The Myth of BTCFi: Balancing Security and Innovation

After a year of market turbulence, we have finally reached a consensus: the demand for Bitcoin is limited to Bitcoin itself and cannot extend to BTC-based staking assets, layer two networks, or decentralized financial applications.

The Mirror of Success and Failure of Ethereum

Some projects, although not entirely new, have long failed to secure funding and remain stuck in the academic research phase. Others have adjusted their direction multiple times and have quickly emerged on a trading platform. As for those BTC second-layer network projects, most were born around the same time as the packaging of Bitcoin, but their second attempts have not brought about breakthrough progress.

Even the emerging concept of digital assets has failed to replicate previous successes, ultimately leading to a gradual decline in market enthusiasm.

The Q1 2025 report shows that only the Bitcoin spot ETF has succeeded. Aside from Bitcoin itself, ETFs have become the most reliable investment tool. This stands in stark contrast to the Ethereum ETF: the Ethereum ecosystem is flourishing, while off-chain transactions of Bitcoin are booming.

It must be admitted that Bitcoin does not need redundant scenarios such as second-layer networks and staking. The lack of smart contract functionality is not a market space for certain projects, but rather an inevitable choice for Bitcoin's robustness.

Despite the mixed reviews of Ethereum and its founder in the industry, it is undeniable that most innovations are actually imitations and modifications of Ethereum. Certain public chains have drawn from the essence of decentralized finance and social tokens, while BTC has adopted staking systems and interest-earning scenarios, interpreting the physical assetization of digital gold.

However, the degree of success of these attempts varies. Although Ethereum's second-layer network has not fully succeeded, it has at least fostered some potential projects. A failure in price performance does not equate to a lack of practical scenarios. In contrast, financial innovations based on Bitcoin, whether in the staking layer, second-layer networks, or decentralized finance, seem to have failed to achieve the expected results.

The Dilemma of Mainnet Security Monetization

Some projects attempt to monetize the security space of Ethereum by splitting it and leasing it to projects in need. Essentially, these types of projects do not provide security, but only act as intermediaries for security.

Why can't this model be migrated to other public chains? In fact, each chain tends to adopt a single model: asset issuance products, regardless of whether their packaging is a second layer network or a staking/re-staking system.

If the market has expectations for the second-layer networks of certain public chains, we can predict in advance: public chains with limited market capitalization may struggle to support a large ecosystem.

Bitcoin is facing a similar situation. The trillion-dollar Bitcoin ecosystem actually has only one product, which is Bitcoin itself. If Bitcoin is used for margin arbitrage, such as wrapping Bitcoin or ETFs, it may enhance Bitcoin's market value and gain market recognition. However, once it crosses the line and attempts to transfer Bitcoin's value to other tokens, it faces a dilemma: how to convince people to exchange their Bitcoin for your token?

Various Bitcoin staking protocols seem lively, but the major Bitcoin holders worldwide still concentrate in exchanges and asset management companies. The on-chain Bitcoin staking system is still a concept at present and is hard to call a reality.

Ultimately, the Bitcoin staking system cannot be equated with the sense of security that comes from holding Bitcoin. If the staking system cannot be established, then the second-layer networks based on Bitcoin and decentralized finance will also be difficult to establish.

The Game Between Innovation and Tradition

The Ethereum Layer 1 network is congested, prompting the large-scale development of Layer 2 network infrastructure, which has ultimately been seized by some emerging projects. This is the core story of the cryptocurrency market over the past six months.

Recently, if it weren't for the Bitcoin second layer network beginning to hype new tokens, fast-paced market participants might have already forgotten this past. Personally, I believe the only winner may be a project's rapid token issuance combined with a long-term operation strategy.

Choosing the right timing for issuing coins is crucial. Issuing too early may damage credibility, while issuing too late might result in losing control. If one is destined to face skepticism, it is better to choose the method that maximizes returns. This is a reflection of the second layer network projects of Bitcoin over the past year.

In contrast, Ethereum itself needs a second-layer network to share the traffic; the current game is more like the adjustment of fiscal relations between the center and the localities. The weakness of the Ethereum Virtual Machine ecosystem itself has little to do with the second-layer network. Even if Ethereum increases taxation on the second-layer network, retail investors are unlikely to return to the Ethereum Virtual Machine ecosystem.

The situation of Bitcoin's second-layer network is even more awkward. Compared to the support and guidance from the founder and foundation of Ethereum, the technical solutions of Bitcoin's second-layer network appear chaotic and disordered. Some mimic the zero-knowledge proof or optimistic rollup approach, some focus on optimizing existing operation codes, while others attempt to comprehensively upgrade Bitcoin's scripting capabilities.

Compared to the decentralized features of certain public chain second-layer networks, the second-layer network of Bitcoin seems to rely more on the promotion of project parties and venture capital. This stands in stark contrast to some public chains referred to as "centralized," which adopt a more neutral stance when facing second-layer networks.

Thus, after 365 days of development, various second-layer network projects for Bitcoin have announced their token airdrop plans and economic models, attracting widespread attention and discussion in the market.

However, Bitcoin itself seems to choose to remain aloof, whether the price soars to $80,000 or plunges to the bottom, its positioning as digital gold or an alternative to U.S. Treasuries remains unchanged.

Conclusion

Since the birth of Bitcoin, people have developed large-scale industries such as wallets, mining, and packaged assets, laying the foundation for the Ethereum ecosystem. Even the founder of Ethereum himself was nurtured by Bitcoin Magazine.

But Bitcoin is too special. Compared to many competing products that need to face large-scale adoption and externalities, Bitcoin itself does not have dominant personnel and does not need to adapt to political systems like later entrants.

Like the intrinsic mechanisms of artificial intelligence, this seemingly absurd world lacks interpretability. Bitcoin chooses not to explain, while financial innovations based on Bitcoin hope to explore new paths. However, the results seem to prove that traditional paths may be more resilient.