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

Summary

As Bitcoin's position in the financial market becomes increasingly solidified, the BTCFi (Bitcoin Finance) sector is rapidly emerging as a frontier 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 (CeDeFi).

The report first introduces the scale and growth potential of the BTCFi market, emphasizing the impact of institutional investor participation on market stability and maturity. It then explores in detail the core components such as stablecoin mechanisms, lending platforms, and staking services. The research paper also analyzes how the CeDeFi model combines the security of centralized finance with the flexibility of decentralized finance to provide users with a more convenient financial service experience.

Finally, 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. With the continued development of the BTCFi sector, it is expected to attract more innovation and capital inflow, further solidifying Bitcoin's leadership position in the financial domain.

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

BTCfi Track Overview

BTCFi (Bitcoin Finance) 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 will reach a scale of $1.2 trillion, which includes the total value locked (TVL) of Bitcoin in the decentralized finance (DeFi) ecosystem, as well as the market size of Bitcoin-related financial products and services.

Over the past decade, the BTCFi market has shown significant growth potential, attracting more and more institutional participation from firms like Grayscale, BlackRock, and JPMorgan Chase. The involvement of institutional investors not only brings in substantial capital inflows, increasing market liquidity and stability, but also enhances market maturity and regulation, resulting in greater recognition and trust for the BTCFi market.

This article will delve into several popular areas in the current cryptocurrency financial market, including Bitcoin lending, stablecoins, staking services, re-staking services, and CeDeFi. Through a detailed introduction and analysis of these areas, we will understand their operational mechanisms, market development, major platforms and products, risk management measures, and future development trends.

BTCFi Track Segmentation

1. Stablecoin

Introduction

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

Classified by the degree of centralization, it can be divided into centralized stablecoins (such as USDT, USDC, FDUSD) and decentralized stablecoins (such as DAI, FRAX, USDe). Classified by the type of collateral, it can be divided into fiat/physical collateral, crypto asset collateral, and under-collateralized.

According to DefiLlama data, the total market capitalization of stablecoins is currently reported at $162.372 billion. USDT accounts for 69.23% of the total stablecoin market value, followed closely by USDC. DAI, USDe, and FDUSD rank 3rd to 5th in market capitalization.

Decentralized Stablecoin Mechanism

The CDP mechanism represented by DAI (over-collateralization) and the contract hedging mechanism represented by Ethena (equivalent collateralization) are two main decentralized stablecoin mechanisms.

CDP (Collateralized Debt Position) represents a mechanism for generating stablecoins through the collateralization of crypto assets. Users deposit crypto assets into a smart contract, create a CDP, and generate stablecoins. To prevent liquidation, users must maintain a sufficient collateralization ratio.

Project One, Bitsmiley Protocol

Bitsmiley Protocol is the first native stablecoin project in the BTC ecosystem. Users can mint the stablecoin bitUSD by over-collateralizing native BTC on the BTC network. The project has completed multiple rounds of financing, with participation from institutions such as OKX Ventures, ABCDE, and CMS Holdings.

The operating mechanism is similar to MakerDAO. After users over-collateralize, bitSmileyDAO issues a minting message for bitRC-20 to the BTC mainnet after receiving and verifying oracle information. Liquidation takes the form of a Dutch auction.

The project will launch Alphanet on BitLayer on May 1, 2024. The maximum loan-to-value ratio (LTV) is 50%. The project has partnered with the Merlin community to launch a liquidity incentive program, offering up to 3,150,000 $BIT tokens as rewards.

Project Two, Bamk.fi (NUSD)

Bamk.fi is the issuer of NUSD ( Nakamoto Dollar ), NUSD is a synthetic dollar on Bitcoin L1. The project design is divided into two phases: the first phase supports NUSD with USDe 1:1, and the second phase is supported by delta-neutral Bitcoin positions.

The project token BAMK is in rune form, with a total supply of 21 billion. Users can purchase NUSD and hold it to accumulate BAMK tokens.

Project Three, Yala Labs

Yala, through its self-built modular infrastructure, allows its stablecoin $YU to flow freely across various ecosystems, releasing BTC liquidity. The core products include the over-collateralized stablecoin $YU, the Metamint minting system, and insurance derivatives.

Yala collaborates with Babylon, allowing users to over-collateralize BTC on the platform and mint the stablecoin $YU, after which the collateral can be further staked on the Babylon platform to achieve multiple yields.

Project Four, Satoshi Protocol

Satoshi Protocol is 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 other BTC-based interest-generating assets with a minimum collateralization ratio of 110%.

The stability pool is the core mechanism of the Satoshi protocol, used to settle the debts of liquidated positions and ensure system stability. Users participating in the stability pool can purchase the liquidated BTC collateral at a discount.

Project Five, BTU

BTU is the first decentralized stablecoin project in the Bitcoin ecosystem, using the CDP model. Users can issue stablecoins based on BTC assets without needing to move their assets off-chain or give up control of their BTC. BTU introduces a mechanism to prove BTC holdings without transactions, providing users with additional flexibility.

2. Lending track

Introduction

Bitcoin lending (BTC Lending) is a financial service that allows individuals to obtain loans by using Bitcoin as collateral or to earn interest by lending Bitcoin. Borrowers deposit Bitcoin into a lending platform, which provides loans based on the value of the Bitcoin, with borrowers paying interest and lenders earning returns.

BTC Lending platforms typically employ the following risk management measures: controlling the collateral ratio and loan-to-value ratio (LTV), adding collateral and margin calls, forced liquidation mechanisms, risk management, and insurance.

In recent years, the demand for BTC Lending has surged, and the scale of lending has rapidly expanded. Major platforms continue to innovate, launching various financial products and services, such as flash loans, liquidity mining, and cryptocurrency reward credit cards, attracting more users.

Project 1, Liquidium

Liquidium is a P2P lending protocol running on Bitcoin that allows users to use native Ordinals and Runes assets as collateral to lend and borrow native Bitcoin. The platform completes Bitcoin lending in a secure and non-custodial manner through PSBT and DLC on Bitcoin L1.

The project has completed multiple rounds of financing, with participation from Bitcoin Frontier Fund, Side Door Ventures, and others. According to Geniidata data, as of September 3, 2024, the total transaction volume of the protocol has reached approximately 2400 BTC.

Project Two, Shell Finance

Shell Finance is 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. The project uses a Peer-to-Pool scheme to maximize utilization.

3. Staking track

Introduction

Staking is typically recognized for its characteristics of security and stable yields. After users stake their tokens, they gain access, privileges, or reward tokens over time, and they can withdraw their tokens at any time. Staking occurs at the network level to protect the network.

The concept of shared security brought by Staking currently provides a new dimension for the modular track, which utilizes the potential of "digital gold and silver". Narratively, it not only releases trillions of market value in liquidity but also serves as a key core for the future expansion path.

Project One, Babylon

Babylon is a layer 1 blockchain founded by Professor David Tse from Stanford University, aimed at bringing Bitcoin's security to all PoS blockchains. Babylon is a Bitcoin staking protocol, with its core component being a POS public chain compatible with Cosmos IBC, which can lock Bitcoin on the Bitcoin mainnet to provide security for other POS consumer chains.

Babylon leverages UTXO to implement staking contracts, referred to as Remote Staking. The specific steps include locking funds, condition verification, status updates, and profit distribution. Babylon's overall architecture is divided into three layers: Bitcoin (as a timestamp server), Babylon (a Cosmos Zone as the intermediate layer), and the PoS chain demand layer.

The project has completed multiple rounds of financing, with a total amount exceeding $96.8 Million. On August 1, 2024, Babylon began collaborating with several popular restake projects to initiate the pre-staking process.

4. Restaking track

Introduction

ReStaking is the use of liquid staking token assets to stake with validators on other networks and blockchains to earn additional rewards, while still contributing to the security and decentralization of the new network. Through ReStaking, investors can earn dual rewards from both the original network and the ReStaking network.

The ReStaking network also accepts other assets, such as LSD tokens, LP tokens, etc., which enhances the security of the network. ReStaking unlocks an infinite source of liquidity for the DeFi market, providing users with multiple earning opportunities.

Project One, Chakra

Chakra is an innovative modular settlement infrastructure that employs zero-knowledge proof technology to ensure trustless security and efficiency.