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

Abstract

As Bitcoin's position in the financial market continues to solidify, the BTCFi sector is rapidly becoming the forefront of cryptocurrency innovation. This research report deeply analyzes several key tracks of BTCFi, including stablecoins, lending services, staking services, re-staking services, and the integration of centralized and decentralized finance. The report explores the operational mechanisms of these areas, market development, major platforms and products, risk management measures, and future development trends.

By comparing the security, yield, and ecological richness of different asset classes, the unique advantages and potential risks of BTCFi relative to other areas of crypto finance are revealed. As the BTCFi sector continues to evolve, more innovations and capital inflows are expected, further consolidating Bitcoin's leadership position in the financial realm.

Keywords: BTCFi, stablecoin, lending, staking, re-staking, CeDeFi, Bitcoin finance

BTCFi Track Overview

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

In the past decade, the BTCFi market has shown significant growth potential, attracting more and more institutional participation. The entry of institutional investors has not only brought in substantial capital inflow, increasing market liquidity and stability, but has also enhanced the maturity and regulation of the market.

BTCFi Track Segmentation

1. Stablecoin

Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged to fiat currencies or other valuable assets. They can be classified by their degree of centralization into centralized stablecoins (such as USDT, USDC) and decentralized stablecoins (such as DAI, FRAX). They can also be categorized by collateral type into fiat/physical collateral, crypto asset collateral, and undercollateralized.

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

Project 1, Bitsmiley Protocol

• The first native stablecoin project in the BTC ecosystem
• Based on the Fintegra framework, composed of the decentralized over-collateralized stablecoin bitUSD and the native trustless lending protocol.
• The operating mechanism is similar to DAI, using the CDP model.

Project 2, Bamk.fi (NUSD)

• Issuing NUSD ( Nakamoto Dollar ), is a synthetic dollar on Bitcoin L1.
• Implemented in two phases: the first phase is supported by USDe at a 1:1 ratio, and the second phase is supported by delta-neutral Bitcoin positions.

Project Three, Yala Labs

• Issue stablecoin $YU through self-built modular infrastructure.
• Core products include over-collateralized stablecoin $YU, Metamint cross-chain minting system, etc.

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 BTC and LST, among other BTC-based interest-bearing assets.

Project Five, BTU

• The first decentralized stablecoin project in the Bitcoin ecosystem
• Adopting a Collateralized Debt Position (CDP) model, allowing 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. The main risk management measures include controlling the collateral ratio and loan-to-value ratio, supplementing collateral and margin calls, and forced liquidation mechanisms.

Representative 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, BRC-20, ARC-20 assets as collateral to obtain $bitUSD

3. Staking Track

Staking is typically recognized for its characteristics of security and stable returns. In BTCFi, staking mainly refers to providing staking services for other PoS chains by utilizing the security of Bitcoin.

Project 1, Babylon

• Layer 1 blockchain founded by Professor David Tse from Stanford University
• Aims to bring the security of Bitcoin to all PoS blockchains.
• Achieve BTC staking through Remote Staking

4. Restaking track

Restaking is the act of using liquid staking token assets to stake with validators on other networks and blockchains to earn additional rewards.

Project One, Chakra

• Modular settlement infrastructure, using zero-knowledge proof technology
• Provide one-click staking Bitcoin service, participate in LST/LRT projects including the Babylon ecosystem.

Project Two, Bedrock

• Multi-Asset Liquidity Re-staking Protocol
• Provide institutional-level services, building the first liquid-staking Bitcoin (uniBTC)

5. Decentralized Custody

As BitGO, the entity behind wBTC, hands over control, discussions about the security of WBTC are heating up. Emerging decentralized custody solutions include:

• tBTC: A decentralized Bitcoin custody solution developed by Keep Network
• FBTC: A new type of synthetic asset on the entire chain, pegged to BTC 1:1
• dlcBTC: Bitcoin's non-custodial certificate on Ethereum

6. CeDeFi

CeDeFi combines the characteristics of centralized finance and decentralized finance. In BTCFi, the main projects include:

Project 1, Solv Protocol

• Unified Bitcoin Liquidity Matrix
• Providing multi-chain liquidity services through SolvBTC

Project Two, Bouncebit

• BTC Restaking chain, fully compatible with EVM
• Re-staking and on-chain Farming using LCT (Liquidity Custody Token)

Project Three, Lorenzo protocol

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

7. DEX AMM Swap

The development of DEX in the Bitcoin ecosystem is relatively lagging but is catching up quickly. Major projects include:

Project One, Bitflow

• Focus on sustainable BTC yield
• Use technologies such as PSBT, atomic swaps, AMM, etc. for trading.

Project Two, Dotswap

• Native AMM DEX on the BTC mainnet
• Supports Runes, BRC-20, ARC-20, and CAT-20 assets

Project Three, Unisat AMM Swap

• Focus on Ordinals and BRC-20 wallet applications
• Implementing inscription market trading based on order book

Comparison of Different Asset Classes

Security Comparison

• The BTC ecosystem places far greater emphasis on "security" compared to other ecosystems.
• ETH and Solana face some systemic risks as PoS blockchains.
• BTC, as a PoW system, is theoretically safer, but excessive accumulation of FI protocol risks may also lead to systemic risks.

Yield Comparison

BTCFi projects generally offer higher yields, primarily sourced from:

• Staking Rewards
• DeFi product yield
• The income of the protocol itself

ecological richness

• The ETH ecosystem is the most mature, encompassing various fields such as DeFi, NFT, and RWA.
• The Solana ecosystem is developing rapidly, with leading DEX and liquidity solutions.
• The BTCFi ecosystem is currently in a period of explosion, with an increasingly rich variety of project types, including Layer 2, lending, stablecoin, staking, and other tracks.

Conclusion

BTCFi, as an innovative engine in the field of crypto finance, is driving the Bitcoin network towards higher levels of financial applications and global participation. 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.