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

Summary

As Bitcoin's position in the financial market continues to strengthen, the BTCFi sector is rapidly becoming the forefront of cryptocurrency innovation. This research report provides an in-depth analysis of several key tracks in BTCFi, including stablecoins, lending services, staking services, re-staking services, and the combination of centralized and decentralized finance.

The report introduces the scale and growth potential of the BTCFi market, explores the mechanisms of stablecoins, and analyzes lending platforms and products. In terms of staking services, it highlights key projects such as Babylon. Re-staking services further unlock the liquidity of staked assets. In addition, the research report discusses the CeDeFi model, which combines the security of centralized finance with the flexibility of decentralized finance.

Finally, the report reveals the unique advantages and potential risks of BTCFi compared to other areas of crypto finance by comparing the security, yield, and ecological richness of different asset classes. As the BTCFi space continues to evolve, it is expected to see more innovations and capital inflows, further solidifying Bitcoin's leadership position in the financial sector.

BTCfi Track Overview

BTCFi is a series of financial activities centered around Bitcoin, including Bitcoin lending, staking, trading, futures, and derivatives. According to data, the BTCFi market size reached approximately 10 billion USD in 2023. It is expected that by 2030, the BTCFi market will reach a scale of 1.2 trillion USD.

In the past decade, the BTCFi market has shown significant growth potential, attracting an increasing number of institutional participants, such as Grayscale, BlackRock, and JPMorgan. The participation of institutional investors has brought in capital inflows, market liquidity, and stability, enhancing the maturity and regulation of the market.

This article will delve into several popular areas within 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. Currently, mainstream stablecoins can be divided into centralized stablecoins (such as USDT and USDC) and decentralized stablecoins (such as DAI and FRAX). They can be classified by collateral type into fiat/physical collateral, crypto asset collateral, and under-collateralized.

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

Project One, Bitsmiley Protocol

• The first native stablecoin project of the BTC ecosystem
• Users can over-collateralize native BTC on the BTC network to mint the stablecoin bitUSD.
• The first round of token financing will be completed in January 2024

Project Two, Bamk.fi (NUSD)

• Issue synthetic USD NUSD based on BTC L1
• Divided into two phases: the first phase is supported by USDe 1:1, and the second phase is supported by delta-neutral Bitcoin positions.

Project Three, Yala Labs

• Generate stablecoin $YU by over-collateralizing Bitcoin
• Launched the Metamint solution to facilitate users' use of $YU across various ecosystems.

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 rate of 110%.

Project Five, BTU

• The first decentralized stablecoin project in the Bitcoin ecosystem
• Using the collateral debt position model (CDP), it allows users to issue stablecoins based on BTC assets.

2. Lending track

Bitcoin lending is a financial service that involves obtaining loans by using Bitcoin as collateral or earning interest by lending Bitcoin. Main projects include:

Project 1, Liquidium

• P2P lending protocol running on Bitcoin
• Support using native Ordinals and Runes assets as collateral for borrowing and lending native Bitcoin

Project Two, Shell Finance

• Stablecoin protocol based on BTC L1
• Support using BTC, Ordinals NFT, Runes and other assets as collateral to obtain $bitUSD

3. Staking track

Staking (Staking) is usually recognized for its characteristics of security and stable returns. Main projects include:

Project One, Babylon

• Bitcoin staking protocol, which allows locking Bitcoin on the Bitcoin mainnet to provide security for other POS consumption chains.
• Adopting Remote Staking mechanism

4. Restaking Track

ReStaking is the act of using liquid staking token assets to stake with validators on other networks and blockchains in order to earn more rewards. Major projects include:

Project 1, Chakra

• Innovative modular settlement infrastructure using zero-knowledge proof technology
• Integrate fragmented Bitcoin liquidity to provide a secure and smooth settlement experience.

Project Two, Bedrock

• Multi-Asset Liquidity Re-Staking Protocol
• Utilize universal standards to unlock the liquidity and maximize the value of PoS tokens.

5. Decentralized Custody

Mainly includes projects such as WBTC, tBTC, FBTC, and dlcBTC, each with different characteristics and advantages.

6. Cedefi

CeDeFi is a financial service that combines the characteristics of centralized finance (CeFi) and decentralized finance (DeFi). The main projects include:

Project One, Solv Protocol

• Unified Bitcoin Liquidity Matrix
• Unifying the trillion dollars of liquidity in Bitcoin through SolvBTC

Project Two, Bouncebit

• BTC Restaking Chain, fully compatible with EVM
• With CeDeFi product design, utilizing LCT for re-staking and on-chain Farming

Project Three, Lorenzo protocol

• Babylon-based BTC liquidity financial layer
• Tokenize the staked Bitcoin into liquid principal token (LPT) and yield accumulation token (YAT)

7. DEX AMM Swap

In the Bitcoin ecosystem, the development of DEX has been relatively slow, but some innovative projects have emerged:

Project One, Bitflow

• Focused on sustainable BTC yield
• Conduct transactions using technologies such as PSBT, atomic swaps, AMM, and Layer-2 solutions like Stacks.

Project Two, Dotswap

• BTC native AMM DEX
• Supports assets such as Runes, BRC20, ARC20, and CAT20.

Project Three, Unisat AMM Swap

• Focus on wallets for Ordinals and brc-20 applications
• Implementing inscription market transactions based on the order book

Comparison of Different Asset Classes

Security Comparison

• The BTC ecosystem places a higher emphasis on "security" than other ecosystems.
• ETH and Solana, as PoS chains, have some potential security risks.
• BTC is fundamentally more secure as a PoW system, but systemic risks should also be taken into account.

Yield Comparison

BTCFi projects generally offer higher yields, with main sources including:

• Staking Rewards
• DeFi product yield
• The protocol itself yields

ecological richness

• The ETH ecosystem is the most mature, encompassing multiple fields such as DeFi, NFT, and RWA.
• The Solana ecosystem is developing rapidly, with outstanding performance in DEX and liquidity solutions.
• The BTCFi ecosystem is in a period of explosive growth, with a rapid increase in project types and numbers.

Conclusion

BTCFi, as an emerging field, not only meets the market's demand for BTC liquidity but also further promotes the activity of the BTC network by increasing the use cases of Bitcoin. With technological advancements and market expansion, BTCFi is expected to become a bridge connecting traditional finance and the cryptocurrency world, providing global users with richer, safer, and more efficient financial services.