Reconstruction of a New Paradigm for Bitcoin Lending Ecosystem: Unlocking Trillion-Level Liquidity

Bitcoin, as the largest and highest quality liquidity pool in the crypto world, is gradually having its potential liquidity value explored. Recently, the largest on-chain lending protocol in the Bitcoin ecosystem completed a significant round of financing, marking BTC's transition from a mere digital store of value to a more active financial instrument.

In fact, the potential of BTC as a liquidity asset and niche asset is gradually becoming apparent. We can see that a unique and self-contained BTCFi ecosystem is taking shape. From a sustainable development perspective, if we can activate the dormant BTC and build an efficient and secure liquidity network, it will open up a global DeFi application space for this trillion-dollar asset.

Industry Practices for Bitcoin Liquidity

Data shows that as of January 9, 2025, the total locked value on the Ethereum chain exceeds 64 billion USD, an increase of nearly 180% compared to January 2023. In contrast, although Bitcoin's market value and price increase outperform ETH, its on-chain ecosystem expansion is still lagging behind that of Ethereum.

It is worth noting that if BTC liquidity can be released by 10%, it could create a market of up to $180 billion. If it can reach a TVL ratio similar to ETH (around 16%), it would release about $300 billion in liquidity. This is enough to drive explosive growth in the BTCFi ecosystem and even has the potential to surpass the pan-EVM networks, becoming the largest super-chain financial ecosystem.

Against this backdrop, some innovative platforms are emerging, dedicated to allowing anyone to benefit from BTC lending. These platforms have become the largest lending protocols in the entire BTC ecosystem, second only to certain well-known stablecoin projects. Reports indicate that the TVL of a certain platform has surpassed $2 billion, and the Bitcoin stablecoin it launched saw a locked amount exceeding $500 million just one week after its launch.

For current BTC holders, fully utilizing the BTC assets they have accumulated is undoubtedly an urgent need. They wish to convert fixed assets into a form with stronger liquidity while avoiding significant principal loss risks. Therefore, on-chain lending protocols based on Bitcoin are entering an important opportunity period.

Some emerging platforms have adopted innovative models, such as a fixed 8% lending interest rate, with Bitcoin collateral held in custody by professional institutions, while providing an unlimited supply of stablecoins. This allows BTC holders to gain more liquidity to participate in other projects within the ecosystem. It is worth mentioning that these platforms not only focus on large holders but also strive to enable retail investors to participate healthily in the construction of the entire ecosystem.

The Value of Bitcoin Stablecoins

In the field of stablecoins, on-chain decentralized stablecoins are still dominated by Collateralized Debt Positions (CDP). A well-known protocol's stablecoin has the largest scale, followed by others like liUSD, USDJ, etc.

The essence of CDP is to expand the use of stablecoins through lending scenarios. It creates additional liquidity trading pools for assets that are usually dormant. Taking a certain emerging platform as an example, its ecosystem includes yield-bearing stablecoins backed by Bitcoin collateral, lending protocols based on this stablecoin, a hybrid lending platform connecting DeFi and CeFi, and a decentralized lending protocol supporting BTC staking.

This model allows stablecoin protocols and lending protocols to permeate each other. For example, certain well-known lending platforms and stablecoin protocols are developing in both directions, with one party launching a native stablecoin while the other accelerates the construction of lending scenarios.

The liquidity market of emerging platforms has formed a "lending" relationship of underlying assets, while constructing a stablecoin market through liquidity design, and providing users with fixed-income products. This not only helps the Bitcoin ecosystem solve the long-standing stablecoin issue, but also achieves cross-chain compatibility through advanced technology, allowing users to operate stablecoins seamlessly across multiple DeFi ecosystems, indirectly bringing the liquidity of the Bitcoin ecosystem to other chains.

Considering that most BTC is idle, many seasoned investors or Bitcoin supporters are reluctant to cross-chain it to other ecosystems for security reasons, which has led to a significant amount of BTC sleeping for long periods, and the scale of BTCFi has remained stagnant. Emerging platforms' stablecoins have played an important role in this regard, as they not only fill the gaps in DeFi infrastructure within the Bitcoin ecosystem but also leverage the advantages of CeDeFi lending platforms, allowing users to obtain USDT from CeFi liquidity providers using stablecoins, thereby addressing the pegging issue.

This provides a foundational framework for the Bitcoin network to efficiently utilize assets and activate dormant BTC, allowing more BTC holders to safely participate in on-chain liquidity activities and confidently deposit large amounts of dormant BTC into DeFi liquidity pools for exchange or to earn yields.

Conclusion

As Bitcoin assets gradually awaken, BTCFi is expected to become a new DeFi asset direction with a scale of hundreds of billions of dollars, becoming a key lever for building a prosperous on-chain ecosystem. Some leading BTCFi platforms have quickly become absolute leaders in this sector, raising expectations for the future of BTCFi. By building a diverse range of financial products and DeFi scenarios centered around BTC, it will redefine the role of BTC in the entire DeFi field.

The deep integration of BTC in the DeFi space may reach a critical turning point, which is worth our continued attention.