1. Bitcoin DeFi Ecosystem: From WBTC to BTC Restaking
1.1 WBTC creates BTC DeFi ecosystem
Bitcoin is like a sleeping dragon. Once it wakes up, it will shock the world.
As the earliest blockchain project with the highest consensus, Bitcoin has an undisputed position in value storage and exchange, but due to its lack of Turing completeness, it has long been difficult to participate in the prosperous DeFi ecosystem. Compared with Ethereum's prosperous ecosystem, the total market value of Bitcoin's ecosystem is less than 1% of its Bitcoin market value.
Before this round of mainnet ecological explosion driven by asset issuance protocol upgrades, the BTC ecosystem mainly relied on external consensus and participated in the DeFi ecosystem of each chain through anchor coins. Anchor coins map BTC to other blockchains and are rigidly redeemed 1:1 with the mainnet. This mechanism releases the financial value of BTC, enabling it to participate in DeFi scenarios such as mortgage lending and liquidity mining, and also supports the ecological use cases of each chain. For BTC long-termists, using BTC anchor coins is the best solution to earn the DeFi ecological benefits of each chain while holding Bitcoin.
The mapping mechanism of BTC anchor coins can be divided into two categories: centralized and decentralized:
The centralized anchoring mechanism relies on a trusted third-party custodian to manage the mainnet BTC assets and mint anchor coins. This model is based on off-chain social consensus and has trust and security risks.
The decentralized anchoring mechanism uses MPC and BFT algorithms to host BTC in a multi-signature address, reducing the risk of single point failure and achieving permissionless minting, but the minting and redemption are more complex.
WBTC is currently the most widely used BTC-pegged coin, jointly launched by BitGo and other institutions in 2018. After being listed as a collateral asset by MakerDAO, WBTC quickly dominated the market, with supply surging 10 times in three months. During the DeFi Summer of 2020, Ethereum's demand for WBTC peaked, with supply reaching 281,000, but now it has stabilized at 154,000, mainly used for lending (accounting for 40%) and other DeFi use cases.
WBTC started to grow rapidly in 2022 and stabilized after the end of 22.
Although many alternative projects have emerged, such as decentralized anchoring projects represented by RenBTC and tBTC, and chain-specific BTC represented by BTCB, WBTC has always dominated the market with its first-mover advantage, network effect, and user trust, with a market share of 94.6% on the Ethereum mainnet.
This to some extent reflects that users have a higher demand for liquidity aggregation than security. WBTC's ability to seamlessly connect various DeFi protocols is unmatched by other emerging players.
The extremely high market share cannot cover up the centralization risk of WBTC itself. In August 2024, BitGo and BiTGlobal established a joint venture, with Justin Sun becoming the actual controller. This triggered market concerns about the centralization risk of WBTC, leading to a large number of redemptions by institutions such as Crypto.com.
After BitGo’s official announcement, nearly 1,380 BTC were redeemed through various channels, and no WBTC was minted.
In addition, WBTC’s handling fees and non-yield attributes also limit its appeal. Every time BTC is entrusted to a custodian to mint WBTC, or a merchant destroys WBTC to redeem BTC, a 0.2% handling fee is paid. If users cannot obtain stable and high returns after minting WBTC, and also bear the risk of centralized trust, users will have no motivation to bridge more mainnet BTC to on-chain financial scenarios.
Although WBTC has been developed for nearly six years, its market value accounts for only 1% of the total market value of BTC, and its growth has stagnated.
How to introduce safe and stable returns to BTC has become a key issue in the development of the BTC DeFi ecosystem.
1.2 Babylon fired the first shot of BTC native interest generation
Compared with the stagnation of the total market value of the Bitcoin ecosystem, Ethereum completed the Merge upgrade at the end of 2022 and successfully transformed into Proof of Stake (PoS), which introduced native risk-free returns to Ethereum and promoted the outbreak of the ETH Staking ecosystem. As of August 28, 28.11% of ETH has been staked, and a staking market with a market value of US$35.5 billion and a re-staking market of US$14.7 billion have emerged. DeFi products based on Liquid Staking Certificates (LST) have dominated the Ethereum financial ecosystem and are growing rapidly.
The left picture shows the pledge market, and the right picture shows the re-pledge market
Compared with Ethereum, Bitcoin, as the largest crypto asset by market value, is known for its decentralization, difficulty in price manipulation, and price stability. It should be more suitable for the pledge and re-pledge market. The security of Pledge of Equity (PoS) highly relies on capital stability, and the characteristics of Bitcoin are naturally suitable for ensuring the security of PoS.
With the approval of the Bitcoin ETF, channels for compliant Bitcoin allocation have been opened, especially for long-term investment institutions such as family offices, private banks, and pension funds. Incorporating Bitcoin ETFs into asset allocation will further enhance the stability of Bitcoin prices and its status as global digital gold.
By introducing the most needed native benefits to the tokens that are most suitable for AVS services, Babylon has become the destined person for this round of Bitcoin ecosystem.
Babylon uses appropriate economic incentives to awaken the dormant Bitcoin ecosystem while maximizing the security of Bitcoin assets. Using Bitcoin's existing scripting language to implement the pledge and slashing mechanism, Babylon's pledge contract allows users to self-custody their assets while ensuring the economic security of the PoS consumer chain, introducing permissionless PoS risk-free returns to the Bitcoin ecosystem (with an early 1,000 BTC TVL hard cap).
Bitcoin staking is a two-sided market that connects the interest-earning demand with the economic security needs of the PoS chain
Babylon eliminates the reliance on third-party custody through a self-custody protocol and unleashes the potential of Restaking with a remote staking solution. Projects in the Bitcoin ecosystem can build Babylon's PoS revenue as the cornerstone of the protocol, superimpose CeDeFi revenue, and maximize economic incentives.
The launch of Babylon marks the beginning of BTC’s native interest-bearing, bringing the BTC DeFi ecosystem into a new stage and solving the core pain points that have restricted the development of the BTC DeFi ecosystem in the past two years.
1.3 BTC Layer2 divided by various powers
In addition to native income, the rapid rise of BTC's programmable ecosystem has introduced a safer source of DeFi income for Bitcoin.
It took Ethereum nine years from November 2015, when Ethereum developer Fabian Vogelsteller proposed the ERC-20 standard, to April 2024, when EigenLayer was launched on the Ethereum mainnet. The Bitcoin ecosystem caught up with this achievement in just one and a half years.
At the end of 2022, Casey Rodarmor proposed the Inscriptions protocol, which made asset issuance on the Bitcoin mainnet possible. In March 2023, Domo launched the experimental BRC-20 standard, which enabled token deployment, transfer, and minting on the Bitcoin mainnet. By the end of 2023, the Ordinals ecosystem had risen rapidly, demonstrating the huge demand for Bitcoin asset issuance and the importance of DeFi applications. However, due to the limited block space of the Bitcoin mainnet, the development of complex financial scenarios was restricted, user costs rose, and the experience declined. Especially when the halving block height reached 840,000, the activation of the Rune Protocol triggered market fomo, and the mainnet handling fee once climbed to 2000 satoshis/byte.
The Rune Protocol was launched on April 20, 2024, which caused a surge in Bitcoin mainnet fees.
Some researchers proposed Bitcoin Improvement Proposals (BIPs), attempting to improve the main network's smart contract capabilities by reintroducing the OP_CAT opcode; other developers explored expansion solutions that did not change Bitcoin's original technical framework, promoting the development of Bitcoin Layer2.
Bitcoin Layer2 represented by Botanix and BitLayer takes Bitcoin Finality as the core cornerstone when it is designed. They compress and package transaction data to the Bitcoin main network to build a trustless bridge and ensure security equivalent to that of the Bitcoin main network.
Compared with the various challenges of bridging to Ethereum, bridging to Bitcoin Layer2 has higher security and legitimacy, and has gained broad consensus and support from the Bitcoin community. A large amount of dormant Bitcoin liquidity has therefore been activated and injected into the Bitcoin ecosystem, seeking high-yield financial scenarios. Since most Bitcoin Layer2s are perfectly compatible with EVM, many DeFi applications on Ethereum have begun to be built on Bitcoin Layer2, gradually forming a rich DeFi ecosystem.
Bitcoin Ecosystem Map as of April 2024
1.4 BTC Restaking is a hot topic among blockchain experts
The introduction of the native interest-bearing scheme, combined with the improvement of the programmability of the Bitcoin ecosystem, makes Restaking an important DeFi use case in the Bitcoin ecosystem. Similar to Ethereum's EigenLayer restaking ecosystem, Bitcoin has also initially formed a restaking ecosystem around the Babylon Staking protocol. Users can choose to stake BTC in a self-custodial manner on the Bitcoin mainnet and enjoy the shared security benefits of Babylon; or custody Bitcoin to the LRT protocol and use the Liquidity Staking Certificate (LST) to participate in the DeFi ecosystem on Bitcoin L2 to obtain additional benefits; or when participating in Layer2 staking activities such as Merlin Seal, stake M-BTC to Solv Protocol and exchange the Liquidity Income Certificate SolvBTC to participate in liquidity mining or CeFi funding rate arbitrage.
The Restaking ecosystem project cooperates with Babylon to introduce underlying returns for BTC anchor coins. At the same time, the prosperity of the ecosystem project also feeds back to Babylon, enhancing the security of its PoS AVS service.
However, the development of the BTC Restaking track has brought new challenges:
Unsustainable underlying returns: Many protocols rely on high inflation tokens as rewards and cannot maintain high returns in the long term. If these protocols cannot achieve sustainable development, users may face the risk of falling market value after the token TGE.
Liquidity and user experience fragmentation: Competition between Restaking projects has led to the dispersion of liquidity in the BTC ecosystem, reducing overall utility. The complexity of users switching between different Layer2 and wrapped tokens has increased the threshold for use, limiting the potential for large-scale financial operations and cross-chain integration. In the long run, it will fall into the situation of the past where the snipe and the clam fight, the fisherman benefits, and WBTC dominates the world.
High educational threshold: Bitcoin ecosystem is developing rapidly and competition is fierce, so the educational threshold is high. It is difficult for users to keep up with the changes in new protocols, understand various interest-earning strategies, and choose the best interest-earning strategy.
Security cannot be guaranteed: Many projects are hastily launched without sufficient security verification, increasing the risk of user assets.
These new problems require new solutions. The Restaking era requires new aggregated liquidity tokens, like WBTC in the past, to become a bridge that seamlessly connects various DeFi protocols.
Uniquid Layer came into being.
2. Uniquid Layer — A liquidity layer designed for a wider community
2.1 What is Uniquid Layer?
The full name of the Uniquid Layer protocol is Unified Liquidity Layer. The role of the protocol is essentially easy to understand. It can be compared to full-chain liquidity aggregation networks such as Cycle Network and AggLayer based on chain abstraction, aiming to seamlessly and efficiently connect the fragmented Bitcoin ecosystem.
Uniquid focuses on unified liquidity management, helping users avoid tedious interest calculations and comparisons, and maximizing the return on Bitcoin investment. Figuratively speaking, the traditional BTC Restaking protocol is more like a mobile phone manufacturer, delivering complete machines with slight comparative advantages under specific parameters, and trying to tie users to their own ecosystem. Uniquid is more like a computer assembly butler. He can select the most suitable components to assemble together according to the specific needs of users under different parameters. Even if a specific component has a risk of failure or is replaced, this butler can respond as quickly as possible and replace it.
As the “People’s Liquidity Layer”, Uniquid Layer effectively solves many of the problems mentioned above from the perspective of user experience.
Provide security. Uniquid Layer uses ADV technology to maximize the security of liquidity aggregation. At the same time, for the underlying Restaking protocol, Uniquid Layer will carefully investigate the risks of various protocols for users and select the most secure and sustainable ecological projects for users.
Maximize Bitcoin revenue. Uniquid Layer integrates various Restaking projects, calculates and compares the underlying real revenue of Bitcoin ecosystem projects, and maximizes liquidity revenue.
Provide Bitcoin holders with a unified and easy-to-use liquidity management platform. The user's BTC liquidity on each chain will be uniformly integrated and managed through the Uniquid Layer, and organically scheduled to ensure seamless liquidity between each Layer1 and Layer2.
As the entrance to the Bitcoin DeFi ecosystem, the threshold for participation is lowered. Users no longer need to understand how to use various Restaking protocols. They only need to stake their assets on the Uniquid Layer to enjoy the best returns from various Restaking projects, obtain liquidity certificates, and participate in the larger DeFi ecosystem.
2.2 Simplify the BTC Restaking participation threshold and unify the liquidity of BTC anchor coins
Uniquid Layer provides a unified framework to aggregate and manage Bitcoin liquidity on different blockchains and centralized exchange platforms, abstracting the entire Restaking ecosystem into four layers, namely the service layer, modular layer, abstract layer, and liquidity layer. The first three layers are encapsulated in the underlying protocol. Users only need to stake BTC anchor coins of various chains and forms in the liquidity layer to reap the optimal annualized return after unified management by Uniquid Layer.
For Bitcoin ecosystem projects, asset security should always be higher than economic incentives themselves. For liquidity aggregation platforms, aggregating Bitcoin scattered across various chains and protocols in a trust-minimizing solution is the core technical pillar of Uniquid Layer. Uniquid Layer uses anonymous decentralized verification (ADV) technology to aggregate BTC liquidity across the entire chain. For different BTC usage scenarios, Uniquid Layer specifically designs decentralized privacy technology to ensure the security of the aggregation process and provide secure access to earnings:
For the Bitcoin mainnet, Taproot is used to effectively hide the information transmission of Bitcoin scripts;
For the EVM environment, decentralized signatures are used to interact with smart contracts;
Integrate trusted third-party strategies for centralized exchanges;
Cooperate with MPC custodian service providers to provide customized asset custody solutions.
ADV
Uniquid Layer uses ADV technology to protect and abstract liquidity so that liquidity can be safely aggregated into the current Restaking protocol with the highest annualized return. Similar to threshold signature technology, the signature private key of cross-chain transactions is no longer controlled by a single node, but the signature power is split into a permissionless anonymous node pool. When a user initiates a cross-chain transaction, the protocol will randomly select a group of nodes from the node pool. Only by aggregating the signature fragments generated by this group of nodes can the signature generation be completed.
Since signing members are randomly selected from the permission-free anonymous node pool, ADV’s mechanism can effectively prevent single points of failure among signers, significantly increase the attack cost of malicious nodes, and ensure the flexibility, anonymity and reliability of the cross-chain ecosystem. Scalability.
2.3 Modularization of Restaking components and integration of various protocol providers
Uniquid Layer unifies the existing Restaking ecosystem projects under a powerful and adaptive modular framework, connecting the revenue of each project and enhancing the liquidity management solution. The entire modular framework is divided into 4 modules, namely Active Verification Service (AVS) and Restaking Module, Cross-chain Liquidity Module, DeFi Revenue Module and CeFi Revenue Module. All Restaking project providers will be abstracted and integrated into this layer for easy selection and scheduling.
AVS & Re-staking Module. AVS income is the core cornerstone of re-staking. Uniquid Layer actively integrates advanced verification systems to maximize liquidity returns through seamless re-staking protocol integration while maintaining high security standards for underlying assets.
Cross-chain module. The cross-chain module promotes the free and secure flow of liquidity between different blockchains, optimizes the utilization of Bitcoin assets, and enables users to utilize multiple blockchain ecosystems and explore diversified sources of benefits.
DeFi Yield: This module is dedicated to improving the yield of decentralized and centralized finance, integrating Bitcoin liquidity into various DeFi platforms to maximize yield potential, and maximizing Bitcoin earnings through diversified DeFi opportunities.
CeFi module. This module integrates Bitcoin liquidity into the centralized financial system, providing users with more arbitrage-type profit opportunities.
2.4 Re-staking as a Service to Maximize User Benefits
By participating in the Uniquid Layer's restaking service, users can get the best returns on their staked assets. Uniquid Layer aggregates all liquidity income sources to the Restaking service layer, and dynamic algorithms and analysts calculate the expected rate of return of various income sources to ensure the maximum return on investment of user assets. In addition, staking assets to the Uniquid Layer's liquidity layer will also receive Uniquid points rewards.
2.5 LiqBTC, WBTC in the Restaking Era
By staking assets in the Uniquid Layer, users can not only maximize their ROI, but also obtain a liquidity staking certificate, LiqBTC. LiqBTC is designed to be more than just a liquidity staking certificate (LST), and is committed to setting the standard for BTC-pegged coins with full chain returns. By integrating with DeFi ecosystems on more than 10 chains, LiqBTC will, like WBTC, connect the vast BTC financial ecosystem outside the Bitcoin mainnet, avoid centralization risks, and have the highest underlying returns in the Restaking era.
2.6 Roadmap and Future Planning
Uniquid Layer will complete the construction of the underlying protocol framework in 2024, connect to the re-staking-as-a-service function in Q3, and launch an early supporter incentive plan. In Q4, it will integrate the liquidity module and develop the liquidity abstraction layer protocol. The test network is expected to be officially launched in Q1 2025, and the verification node will be deployed. The main network will be launched in the Q2-Q4 stage, and LiqBTC will be gradually integrated into the DeFi ecological protocols of each chain to build a full-chain liquidity market.
2.7 Financing
Uniquid Layer has a luxurious investment lineup and has obtained financing from many well-known investment funds at home and abroad, including Amber Group, DWF Labs, and ArkStream Capital.
3. Conclusion
The introduction of Babylon's native income has ushered in a new era of navigation for the financial ecology of BTC. As a blue ocean market worth hundreds of billions of dollars, whoever can bring higher security, higher actual income, and lower usage threshold to BTC users will be able to stabilize the throne of BTC liquidity finance. In the competition of this track, Uniquid Layer, as a latecomer in liquidity aggregation, is expected to integrate the current fragmented BTC liquidity, and like WBTC, the leader of the BTC DeFi ecosystem, bring users a smoother full-chain liquidity interoperability experience.
References
https://www.odaily.news/post/5150988
https://foresightnews.pro/article/detail/66576
https://blog.bitgo.com/bitgo-to-move-wbtc-to-multi-jurisdictional-custody-to-accelerate-global-expansion-plan-2ea0623fa2c8
https://www.btcstudy.org/2021/12/13/schnorr-applications-blind-signatures/
https://dune.com/21co/wbtc
https://wbtc.network/dashboard/order-book
https://dune.com/sankin/bitcoin-on-ethereum
https://www.diadata.org/blog/post/bitcoin-ecosystem-map/
