaction fees of BTCFi projects are also high, which greatly increases the cost of participants. For example, Babylon exposed high transaction fees during the staking process Cost issues include soaring mining fees due to the FOMO effect, as well as higher handling fees for unlocking and withdrawal operations after staking.

Insufficient liquidity is also a common problem in this track. On the one hand, the liquidity risk of the Wrapped version of BTC still exists. For example, in the Babylon protocol, participation in The Wrapped BTC provided by the pledged nodes does not completely match the liquidity of the native BTC aggregated, and needs to be maintained by the credibility of each aggregation platform. On the other hand, the liquidity provision method for financial activities such as Bitcoin pledge lending is relatively simple, mainly relying on capital lending, and has not yet formed a diversified and efficient liquidity provision mechanism like in the traditional financial market.

It is under this circumstance that the total locked value of the BTCFi project is still small compared to mainstream public chains such as Ethereum, and the market accepts it and low participation, project development and promotion face greater challenges.

Currently, exchanges such as Binance and OKX are cooperating with Babylon, Chakra, Bedrock, B², Solv Protocol, etc. have cooperated to carry out a series of pre-staking, farming and other activities. User participation can achieve high profits. This is also a very convenient way for ordinary users to participate in BTCFi.

Looking at the projects mentioned above, you will find that in addition to BTC itself, the current BTCFi ecosystem also has a wide range of asset types to participate in. BTCFI. For example, first-level assets based on BTC such as inscriptions and runes; second-level assets based on the BTC network such as rgb++ and taproot assets; wrap/stake assets such as WBTC on the ETH chain and various LST or LRT certificates representing pledged BTC; these Asset liquidity expands the scope of BTCFi and makes BTCFi scenarios more and more abundant.

Looking to the future, with the development of technology, such as Layer2 technology will continue to develop and improve, Rollups and other solutions will become more mature, bringing more benefits to Bitcoin’s transaction processing capabilities. to significantly improve.

With the emergence of reliable cross-chain bridges, it will also enable more secure and efficient asset transfer and interaction between Bitcoin and other blockchain networks. Bitcoin can participate more widely in DeFi applications on different chains.

With the help of solutions such as rsk, avm, bitvm and other solutions, Bitcoin's smart contract functions will be enhanced to support more complex financial business logic and applications.

The above technological advancements will provide stronger technical support for decentralized financial services in the Bitcoin ecosystem, enabling more flexible staking, lending, Derivatives trading and other financial products.

With the resurgence of DeFi, we may be able to see BTCFi becoming more closely connected with real finance, such as the application of stablecoins in the BTCFi ecosystem Will continue to expand, which will provide more efficient and low-cost solutions for cross-border payments and international trade. For example, the usdi stablecoin supported by rgb++ has a 1:1 USD anchor design and aml/kyc compliance requirements, making it an important tool in the international payment field. It is expected to be widely used in global cross-border e-commerce, international settlement and other scenarios in the future. Implemented on a large scale, this will promote Bitcoin to be widely used in the global financial system.