Written by: Biteye core contributor LouisWang
Editor: Crush, core contributor of Biteye
01 Background and Requirements
As the cornerstone of the cryptocurrency industry, Bitcoin has a market value of over one trillion US dollars, but its function is still limited to value storage, and its potential in financial applications is far from being fully developed. The main dilemma at present is that Bitcoin assets are confined to their native network and cannot effectively participate in the booming DeFi ecosystem on networks such as Ethereum.
This dilemma highlights two key challenges: first, how to enable BTC network holders to safely obtain income opportunities and realize the flow of BTC to the EVM network; second, how to enable investors accustomed to the EVM environment to enjoy income opportunities on the BTC network without directly contacting the BTC network, such as participating in the Babylon protocol that requires BTC native staking.
WBTC (Wrapped Bitcoin), as the main bridge for Bitcoin to enter the DeFi field, is an ERC20 token that is 1:1 mapped to Bitcoin and hosted by BitGo. Its market value is approximately US$8.7 billion, but it accounts for less than 1% of the total market value of Bitcoin, highlighting the large amount of unactivated liquidity potential in the Bitcoin network.
However, WBTC has been embroiled in controversy recently: BitGo’s transfer of control has caused market concerns: MakerDAO has cut WBTC’s collateral limit, and SparkLend has even suspended WBTC’s lending business.
This event has provided a catalyst for the growth of other new BTCFi assets. FBTC was incubated by Ignition, with Mantle and Antalpha Prime participating as core contributors. It maintains a 1:1 anchor with Bitcoin and allows bridging to any supported chain, achieving seamless docking with various DeFi protocols. The goal of FBTC is to introduce highly liquid and easily combinable BTC assets, expand the application scenarios of Bitcoin beyond value storage, and enable it to deeply participate in diversified income strategies.
In this way, FBTC not only opens up new income channels for BTC holders, but also provides a bridge for users of other chains to access the BTC ecosystem. It has the potential to become a key link between Bitcoin and the DeFi world.
02 How FBTC works
To understand the protocol design of FBTC, we can think from the first principles: FBTC essentially solves the problem of connecting the circulation of BTC and other blockchains, which is similar to the challenges faced by cross-chain bridges on the technical level.
The core issues can be summarized into three aspects: safe deposits on the source chain, reliable lending on the target chain, and ensuring effective communication between the two chains. To solve these basic problems, FBTC adopts the Mint&Burn model to build a safe and reliable system architecture.
The operation process of FBTC mainly includes three parts: minting, burning and cross-chain:
1. Casting process:
Eligible users deposit BTC assets into the Bitcoin network deposit address pre-specified by the system and send a casting request to the bridge contract on the target chain. The Bridge Monitor monitors these casting requests and deposit events in real time.
When the request is received, the monitor will request the signature permission to mint FBTC from the TSS (Threshold Signature Scheme) gateway. Multiple TSS nodes then generate a common signature through the MPC (Multi-Party Computation) algorithm.
Only when all conditions are met will the system mint a corresponding amount of FBTC on the target chain at a 1:1 ratio.
https://docs.fbtc.com/system-components/architecture
2. Combustion process:
When a user wants to withdraw the pledged BTC assets, they can choose to burn (destroy) FBTC. The overall process is similar to the minting process, but in the opposite direction. The system verifies the user's request, ensures that the FBTC is destroyed correctly, and then releases the corresponding amount of BTC back to the address specified by the user.
https://docs.fbtc.com/system-components/architecture
3. Cross-chain operations:
If a user wishes to transfer FBTC from one supported blockchain to another, a cross-chain request needs to be initiated on the source chain.
The bridge contract will first burn the FBTC on the source chain. Then, the minting process of FBTC on the new chain is similar to the previously described process: the bridge monitor captures the cross-chain request in real time and sends it to the TSS gateway. After multiple TSS nodes sign together, the system mints an equal amount of FBTC on the new chain, thus completing the cross-chain operation.
https://docs.fbtc.com/system-components/architecture
03 Core Components of FBTC Protocol
The FBTC protocol can be abstracted into three main components: the custodial address of the BTC chain, the smart contract on the target chain, and the off-chain service module. These three components together constitute the core architecture of FBTC, ensuring the security, efficiency, and reliability of the entire system.
The BTC chain custody address is the basis of the protocol. Users obtain a unique BTC recharge address. After depositing BTC, the minting process is triggered to generate an equal amount of FBTC. Multi-party computing (MPC) and multi-signature technology are used to manage deposit addresses to prevent a single entity from controlling assets and improve security. When withdrawing, users destroy FBTC through a unique withdrawal address and exchange it back to BTC. The whole process is verified by multiple signatures to ensure security.
The target chain smart contract serves as the core execution layer, including the FBTC bridge contract, the minting contract, and the token contract. Each contract has clear responsibilities to ensure efficient operation of the system. FBTC also has a security committee to respond to emergencies and enhance system stability.
The off-chain service module supports key functions. The bridge monitor verifies the legitimacy of the transaction, the TSS gateway coordinates the signing process, and the TSS node ensures decentralization and security through distributed signatures. Each node runs an independent risk control module as the last line of defense for system security, strictly verifying transaction requests.
Through this multi-level, multi-component design, the FBTC protocol achieves seamless connection between Bitcoin and the DeFi ecosystem while ensuring security. Each module plays an important role in ensuring the security and efficiency of FBTC asset operations, making FBTC an important bridge connecting the worlds of Bitcoin and DeFi.
04 Unique advantages of FBTC
As a Bitcoin derivative asset, FBTC has three key characteristics: full-chain liquidity, enhanced security, and an innovative revenue generation mechanism.
Full chain liquidity
FBTC realizes the true omnichain feature. Users can mint, burn or perform cross-chain operations of FBTC on any supported blockchain, allowing FBTC to circulate freely in each supported blockchain ecosystem.
Full-chain liquidity enables FBTC to deeply integrate the BTCFi protocols on each chain, maximize the composability of Bitcoin assets, and significantly expand the scope of Bitcoin holders to participate in DeFi. Currently, mainstream Restaking projects have integrated FBTC .
Enhanced security
FBTC uses a unified system architecture to handle the minting, burning and cross-chain processes, ensuring operational consistency and security while simplifying system complexity. The core components of its security architecture include multi-party computing (MPC) and multi-signature (Multi-Sig) technology, distributed TSS (threshold signature scheme) nodes, and strict risk control modules. This multi-level security design provides users with a reliable asset management platform, effectively ensuring asset security and operational transparency.
Locked FBTC（FBTC1）
As an innovative asset of FBTC, FBTC1 provides users with an additional way to manage their finances. Users can release native BTC to designated custodians by minting Locked FBTC, providing additional liquidity for CeFi/DeFi strategies while obtaining a variety of income strategy options.
https://docs.fbtc.com/ecosystem/locked-fbtc-token/locked-fbtc-protocols-information
In the operation process of FBTC1, FBTC0 (ordinary FBTC) holders transfer their assets to the partner vault, and the partners regularly deposit FBTC0 into the FBTC1 contract, triggering the minting of FBTC1 and the destruction of FBTC0. Subsequently, the corresponding BTC is transferred from the BTC0 address to the dedicated BTC1 income strategy address.
Current integrated partners include Avalon, Bedrock, Solv Protocol and PumpBTC.
05 Current Status and Adoption of FBTC
Since its launch, FBTC has shown remarkable growth momentum in just two months. At present, the total minting volume of FBTC has reached 2,664, distributed on the three main chains of ETH, Mantle and BSC, with a total TVL of more than 150 million US dollars, demonstrating the strong market demand and confidence in this innovative asset.
https://dune.com/mantlexyz/fbtc
In the DeFi ecosystem, composability is a core concept and a key link in the DeFi Lego. For bridge assets such as FBTC, the diversity of its application scenarios directly affects the intensity of demand. Therefore, the FBTC team pays special attention to expanding its scope of application.
At present, FBTC has integrated more than 20 projects on the three issued chains, covering almost all mainstream DeFi tracks. In addition, nearly ten projects are undergoing integration testing, which is expected to further expand the application ecosystem of FBTC.
https://fbtc.com/ecosystem
In the recent first round of staking on the Babylon protocol mainnet, 418 BTC out of the 1,000 BTC staking limit were staked in the form of FBTC through platforms such as PumpBTC, Solv, and Bedrock. Therefore, FBTC is a good exposure to the Babylon protocol for users.
The rapid adoption and widespread integration of FBTC reflects the market's urgent need for efficient and secure Bitcoin DeFi solutions. With the integration of more projects and the participation of users, FBTC is expected to form a network effect and play an increasingly important role in connecting the Bitcoin and DeFi ecosystems.
06 FBTC Potential Profits
FBTC’s extensive ecosystem integration provides users with a rich variety of income opportunities. You can refer to the chart compiled by Biteye to check out the FBTC ecosystem projects:
The main types of projects that FBTC can participate in and their potential benefits include:
1. Bitcoin re-staking project
This type of project is similar to the LST project on Ethereum, which can be staked into Babylon. Users can deposit FBTC into various BTC Liquid Staking projects to obtain multiple benefits:
Points after the project itself is boosted
2-4 times faster Sparks points (FBTC project points)
Babylon-based projects will also receive retroactive Babylon revenue
Projects that can be participated in include PumpBTC, Bedrock, Solv Protocol, Pell Network and Satlayer. These projects are the best opportunities for users to participate in the Babylon ecosystem early on.
2. Liquidity Pool
Users can deposit FBTC into various liquidity pools and receive the following benefits:
Transaction fee income
Extra Sparks and Powder Points
The main liquidity pools include:
Merchant: mETH/FBTC and WBTC/FBTC trading pairs
Agni Finance: mETH/FBTC trading pair
Uniswap: WBTC/FBTC trading pair
DODO: WBTC/FBTC trading pair
Celopatra: WBTC/FBTC trading pair
These liquidity pools not only provide users with passive income opportunities, but also help enhance FBTC’s market liquidity.
3. Multi-chain network
By locking FBTC in other liquidity networks, including Karak, Mezo, Fuel Network, and Zircuit, users can gain:
Project-specific point rewards
Sparks Points
4. Pledge loan
Users can deposit FBTC into various lending and staking protocols to obtain:
Project Points
Sparks Points
The main agreements include:
Lending protocols: Avalon, Lendle, Minterest
Staking Protocol: Astherus
FBTC’s revenue model demonstrates significant diversity and flexibility. By participating in these different types of projects, users can choose the most suitable way of income based on their risk preferences and investment strategies.
For a detailed interactive tutorial, please refer to the guide made by Biteye:
https://x.com/BiteyeCN/status/1833812446831899055
07 Summary and Outlook
FBTC has a clear positioning and aims to become a new generation of Bitcoin gateway assets. Its core advantages are reflected in three key aspects:
FBTC effectively ensures the security of the Bitcoin cross-chain process through a carefully designed security mechanism, providing users with a reliable asset management solution.
FBTC has achieved true multi-chain liquidity, effectively integrating BTC assets seamlessly into multiple blockchain ecosystems, greatly expanding the opportunities for value capture. It not only opens up new revenue channels for Bitcoin holders, but also provides users who are familiar with the EVM ecosystem but not very familiar with the BTC chain with the opportunity to participate in BTC native protocols such as Babylon. FBTC plays a crucial bridging role here, effectively connecting different blockchain ecosystems.
FBTC excels in expanding its application scenarios. With strong industry resources and cooperative networks, FBTC is able to continue to cooperate with high-quality projects and quickly enrich its application ecosystem. This wide range of application scenarios not only increases the practicality of FBTC, but also enhances its competitiveness in the market.
These advantages of FBTC have driven its rapid development. Just two months after its launch, its total TVL has exceeded the milestone of $150 million. This impressive data not only demonstrates FBTC's strong growth momentum, but also reflects the market's urgent need for this innovative Bitcoin derivative asset.
If the BTCFi track sees explosive growth as expected, FBTC is expected to become a key bridgehead in the BTC ecosystem. Through continuously optimized incentive mechanisms, FBTC has the potential to form a virtuous growth flywheel, further activate dormant BTC capital, and release the huge liquidity potential contained in the Bitcoin network.
