Author: Phyrex Source: X, @Phyrex_Ni

The in-depth discussion about BTCFi is very detrimental to ordinary people When investors read it, the content is very boring, with almost no investment passwords, and it is not suitable for most investors, nor does it have the effect of getting rich.

I am very happy that more and more friends are paying attention to this field of BTCFi recently. I receive many inquiries from friends in the industry almost every day, especially Everyone is very confused about the definition of BTCFi, so what is BTCFi and what problems can BTCFi solve? Let's talk about it together.

First: Is it native Bitcoin

This question seems silly, but if you think about it carefully, you may break out in a cold sweat. Many friends think that #BTC The second-layer network, or the pledge of BTC, is part of BTCFi. The most critical core here is whether the supported assets are native BTC or mapped BTC.

The reason why this question is raised is who controls BTC, which is the core asset in the BTC ecosystem, and whether the method of control is safe enough. Many questions Friends believe that sufficient decentralization is the most important, but in the financial field, security is often a necessary condition, or even the first condition, for the entry of large funds.

In human terms, who owns the BTC in custody? Now almost all BTC in decentralized BTCFi protocols are similar to WBTC. , while itself controversial, the recognition of WBTC is the biggest issue. We can talk about this later, but what needs to be known is that when SAB121 is passed, the only BTC that banks can support is native BTC.

It can be concluded that in the actual application of BTCFi, non-native BTC not only cannot guarantee security, but also cannot achieve acceptance and liquidity. Guaranteed on the market, especially after SAB121, bank deposits are the largest "second-tier network" of BTCFi, and BTC notes guaranteed by banks are the "BTC TOKEN" that can be circulated in the blockchain.

Second: Is Bitcoin the only native Bitcoin?

The answer is no. In different environments, "native" actually has different understandings. In the world of blockchain, there is no doubt that BTC=BTC. This is what we said before. Banks only recognize native BTC. Reason, but in the financial world, BTC financial assets are also BTC if they are compliant.

For example, although the current BTC spot ETF cannot be used as an actual asset in mainstream banks in the United States, the law does grant the compliance of these ETF assets. For example, BlackRock's $IBIT itself is an asset that tracks the price of BTC. It does not even support BTC-based delivery under the current delivery conditions. However, because it needs to have enough BTC spot as an acceptance asset, it needs to correspond to ETF assets. So it can be considered that the spot ETF itself is BTC.

Secondly, neither BTC spot nor BTC spot ETF can be purchased directly by all investment institutions, especially in U.S. stock transactions. Trading Bitcoin, so $MSTR, which contains a large amount of BTC in its market capitalization, can be regarded as the only compliant way to hold BTC in the US stock market.

Before SAB121 is passed, not only BTC itself cannot be held in banks for custody and mortgage lending, but even the assets of BTC spot ETFs cannot be refinanced, but MSTR can be used for escrow, mortgage lending and other refinancing solutions in banks.

So native BTC, in a broad sense, should be an asset that can be linked to BTC in the world of legal recognition and blockchain. The significance of legal recognition is very important. This is one of the most important thresholds for large funds to enter. Only with sufficient compliance can more funds be willing to enter. This is also the reason why a large amount of funds poured in after the spot ETF was passed. Compliance is one of the necessary conditions for BTCFi.

Third: Who will provide the liquidity of pledged Bitcoin.

This question feels even stupider, but if you think about it carefully, the currently pledged BTC is based on stablecoins in the currency circle, and these stablecoins except for certain Apart from some specific channels, can you safely enter the Web2 world? In other words, if you want to invest in the Web2 world with the assets obtained by pledging BTC, can you achieve a seamless switch?

The answer is yes, but complete proof of funds needs to be provided. The larger the asset, the higher the risk it will face. In the current BTCIn Fi's ecology, if asset acceptance is discarded, it will be like a flower in the mirror and the moon in the water.

But! but! but! Here is the most important question. Almost all BTC lending protocols are mortgaged with BTC. There is an agreement or LP to provide funds. The borrower mortgages BTC to obtain funds. The fund provider uses BTC as a guarantee and obtains interest income from the loaned funds. Is this correct?

So for investors who have BTC in their hands but are not selling BTC, do their BTC have no liquidity? This is not the true meaning of BTCFi. BTCFi should provide liquidity to all BTC holders to obtain income, and should not just be mortgage lending.

To put it bluntly, for liquidity providers, the web2 or web3 method is not the most important, both need to solve the problem of assets. KYC issues, but for the current liquidity, only fund-based lending does not mean providing liquidity to BTC.

Fourth: How to provide liquidity to Bitcoin

The essence of liquidity is not mortgage lending. In fact, there is one of the best liquidity providers in the currency circle, which is Curve , the mechanism of Curve itself is the mechanism of the central bank. If you imagine the 3 Pool in Curve as the real world, what 3 Pool does is acceptance between different legal currencies, not mortgage lending.

Including Uniswap, it actually provides liquidity solutions, but our default liquidity is the buying and selling relationship between assets and stablecoins, so in fact BTCFi The liquidity relationship should not be just a loan relationship, but based on the liquidity acceptance of BTC itself. Only after the BTC is capitalized and the acceptance between assets of equal value can more investors holding BTC enjoy the benefits of holding BTC. Proceeds, not just proceeds from selling or pledging.

This method is the real source of income for BTC. In the #BTCFi principle I designed, #BTC $MSTR and $IBIT are both Native BTC, whether it is injected into BTC or MSTR or IBIT, provides liquidity to BTC, and the relationship between this flow is not just mortgage lending, but helping users convert it into different currencies under different circumstances. BTC.

So whether it is BTC, MSTR or IBIT providers can obtain Fi benefits without reducing the "BTC" share, but to a certain extent, just like Curve 3 Pool, Bitcoin MSTR Together with IBIT, a liquidity pool is formed.

Injecting BTC is equivalent to obtaining 33.33%. BTC and 33.33% MSTR and 33.33% IBIT can of course be directly exchanged for 100% BTC, 100% MSTR and 100% IBIT, and delivery is provided, providing users with a bridge between virtual assets and real assets. Seamless switching of financial instruments

Fifth: On-chain? If not on-chain?

If you haven’t read the previous question, you may think it is a stupid question. How can it be called a decentralized financial application without a chain? But after carefully reading the previous content, do you have any new knowledge about BTCFi? Do you think that listing on the chain has no practical significance? After all, MSTR and IBIT are not native assets on the chain, and according to SEC regulations, there is no way to directly issue Tokens for MSTR and IBIT on the chain. .

But in fact, on-chain is still necessary, especially to provide hedging and liquidity solutions for small-scale investors. In addition, it is BTCFi that puts BTC's "notes" from banks on the chain. Verification scheme. Of course, in this protocol, there is no need to be supported by BTC or the BTC second-layer network, as long as there are "native BTC" tickets, so in fact BTCFi does not need to be on a BTC-related network. It's like USDC doesn't have to be in #Ethereum This is the same truth, as long as it is a native asset, it will be the same everywhere.

Of course, if BTC's native assets can be truly provided, there will be no such thing in the BTC network. Question.

Sixth: The relationship between BTCFi, RWA and RWAFi

With further research on BTCFi, it is estimated that many friends can understand that, in fact, BTCFi The underlying logic is RWA, and through the uplinking of RWA, RWA It became RWAFi, so BTCFi is essentially a part of RWA, but the idea will be more complicated than the current RWA. If it is just traditional US stocks and US bonds, it will be on the chain.method, then the current BTCFi is a bridge that integrates virtual assets and real assets, including virtual assets and real assets.

The most interesting thing is that both virtual assets and real assets are the same subject matter, and it is precisely because of this that the integration between BTCFi and RWAFi can be formed , especially when it comes to compliance issues, it will be a little more difficult under the current US compliance system, but things like Singapore, Switzerland, Germany, etc. will be relatively simple.