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

As Bitcoin's position in the financial market becomes increasingly consolidated, the BTCFi sector is rapidly emerging as the forefront of cryptocurrency innovation. BTCFi encompasses a range of Bitcoin-based financial services, including lending, staking, trading, and derivatives. This article deeply analyzes several key tracks of BTCFi, exploring stablecoins, lending services, staking services, re-staking services, and the combination of centralized and decentralized finance.

BTCfi Track Overview

BTCFi is a series of financial activities centered around Bitcoin, including Bitcoin lending, staking, trading, futures, and derivatives. According to relevant data, the BTCFi market size reached approximately $10 billion in 2023. It is expected that by 2030, the BTCFi market size will reach $1.2 trillion. Over the past decade, the BTCFi market has shown significant growth potential, attracting more and more institutional participation. The involvement of institutional investors not only brings in a large influx of capital, increasing market liquidity and stability, but also enhances the maturity and regulation of the market.

BTCFi Track Segmentation

1. Stablecoin Stablecoin track

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

Classified by the 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.

Notable BTC ecosystem stablecoin projects include:

• Bitsmiley Protocol: The first native stablecoin project in the BTC ecosystem, allowing users to mint the stablecoin bitUSD by over-collateralizing native BTC on the BTC network.
• Bamk.fi(NUSD): Issue synthetic USD NUSD on Bitcoin L1.
• Yala Labs: Through its self-built modular infrastructure, its stablecoin $YU can flow freely and securely between various ecosystems.
• BTU: The first decentralized stablecoin project in the Bitcoin ecosystem, using a collateral debt position model.

2. Lending

Bitcoin lending is a financial service that allows individuals to obtain loans by using Bitcoin as collateral or to earn interest by lending out Bitcoin. This model provides liquidity for Bitcoin holders while offering investors new channels for income.

Notable BTC lending projects include:

• Liquidium: A P2P lending protocol running on Bitcoin, allowing users to borrow and lend native Bitcoin using native Ordinals and Runes assets as collateral.
• Shell Finance: A stablecoin protocol based on BTC L1, supporting the use of BTC, Ordinals NFT, Runes, BRC-20, and ARC-20 assets as collateral to obtain $bitUSD.

3. Staking

Staking is often recognized for its security and stable yield characteristics. Tokens are locked in a blockchain network or protocol to earn rewards, and these tokens are used to provide essential services to users.

Notable BTC staking projects:

• Babylon: Bitcoin staking protocol that allows locking Bitcoin on the Bitcoin mainnet to provide security for other POS consumption chains, while earning staking rewards on the Babylon mainnet or POS consumption chains.

4. Restaking

Restaking is the use of liquid-staking token assets to stake with validators on other networks and blockchains to earn more rewards, while still contributing to the security and decentralization of the new network.

Notable BTC re-staking projects include:

• Chakra: An innovative modular settlement infrastructure that employs zero-knowledge proof technology to ensure trustless security and efficiency.
• Bedrock: A multi-asset liquidity re-staking protocol supported by a non-custodial solution designed in collaboration with RockX.
• Lorenzo protocol: A BTC liquidity financial layer based on Babylon.

5. Decentralized Custody

Recently, BitGO, the entity behind wBTC, announced the transfer of control of wBTC, which has sparked discussions in the market regarding the security of WBTC. Notable decentralized custody solutions include:

• tBTC: When bridging from BTC to ETH, you may consider minting tBTC.
• FBTC: A new type of synthetic asset across the entire chain, pegged 1:1 to BTC, supporting the circulation of BTC across the entire chain.
• dlcBTC: Bitcoin's non-custodial representation on Ethereum, allowing Bitcoin holders to participate in DeFi protocols while retaining full ownership of their assets.

6. CeDeFi

CeDeFi is a financial service that combines the characteristics of centralized finance and decentralized finance. Notable projects include:

• Solv Protocol: A unified Bitcoin liquidity matrix designed to consolidate the trillion-dollar liquidity of Bitcoin through SolvBTC.
• Bouncebit: BTC Restaking chain, fully compatible with EVM, featuring CeDeFi product design.

7. DEX AMM Swap

The development of DEX in the Bitcoin ecosystem is relatively lagging behind other chains that support smart contracts, mainly due to the original design intentions and technical limitations of the Bitcoin network. Notable projects to watch include:

• Bitflow: Focused on sustainable BTC yield, utilizing technologies such as PSBT, atomic swaps, AMM, and Layer-2 solutions like Stacks for trading BTC, stablecoins, and more.
• Dotswap: BTC mainnet native AMM DEX, supporting assets including Runes, BRC20, ARC20, and the latest CAT20.
• Unisat AMM Swap: Focused on Ordinals and brc-20 wallet applications, implementing inscription market trading based on order books.

Comparison of Different Asset Classes

Security Comparison

• The BTC ecosystem pays much more attention to "security" than other ecosystems, with effective control of asset ownership being the focus.
• The staking volume of ETH accounts for 28% of the total supply, but it also increases systemic risks such as excessive centralization and liquidity risk.
• The total TVL of the Solana ecosystem has reached $4.86B, ranking third after Tron, but there are more off-market factors, making the price more volatile.

Yield Comparison

BTCFi has greater potential compared to ETHFi and SolFi, as the latter two have already gone through the first phase of explosive growth in TVL, while BTCFi is still a blue ocean. From this perspective, BTCFi's products have a higher expected return.

Ecological Richness

• The ETH ecosystem includes multiple fields such as Defi, NFT, RWA, and Restake.
• The total TVL of the DEX Raydium and the liquidity solution Kamino Finance on Solana is approaching $1B.
• The BTCFi ecosystem is in a period of explosive growth, with a large number of projects emerging, including Layer 2, and VC financing continuously increasing.

Conclusion

BTCFi will continue to serve as an innovative engine in the field of crypto finance, advancing the Bitcoin network towards higher levels of financial applications and global participation. With continuous technological advancements and the ongoing expansion of the market, 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.