Comprehensive Interpretation of BTCFi: From Lending to Staking, Build Your Own Mobile Bitcoin Bank

As Bitcoin's position in the financial market continues to strengthen, BTCFi( Bitcoin finance) is rapidly becoming the forefront of cryptocurrency innovation. BTCFi encompasses a range of Bitcoin-based financial services, including lending, staking, trading, and derivatives. This article provides an in-depth analysis of several key tracks of BTCFi, exploring stablecoins, lending services, staking services, re-staking services, and the integration of centralized and decentralized finance.

BTCfi Track Overview

BTCFi is like a mobile Bitcoin bank, encompassing a series of financial activities centered around Bitcoin, including Bitcoin lending, staking, trading, futures, and derivatives. According to data from CryptoCompare and CoinGecko, the BTCFi market size reached approximately 10 billion USD in 2023. According to predictions from Defilama, the BTCFi market will reach a scale of 1.2 trillion USD by 2030, which includes the total locked value (TVL) of Bitcoin in the decentralized finance (DeFi) ecosystem, as well as the market size of Bitcoin-related financial products and services.

Over the past decade, the BTCFi market has shown significant growth potential, attracting more and more institutional participation, such as Grayscale, BlackRock, and JPMorgan beginning to engage in the Bitcoin and BTCFi markets. The involvement of institutional investors has not only brought substantial capital inflows, increasing market liquidity and stability, but has also enhanced the maturity and standardization of the market, bringing higher recognition and trust to the BTCFi market.

BTCFi Track Segmentation

( 1. Stablecoin

Stablecoins are a type of cryptocurrency designed to maintain a stable value. They are typically pegged to fiat currencies or other valuable assets to reduce price volatility. Stablecoins achieve price stability through backing by reserve assets or algorithmically adjusting supply, and they are widely used in scenarios such as trading, payments, and cross-border transfers, allowing users to enjoy the advantages of blockchain technology while avoiding the severe fluctuations of traditional cryptocurrencies.

Classifying stablecoins by their level of centralization and collateral type are two relatively intuitive dimensions. Among the mainstream stablecoins, when classified by level of centralization, they can be divided into centralized stablecoins represented by USDT, USDC, and FDUSD, and decentralized stablecoins represented by DAI, FRAX, and USDe. When classified by collateral type, they can be divided into fiat/physical collateral, crypto asset collateral, and under-collateralized.

In the BTC ecosystem, the stablecoin projects worth noting are all decentralized stablecoins, mainly including:

• Bitsmiley Protocol: The first native stablecoin project in the BTC ecosystem
• Bamk.fi)NUSD(: Synthetic USD on Bitcoin L1
• Yala Labs: By building its own modular infrastructure, it allows its stablecoin $YU to flow freely and securely across various ecosystems.
• Satoshi Protocol: The first CDP stablecoin protocol in the BTC ecosystem, based on BEVM ecosystem.
• BTU: The first decentralized stablecoin project in the Bitcoin ecosystem, using the collateral debt position ) CDP ### model.

( 2. Lending

Bitcoin Lending) is a financial service that allows individuals to obtain loans by using Bitcoin as collateral or to earn interest by lending Bitcoin. Borrowers deposit Bitcoin into a lending platform, which provides loans based on the value of Bitcoin, with borrowers paying interest and lenders earning returns. This model provides liquidity for Bitcoin holders while offering investors new avenues for profit.

The BTC lending sector has become an important part of the cryptocurrency market, covering major cryptocurrencies such as Bitcoin and Ethereum. Lending products include collateralized loans, deposit accounts, and unsecured loans. Platforms profit through interest rate spreads and fees. Popular platforms like Aave offer flash loans and liquidity mining rewards, MakerDAO provides DAI Savings Rate(DSR), and Yala offers DeFi yields based on stablecoins.

Notable BTC Lending projects include:

• Liquidium: A P2P lending protocol running on Bitcoin that supports users to borrow and lend native Bitcoin using native Ordinals and Runes assets as collateral.
• Shell Finance: A stablecoin protocol based on BTC L1, supporting the use of BTC, Ordinals NFT, Runes, BRC-20, and ARC-20 assets as collateral to obtain $bitUSD.

( 3. Staking

Staking ) is commonly recognized for its characteristics of security and stable interest. When "staking" tokens, users typically gain certain access rights, privileges, or reward tokens over time in exchange for their locked coins, and they can withdraw their tokens anytime and anywhere. Staking occurs at the network level and is entirely used to secure the network.

The current concept of Staking bringing shared security provides a new dimension for the modular track, utilizing the potential of "digital gold and silver". Narratively, it not only releases the liquidity of trillions in market value but also serves as a key core for the future expansion pathway.

Notable BTC Staking projects include:

• Babylon: A layer 1 blockchain founded by Stanford University Professor David Tse, which can lock Bitcoin on the Bitcoin mainnet to provide security for other POS consumption chains, while also earning staking rewards on the Babylon mainnet or POS consumption chains.

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) 4. Restaking

ReStaking is the use of liquid-staked token assets to stake with validators on other networks and blockchains to earn more rewards, while also helping to enhance the security and decentralization of the new network. Through ReStaking, investors can earn double rewards from both the original network and the ReStaking network.

Notable BTC Restaking projects include:

• Chakra: An innovative modular settlement infrastructure based on Babylon, utilizing zero-knowledge proof technology.
• Bedrock: A multi-asset liquidity re-staking protocol supported by a non-custodial solution designed in collaboration with RockX.
• Lorenzo protocol: The BTC liquidity financial layer based on Babylon

( 5. Decentralized Custody

With BitGO, the entity behind wBTC, announcing the handover of control over wBTC, discussions about the security of WBTC have increased in the market. Some new decentralized custody solutions have emerged, including:

• tBTC: When bridging from BTC to ETH, tBTC can be considered for minting.
• FBTC: A new type of synthetic asset on the entire chain, anchored 1:1 with BTC, supporting the circulation of BTC across the entire chain.
• dlcBTC: Bitcoin's non-custodial token on Ethereum, allowing Bitcoin holders to participate in DeFi protocols while retaining full ownership of their assets.

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( 6. CeDeFi

CeDeFi is a financial service that combines the characteristics of centralized finance (CeFi) and decentralized finance (DeFi). In the CeDeFi model, users lock Bitcoin in an independent over-the-counter settlement network managed by a third party, separate from the exchange. These Bitcoins are mapped to tokens on the exchange at a 1:1 ratio. Then, users can use these tokens to perform various operations on the CeDeFi platform, such as engaging in interest rate arbitrage trading between different markets.

Notable BTC CeDeFi projects include:

• Solv Protocol: A unified Bitcoin liquidity matrix designed to consolidate the trillion-dollar liquidity of Bitcoin through SolvBTC.
• Bouncebit: BTC Restaking chain, fully compatible with EVM, designed with CeDeFi products.
• Lorenzo protocol: BTC liquidity financial layer based on Babylon

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) 7. DEX AMM Swap

DEX AMM Swap### Decentralized Exchange Automated Market Maker Swap( is a decentralized trading mechanism that operates on the blockchain. It uses algorithms and liquidity pools to automatically provide liquidity for trading pairs without the need for a centralized order book. Users can directly swap tokens on-chain, enjoying a trading experience with low slippage and low fees.

Notable BTC DEX projects include:

• Bitflow: Focused on sustainable BTC yield, utilizing PSBT, atomic swaps, AMM technologies, and Layer-2 solutions like Stacks for trading BTC, stablecoins, and more.
• Dotswap: A native AMM DEX on the BTC mainnet, supporting assets including Runes, BRC 20, ARC 20, and the latest CAT 20.
• Unisat AMM Swap: Focused on Ordinals and brc-20 wallet applications, implementing trading in the inscription market based on an order book.

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Comparison of Different Asset Classes

( Security Comparison

• The BTC ecosystem places a much higher emphasis on "security" compared to other ecosystems, which is determined by the characteristics of BTC participants. From the storage of funds in wallets to the specific steps involved in participating in FI schemes, security guarantees are necessary, and effective control of "asset ownership" is the focus.

• ETH and SOL are PoS blockchains that carry systemic risks such as excessive centralization risk and run risk.

• BTC is a POW system, in principle, there is no such problem. However, once excessive risks from FI agreements accumulate and cause systemic risk, it may lead to a significant drop in BTC prices, thereby affecting the bullish and bearish trends of the entire market.

) Yield Rate Comparison

The sources of income mainly include staking rewards, DeFi product returns, and the protocol's own earnings. BTCFi has greater potential compared to ETHFi and SolFi, as the latter two have already gone through the first phase of explosive growth in TVL, while BTCFi is still a blue ocean. From this perspective, BTCFi's products have a higher expected rate of return.

Ecological Richness

• The ETH ecosystem includes Defi, NFT, RWA, and Restake, making it the most diverse ecosystem.

• On Solana, the total TVL of DEX Raydium and the liquidity solution Kamino Finance is close to $1B, making them two leading projects in the Solana DeFi ecosystem.

• The BTCFi ecosystem is currently in a period of explosive growth, with a large number of projects emerging, including Layer 2, and VC financing continuously increasing, attracting market attention. Apart from BTC itself, there are already a rich variety of asset types to participate in BTCFi, such as inscriptions, runes, and other Layer 1 assets based on the BTC network; rgb++, taproot asset and other Layer 2 assets based on the BTC network; WBTC on the ETH chain, various LST or LRT certificates representing staked BTC, and other wrap/stake assets.

Conclusion

With the entry of global institutions and tech giants, the potential of Bitcoin as a long-term appreciating asset has been further validated. The emergence of BTCFi not only satisfies the market's desire for BTC liquidity but also further promotes the activity of the BTC network by increasing the use cases of Bitcoin.

Looking to the future, BTCFi will continue to serve as an innovation engine in the field of crypto finance, driving the Bitcoin network towards higher levels of financial applications and global participation. With continuous technological advancements and the market.