Written by: JiaYi
I have mentioned multiple times before that Bitcoin, with a market size of over a trillion dollars, is actually the largest and highest quality 'funding pool' in the crypto world.
Last month, Avalon Labs, the largest on-chain lending protocol in the Bitcoin ecosystem, just completed a $10 million Series A financing led by Framework Ventures. My venture capital firm, GeekCartel, also participated, hoping to work with Avalon and more innovative projects in the Bitcoin ecosystem to transform BTC from a digital value storage into a more active financial tool.
In fact, for the Bitcoin ecosystem, starting from Babylon and Solv, BTC, as a liquidity and niche asset, is visibly further derived into richer on-chain structured yield scenarios, gradually giving rise to unique and self-contained BTCFi ecosystems.
From a sustainability perspective, if we can activate the dormant BTC and build an efficient and secure liquidity network, it can completely open up the global imagination space for BTC, a trillion-dollar asset, as a DeFi niche asset.
Liberating Bitcoin liquidity through industry practices
According to DeFiLlama data, as of January 9, 2025, the total locked value on the Ethereum chain exceeded $64 billion, which is a significant increase of nearly 180% compared to January 2023 ($23 billion). However, during the same period, the Bitcoin ecosystem, which began to rise with the Ordinal wave, despite BTC's market cap and price increase being far superior to ETH, has always lagged behind the expansion speed of the Ethereum on-chain ecosystem.
It is important to note that even a 10% release of BTC liquidity would create a market of up to $180 billion. If it reaches a TVL ratio similar to ETH (on-chain TVL/total market value, currently about 16%), it would further release about $300 billion in liquidity.
This is sufficient to drive explosive growth in the BTCFi ecosystem, and it even has the potential to surpass the broader EVM network, becoming the largest super-chain financial ecosystem.
From this perspective, Avalon's Bitcoin liquidity platform, which 'allows anyone to benefit from BTC lending,' has the greatest imaginative potential — as of now, it has become the largest lending protocol in the entire BTC ecosystem, second only to DAI and liUSD.
This has also created the record for the fastest growth of TVL in DeFi lending protocols in history. According to official data, Avalon Labs' TVL has surpassed $2 billion, and the Bitcoin stablecoin USDa it launched exceeded $500 million in locked value just one week after its launch.
For current BTC holders, making full use of the Bitcoin assets they have accumulated is definitely a necessity, but at the same time, they do not want their BTC to bear too much principal loss risk. It is preferable to convert fixed assets into more liquid and easily operable forms.
Therefore, on-chain lending protocols based on Bitcoin are bound to welcome an opportunity window, which is also Avalon’s opportunity — the project has a fixed borrowing interest rate of 8%, with professional institutions managing the collateralized Bitcoin, while the borrowed stablecoins are supplied in unlimited quantities, providing BTC holders with ample liquidity to participate in other projects within the ecosystem.
The logic of this gameplay has also been validated by the market. It is worth mentioning that Avalon’s official strategic focus, unlike other TVL projects, is on the healthy construction of retail investors within the entire ecosystem, not just a game for large holders. Anyone can participate and leverage as much as possible within a safe range to maximize returns.
What is the value of Bitcoin stablecoins?
From the perspective of stablecoins, on-chain decentralized stablecoins are still dominated by debt-collateralized positions (CDP) stablecoins — MakerDAO's DAI is the largest, followed closely by liUSD, USDJ, and others.
Essentially, a CDP does not look like a loan — the borrower mints a CDP, and the protocol oracle calculates the dollar value at a 1:1 price. The CDP can be sold on the open market, allowing the borrower to 'borrow' another asset while the lender receives the CDP.
In simple terms, this is an extension built on lending scenarios for stablecoin usage, equivalent to creating an additional liquidity trading pool for those dormant assets. Taking Avalon as an example, its ecosystem currently has four core business segments: yield-generating stablecoin USDa based on Bitcoin collateral; lending protocol based on USDa; a hybrid lending platform connecting DeFi and CeFi; and a decentralized lending protocol supporting BTC staking.
This is also the reason why stablecoin protocols and lending protocols easily penetrate each other — for example, Aave and MakerDAO, which are based on lending, with one launching the native stablecoin GHO and the other accelerating the construction of its own lending scenario coverage.
Therefore, on the same foundation, Avalon’s liquidity market can form the 'lending' relationship of the underlying assets while constructing a stablecoin USDa market through liquidity design, providing users with fixed-income products.
In short, Avalon has truly made it possible for anyone to benefit from BTC lending, turning Bitcoin from idle assets into more liquid ones. This not only helps the Bitcoin ecosystem solve the long-standing stablecoin issue but also, by leveraging LayerZero technology, achieves cross-chain compatibility, allowing users to operate USDa seamlessly across multiple DeFi ecosystems without a third-party cross-chain bridge. This effectively brings the liquidity of the Bitcoin ecosystem to other chains.
It is important to note that most BTC is in idle status. Due to having sufficient safety margins compared to other altcoins, many OGs or Maxis have no motivation or willingness to risk transferring it to ecosystems like Ethereum, leading to most BTC remaining dormant for a long time, and the scale of BTCFi has been stagnant.
In this context, USDa is a relatively important part. On one hand, USDa serves to fill the gap in the DeFi infrastructure (lending protocols) missing from the Bitcoin ecosystem. On the other hand, Avalon’s USDa leverages the advantages of CeDeFi lending platforms, allowing users to use USDa to obtain USDT from CeFi liquidity providers, solving the pegging issue.
It has also provided the Bitcoin network with a foundational framework that allows for the efficient utilization of assets and the activation of dormant BTC, enabling more BTC holders to safely participate in on-chain liquidity activities and confidently place large amounts of dormant BTC into DeFi liquidity pools for exchange or yield earnings.
Conclusion
It is foreseeable that as Bitcoin assets gradually awaken, BTCFi is very likely to become a new DeFi asset direction with a scale reaching hundreds of billions of dollars, becoming a key lever for building a prosperous on-chain ecosystem.
As an investor in Avalon, I have achieved absolute leadership in the BTCFi lending track within a few months, and I am firmly convinced that Avalon and BTCFi will perform better in the future — building diverse financial product forms and DeFi scenarios centered around BTC, redefining the role of BTC in the entire DeFi field.
As for whether BTC can reach a critical turning point in its deep integration into the DeFi field, it is worth looking forward to.
