As the price of BTC continues to reach new highs and the Bitcoin ecosystem technology continues to improve, BTCFi will usher in a wave of explosion in the next six months.
Moderator: Joe Zhou, Deputy Chief Editor, Foresight News
Guests: Chanel, Core DAO core contributor, Alvin Hung, founder of Crypto Wersearch, Alice Du, product director of Cactus, Jademont, founder of WaterDrip Capital, Ningning, independent researcher, Catherine, head of ecological cooperation of Solv Protocol
Host: Please ask the six guests to introduce themselves.
Chanel: I am Chanel, and I am mainly responsible for the ecological growth of the Core Chinese region and the Asia-Pacific region. The Core mainnet has been upgraded recently, and I am very happy to be here to share some views on BTCFi with you.
Alvin Hung: I am Alvin Hung from Daily Coin Research. Daily Coin Research has its own website, providing project analysis in various tracks. We have also opened a TG community.
Alice Du: I’m Alice from Cactus. As a compliant custody service provider focusing on institutional users, Cactus has taken the lead in supporting dual staking of Core in its wallet, bringing a safe and convenient BTC staking experience to the majority of users at the first opportunity.
Jademont: Hello everyone, I am the founding partner of Waterdrop Capital, my name is Dashan. The BTC ecosystem has made a lot of progress recently, and I hope to share it with you later.
Catherine: I am a partner of Solv Protocol, mainly responsible for the ecological growth of Solv. Solv is a multi-chain Bitcoin staking platform. It has established cooperation with more than a dozen blockchain networks and built Bitcoin liquidity pools, including Babylon's re-staking pool. It also has some product cooperation with Core.
Host: What new views do you have on the BTCFi market?
Chanel: At present, current BTC holders hope to have more on-chain profit opportunities, and many Bitcoin projects have also developed under this premise. The non-custodial Bitcoin pledge launched by Core in April this year has achieved very good results. Our goal is to enable all participants to participate in Bitcoin staking and gain profits with the lowest risk. In the process of communicating with many institutions, partners and communities, we found that everyone still has expectations for more profit opportunities in the entire Bitcoin market. We have upgraded two products. The first is non-custodial Bitcoin re-staking. After Bitcoin is pledged, it can be further re-staked back to Core, which increases its own profit opportunities and the overall annualized rate of return. The second is that we will soon launch LSTBTC, which allows users to stake Bitcoin and then re-stake Bitcoin to other protocol layers to obtain more profit opportunities.
Alvin Hung: Although most of the market's attention is on memes during this cycle, we have actually been studying the Bitcoin ecosystem since the beginning of the year. At that time, Merlin brought the first wave of Bitcoin ecosystem enthusiasm, and new assets such as inscriptions, runes, and NFTs also appeared. Later, Babylon also set off a trend of BTC re-staking, and we also published some more summary articles on Babylon. Among the top 30 blockchains in TVL, 7 are BTC-related ecosystems. Although BTC is not the hottest ecosystem in the market now, it has weight in the market. Whether it is a large Bitcoin user or an institution, they have always been participating in the market.
If you don't hold Bitcoin this year, it will be relatively sad. Bitcoin is obviously the best performing mainstream asset in this market. Whether it is a national government or a large company, they all have strategies to increase their holdings of Bitcoin. I think it is also somewhat affected by MicroStrategy. When the price of Bitcoin slowly breaks through new highs, the attention of BTCFi will rise again. Sui and Aptos may be the public chains that have performed relatively well in the past few months. Their on-chain DeFi has made good progress. Sui is more about lending or derivatives, and Aptos has also begun to have some BTCFi projects. The users and funds of these two Move ecosystems will also transition to the upcoming Movement. For retail investors, BTCFi will not be the first choice, because now everyone likes to rush to some protocols that can get returns in a short time. But for medium- and long-term investors, or Bitcoin holders themselves, there are still some on-chain profit opportunities, and the original players in the EVM ecosystem have also begun to integrate various BTCFi protocols.
Jademont: We have recently been discussing BTCFi with some Western institutions. First of all, there is a certain difference between the BTCF track and DeFi on Ethereum, because the level of participating customers is different, or the groups are different. Bitcoin has risen about three times in the past year, but MicroStrategy's stock has risen 14 times. MicroStrategy first mentioned a few months ago that it wanted to do BTCFi from a company that purely hoarded Bitcoin, which was to combine the Bitcoin it hoarded with DeFi. If more and more players of this level come in, BTCFi will definitely be completely different from the public chain ecosystem or Ethereum protocol we have experienced in the past. Including Galaxy, which has expanded its business to Hong Kong, they also attach great importance to the BTCFi sector. They manage a lot of BTC assets and also want to use them to provide some value-added services in the BTC ecosystem.
The second point I want to briefly talk about is the necessity of BTCFi development. Have you ever thought about where the biggest crisis in the currency circle is after Bitcoin goes up? Or where is the biggest risk of Bitcoin? In fact, this risk is getting bigger and bigger now, but I see that basically no one is discussing it on Chinese Twitter. In fact, the Bitcoin network is becoming less and less secure. Now the Bitcoin network is guaranteed to be secure by mining machines. We know that the Bitcoin network actually has a hidden danger of 51% computing power attack, that is, if you have 51% of the computing power, you can attack a specific transaction. Of course, please note that mastering 51% of the computing power does not mean that you can put all 21 million Bitcoins in your pocket. It is roughly estimated that there are now mining machines worth more than 15 billion US dollars to ensure the security of the entire network. When the market value of Bitcoin was relatively low before, such as less than 1 trillion US dollars, a single transfer generally could not exceed 10 billion US dollars. Suppose when Bitcoin is at 30,000, it is only worth 6 or 7 billion US dollars, but you need at least 10 billion US dollars of mining machines to attack the network. That is to say, you use 10 billion to attack a potential profit of only 6 or 7 billion US dollars, you will definitely feel that it is not cost-effective, so Bitcoin is relatively safe. But now Bitcoin has tripled to more than 90,000, and may even rise to 100,000, 200,000, or 300,000 in the future, while the value of mining machines has not increased. It may still be 10 billion. The possibility of me using 10 billion to attack a target with a potential profit of 18 billion or 20 billion will increase, and the Bitcoin network will become less secure at this time. How to make the Bitcoin network safe? Simply put, it is to increase the income of miners, increase the income on the chain, and increase the activities on the chain. In this way, everyone will have the motivation to deploy more mining machines, the cost of mining machines will increase, and the risk of being attacked will be reduced.
Many people say that BTC L2 and BTCFi are repeating the path of Ethereum. In fact, in the Bitcoin circle, people do not pay much attention to the protocol of the Ethereum ecosystem. People develop the BTC ecosystem entirely for the protection of the Bitcoin network. Therefore, BTCFi is not something that people want to do, but something that they have to do. In addition, there are more and more big players now, and the requirements for network security are getting higher and higher, so the future of BTCFi will definitely be very bright.
Ningning: I am Ningning, and I am now an independent researcher. I used to do some investment research and coin listing work at TRON. I am also participating in the staking of a BTC L2 project with Western capital background. What impressed me is that a US-listed mining company is supporting them behind the scenes. Maybe this mining company also believes that Bitcoin needs some applications and generates some fee income to maintain the status quo of the network. It has been more than half a year since the Bitcoin halving, and the next round of production cuts is about to start. If the value of Bitcoin cannot continue to increase costs like it is now, and the cost of miners' computing power is still rising exponentially, there will be a problem. If the scale of computing power is growing with the value of the network, and the scale of computing power cannot continue to maintain the growing income, and the growth rate of computing power declines, the market will actually become very panic. Before this problem arises, there will be a time window of 4 to 8 years.
However, we cannot deny that the entire market is completely siphoned by the meme and the rise of Bitcoin. Not only the Bitcoin and Ethereum ecosystems, but even the prediction market that was popular some time ago is showing signs of sluggishness.
Of course, some people think that Bitcoin's second layer is not established. It cannot be denied that the market has indeed encountered a relatively low period and bottleneck period. I think this is a longer-term thing. It's just that in the current market environment, people may not pay much attention to it. However, I see that many partners or developers are still working hard on the development of Bitcoin's second layer. For example, Babylon's data growth is still very obvious. It may be because it limits the entire scale. Coupled with the current market situation, the market influence is not as large as everyone expected.
The most typical thing in our industry is the cycle, and the other is rotation. When the cycle rotates, the infrastructure construction in this area may be more complete than it is now, and there will be a relatively strong explosive growth at that time.
Host: What is the evolution of LST (liquidity staking token) on Ethereum, and what similarities and differences will it show in the BTCFi track?
Chanel: I still have liquidity after staking, and then I can stake again to get extra income, which is also the charm of decentralized finance. Core's next development focus is to launch a LSTBTC product that will allow more people to retain on-chain liquidity.
Alvin: Before the emergence of re-staking in the Ethereum ecosystem, the EigenLayer ecosystem had a volume of 15 billion US dollars. At that time, there was only the liquid staking part. They were also one of the earliest protocols for liquid staking, and the innovation of LST is still very interesting. For example, some DeFis in this cycle use LST products to do mortgage lending and contracts on the chain. In the future, BTCFi may also have such applications, thereby increasing the usage and liquidity of pledged or re-pledged assets. This is also something that the BTCFi protocol needs to think about. In the future, DeFi and AI Agent may have a lot of room for integration, and all ecosystems will have the opportunity to participate in it. This is also what I am looking forward to.
Jademont: We see an opportunity in the Bitcoin ecosystem. Currently, there are various BTC assets participating in staking or re-staking agreements. This is actually a trend that did not exist in the last bull market or two years ago. Before, there may have been only WBTC, but now we have a simple count and there are at least five or six, such as TBTC, FBTC and solvBTC, including BTC on the Lightning Network that people don’t pay much attention to. Bitcoin is close to $100,000, but in fact the entire EVM is very weak because there is not enough new capital coming in, and there are too many options for new capital. Retail investors actually have very little capital. Everyone PvPs a project to the point of hundreds of millions of dollars, and it is difficult to go up. So overall, the altcoin market is now more than 1 trillion. If a market wants to rise as a whole, it cannot be pushed forward without hundreds of billions or trillions of funds. It is impossible to rely on retail investors.
Now, traditional institutional funds have too many choices. They can directly buy large amounts of ETFs, buy spot Bitcoin, and buy stocks of various Crypto-related companies. Many US crypto concept stocks actually far outperform most mainstream altcoins. But now the altcoin market has another opportunity, such as packaging the native BTC on the chain into EVM-compatible BTC, and then using the EVM-compatible packaged BTC to participate in the DeFi protocol's pledged lending or forming LPs, or even selling it to buy altcoins. This is actually a very important channel for depositing funds, which means that many people may not be able to buy altcoins directly, but they can buy Bitcoin first, and then use Bitcoin to buy altcoins. So if this packaged BTC market can increase to a level of, for example, hundreds of thousands of BTC, it will be a significant increase in the altcoin market, allowing funds to enter the altcoin market.
Moderator: What are your thoughts on the future development of the Core chain after the release of SolvBTC.CORE?
Catherine: For Solv, we are the recipient of wrapped Bitcoin assets, which means we may consider receiving some assets other than wrapped BTC. The current competitive landscape is still quite interesting, because cBTC was issued a month after some negative information came out, and now it is adopting a multi-chain deployment strategy. Then there are some decentralized wrapped BTC such as TBTC, and they have also won some environment, because WBTC was the absolute leader before. We are also beginning to see other exchanges have the same idea, that is, to issue their own wrapped BTC.
However, the problem we face as issuers of packaged Bitcoin is exactly the same as that faced by these centralized exchanges, that is, there is no real profit model. It is a public product on the chain and cannot be profitable.
So when we were communicating with cBTC, we hoped that they could give us some support, but they actually didn’t have the internal resources to give us, because they did this for free, and it didn’t generate any income. It was just a packaged Bitcoin asset, but the lending rate was only 1%, so it was not worth it. So these packaged assets are very dependent on some protocols that are particularly good at playing DeFi. For example, if you are accepted by Solv as our underlying asset, you will go from an asset with one or two application scenarios to an asset with 20 application scenarios, and then you will have income. In addition to solvBTC, we now have 4 LSTs for users to choose from. And LST itself is an asset with high composability.
Jademont: Wrapped BTC may not be unprofitable, but it may not be very profitable now, but once the scale of funds increases, it will definitely be profitable. I will share a new trend. There is a project called Ethena. You should know that it is actually a combination of CeFi and DeFi. Now more and more BTCFi are also learning how to play Ethena. Wrapped BTC can be used for financial management while ensuring the safety of the principal through custody. This is actually profitable. This is nothing more than a platform thinking. In short, you get the wrapped BTC, and then you can do financial management or various value-added services. For example, if the income is 10 points, you give 8 points to users and keep 2 points as profit.
Host: After the Fusion upgrade, Core’s Bitcoin staking was added with CORE staking. Cactus is a Core institutional partner. What prospects do you see for dual staking?
Alice Du: Fusion is also one of our most important highlights today, because it brings new application scenarios. First of all, we definitely connected with the service provider of the dual-staking institutional custody as soon as possible. We think that Core's dual-staking is a very good innovation and attempt. Core itself comes with a BTC non-custodial pledge agreement, which actually utilizes the Bitcoin original chain time lock mechanism. Users can enjoy the benefits without worrying about the security of Bitcoin assets. And you can also get more income rewards through additional staking.
BTC double pledge can attract more project parties to enter the Core ecosystem. And with the progress of Core's native pledge, the price of Core will be very stable. Under the promotion of a virtuous cycle, every role in the ecosystem can gain endless benefits in the long run. When institutional users want to participate in staking to obtain high returns, they must use a very safe tool and channel. As a professional custody platform, Cactus has achieved the highest standards in the industry in terms of the custody of private keys, as well as in the process of using private keys, helping everyone to do some security confirmation and prevent blind signatures, etc., helping everyone to enjoy the benefits while avoiding asset losses.
Moderator: For BTC holders, safety is often the first priority. What risks should investors pay attention to when participating in the BTCFi project?
Ningning: Because Bitcoin itself cannot deploy smart contracts and is not changeable, we need a mechanism to transfer Bitcoin from the original chain to L2 or other chains, which is a very complex problem. We may have many solutions, such as centralized custodial wallets and enterprise-level multi-signature wallets, MPC solutions, various cross-chain bridge solutions, and bridgeless cross-chain solutions. Although the absolute leader WBTC encountered a wave of trust crisis, it also explained it clearly to the community and is currently adopted by Aave. From the perspective of the entire industry, many people actually don’t like to see a monopoly. Everyone still hopes to have a more decentralized packaged BTC asset that is fully guaranteed by the chain.
If they rely on centralized institutions, institutions or whales may want a more native custody solution. There are some solutions under development, such as the BTVM cross-chain custody solution proposed by Babylon, EOTS and Bitlayer, but these all require time to make the technology more mature and also require time for popularization.
Chanel: With the development of technology, everyone has done a very careful audit, unlike the frequent vulnerabilities one or two years ago. But it cannot be denied that when Bitcoin big players want to gain profits through cross-chain, not everyone can accept or bear the risk of cross-chain bridges. Even if players on the chain are already quite familiar with these processes, we cannot say that it is zero risk. Here I will spend more time to introduce Core's non-custodial staking.
In short, non-custodial means that assets will not leave the pledger's wallet. The time lock method allows users to decide how long they want to lock their BTC. Then they contribute BTC to the verification node of the Core chain, and we will provide some token rewards, so that we create a possible profit. Our non-custodial staking solution has also been widely recognized by institutional partners. In addition, in terms of auditing, how to open source the code is a part that developers and users pay special attention to when participating.
Alvin: On-chain applications themselves have certain risks. When we decide to withdraw Bitcoin from the exchange and perform more operations on the chain, these operations themselves will bring some additional risks. When using DeFi or various on-chain protocols, you should pay special attention to some phishing websites and common hacker attacks. It is very common for users to click on fake websites and have their wallet assets stolen.
Jademont: For the BTC network, BTCFi has no risks, only benefits, but for users, BTCFi is indeed risky. The current BTCFi can be divided into two categories, one is on the BTC network, and the other is hosted by a third party that everyone trusts. If it is on the Bitcoin network, there are two projects I know of. One project is Babylon, which was created by a Stanford professor. It has not yet been launched, but it claims to be able to lock it on the BTC chain in a decentralized way. Another competitor is DRClink, which locks BTC on the Bitcoin network in a way similar to smart contracts. The risk of these two projects lies in the risk of the contract itself, but it seems that there should be no problem now, because it has been more than three years since 2021, and these contracts have withstood the test of time.
Another way is through custody. I think the custody method can be divided into two categories. One is custody by a relatively large centralized organization. Although it is centralized, centralization does not necessarily mean that it is unsafe, because when the reputation of the organization is good enough, or the cost of doing evil is high enough, we can also consider it safe. When the scale is relatively small, it is completely no problem to ask them to custody. But if the scale is large enough, this method may not be as good as the multi-signature method. Multi-signature is a very good solution, but it depends on how you design it. If all three multi-signatures are controlled by one person, it is definitely not safe. But now there are actually many decentralized multi-signature solutions. For example, a project proposed a multi-signature protocol using a dynamic committee, and this multi-signature may be controlled by dozens of private keys. I think this method is actually decentralized enough, which means it can be considered safe.
Host: What will be the next development of BTCFi?
Ningning: There are two main trends in BTCFi. One is to provide economic security for BTC L2, oracles, and cross-chain bridges through re-staking to obtain native staking rewards. Eigenlayer has been verified in the market, so it will be repeated in the Bitcoin ecosystem. The other is that Bitcoin earns interest through lending. One of the biggest differences between Bitcoin and Ethereum is that Bitcoin itself has no interest-earning ability. Ethereum can obtain an annualized return of about 3% through native staking, which Bitcoin lacks.
Chanel: We launched dual staking in the hope that they can stake their rewards on our verification nodes under the premise of non-custodial Bitcoin staking to maintain the positive development of the entire economic network. In addition to issuing LSTBTC, we hope to attract more ABS to Core, and to be able to do more applications on the chain by encapsulating Bitcoin assets. Core is not only targeting retail investors, but also institutional miners, trying to align the entire Bitcoin community. The entire community is relatively complex and diverse, and the value of Bitcoin is reflected in its bridge between traditional finance and digital finance, while our layout is more about treating Bitcoin, traditional finance and digital finance as a whole.
Alice Du: Cactus is very optimistic about the prospects of BTCFi. In the past few years, we have also observed that BTCFi first appeared on centralized financial management platforms, and then many packaged BTC began to enter the DeFi protocol. This trend has become more obvious this year. BTCFi has entered an explosive growth, and first of all, a lot of financial behaviors based on the underlying Bitcoin protocol have emerged. We also believe that as the technology matures, Bitcoin can enter more scenarios in a more native way and build a more robust blockchain financial system as a basic asset.
The development of BTCFi is inseparable from large users, institutions, mining pools and computing power platforms, which are also the main customer groups of Cactus. Their demand is also very strong, especially for miners. With the halving of Bitcoin, they also hope to have some interest-bearing or profit-making methods without sacrificing control over Bitcoin. Therefore, Cactus is also actively deploying this year, cooperating with communities such as Core and Babylon, and supporting Core's double staking as soon as possible. Miners or large users are most worried about security. By staking through our plug-in wallet, they can perform staking operations through the block browser. We will also be equipped with address verification, whitelist verification, audit mechanism, hardware signature and other measures to avoid blind signatures or asset loss.
Alvin: The most difficult part of a project is not just to do it well, but more importantly, how to get the attention of the market. A large part of the BTCFi ecosystem is composed of institutions. What they want is to get more returns, and retail investors pay attention to different things. During the first wave of BTC outbreak at the beginning of the year, many new asset issuance methods appeared, such as inscriptions, runes, and even BTC NFTs, etc. I think these are more fun in the cycle, and there is no simple way to earn income through wallet operations on the chain.
There will be new assets in the BTCFi track, and it will not be just about depositing assets and earning income. In the future, BTCFi may also be combined with AI to produce various innovative applications and generate more application scenarios.
Jademont: I think BTCFi is getting closer to an explosion, mainly for the following reasons. First, you can see that this round of bull market is mainly driven by BTC and meme. Meme is a PvP market, and the amount of funds is not large. Although everyone gets rich overnight, each target cannot rise after reaching a few hundred million US dollars. In fact, this is a typical manifestation of lack of liquidity. BTC has sufficient liquidity. When everyone thinks that the price of Bitcoin is relatively high, the shortest path to holding Bitcoin to speculate on other things is BTCFi.
We have discussed this issue with some foreign institutions before. This round of Bitcoin legalization or regulatory dividends has allowed many previously illegal Bitcoins to be circulated normally using wallets. After they download the BTC wallet, there may be some ecological things in the wallet, and there may also be lightning networks for payment, etc., which means that the BTC ecosystem is more likely to take on this wave of traffic brought by BTCFi. Another reason is that from a technical point of view, several representative projects in the BTC ecosystem are also relatively mature. For example, the lightning network Taproot launched the mainnet in July, but there are still some minor problems to be fixed. According to our understanding, basically all of them have been fixed now. Including RGB off-chain calculation and client-side verification of smart contracts are also very complete. I estimate that within the next quarter or no later than half a year, I think BTCFi's leading projects will be launched, and Babylon and others are actually close to being launched. Including the BTC L2 made by the ICP project party that I saw two days ago, these projects have all received huge financing, basically starting with tens of millions of dollars. The project party has so much money in hand, and the token is about to be launched, I believe it will form a synergy. So I am looking forward to the development of BTCFi in the next quarter.
