Today at the event hosted by @Solana_zh, I discussed the concept of #BTCFi with many friends. Essentially, it provides liquidity for #BTC, $MSTR, and $IBIT. In reality, this liquidity is not what many friends think of as USDT (USDC) or USD-based liquidity, but rather the liquidity of #Bitcoin itself.
BTC is BTC, but BTC does not equal MSTR and IBIT. While MSTR allows US stock investors to indirectly hold BTC through holding BTC, it does not mean they directly obtain BTC. IBIT, although it tracks the price of BTC like an ETF, fundamentally cannot be settled as BTC.
Therefore, providing liquidity for these three is essentially helping Bitcoin investors seamlessly switch between Bitcoin, US stocks, and ETFs. For example, if Steven @Trader_S18 has 1 million USD worth of BTC and no other assets, he needs to sell BTC to change his living standards based on BTC profits, even if selling just one counts as a sale, or he can pledge BTC on a lending platform. There will always be certain risks whether in Web2 or Web3.
Through my BTCFi, he does not need to lose the BTC position. As long as he exchanges BTC for an equivalent amount of MSTR or IBIT in my liquidity pool, he can obtain compliant collateral assets in the bank, where MSTR can be directly collateralized in US banks to obtain 60% of the funds for improving life or investment. The bank does not pledge coins but rather stocks, and the bank must compensate for any issues. Therefore, Steven can convert 1 million USD worth of BTC into 1 million USD worth of MSTR while borrowing 600,000 USD through the bank's lending.
This 600,000 USD can be deposited into any compliant brokerage or bank, so his assets transition from Token to US stocks. More importantly, the collateral borrowing of BTC executes liquidation automatically when the price of BTC reaches the liquidation line, leaving almost no room for reversal.
However, if MSTR is pledged in the bank, for example, if BTC drops 40% over the weekend and reaches the liquidation line, the bank will wait until the working day to liquidate the MSTR in your position. For Steven, this equals an extra day to find more funds to cover the position. This is the first option: living with compliant USD.
The second option allows holding BTC or MSTR to obtain a collateral rate of 70% or even 80% in the BTCFi lending protocol, and there is no interest charged. The liquidation line will be 3% to 5% higher, allowing for more funds, which will be directly transferred from the fund account to Steven. However, Steven's liquidation line will be higher.
The biggest advantage of this approach is to capitalize on the price difference between BTC and MSTR during BTC's upward cycles. Currently, MSTR has a premium of about 240%. When BTC rises, MSTR often rises even more. So when Steven starts exchanging 1 million BTC for 1 million MSTR, it might increase to 1.3 million MSTR within a month, while BTC might rise from 1 million to 1.1 million. At this point, when Steven exchanges back to his original BTC share, he can also gain an additional 200,000 USD worth of BTC.
The introduction of IBIT is to stabilize users so that they do not lose their BTC positions while applying funds. For example, when Steven swapped 10 BTC for 1 million USD worth of IBIT when BTC was at 100,000 USD, regardless of the price fluctuations of BTC, IBIT will follow suit. The price of IBIT will always have a very small difference from BTC. Therefore, whether BTC rises or falls, when Steven no longer needs IBIT, he can directly exchange it back for BTC, maintaining almost the same original position in BTC, and IBIT can also be used for collateral borrowing in some private banks in Singapore.
Similarly, friends who hold MSTR and IBIT can exchange MSTR and IBIT for BTC to avoid certain tax issues and achieve limited tax avoidance.
I will discuss compliance and business logic next time. This time is about the basic operational methods.
This post is sponsored by @ApeXProtocolCN | Dex With ApeX
