BTCFi Overview: From Lending to Staking, Creating a Mobile Bitcoin Bank

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

As Bitcoin's position in the financial market becomes increasingly solidified, 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 deeply analyzes several key tracks of BTCFi, exploring stablecoins, lending services( Lending), staking services( Staking), restaking services( Restaking), and the combination of centralized and decentralized finance( CeDeFi).

The report first introduces the scale and growth potential of the BTCFi market, emphasizing how the participation of institutional investors brings stability and maturity to the market. It then explores in detail the mechanisms of stablecoins, including the different types of centralized and decentralized stablecoins, as well as their roles in the BTCFi ecosystem. In the lending sector, it analyzes how users can obtain liquidity through Bitcoin lending, while assessing the major lending platforms and products.

In terms of staking services, the report highlights key projects such as Babylon, which provide staking services for other PoS chains by leveraging the security of Bitcoin while creating earning opportunities for Bitcoin holders. The restaking service (Restaking) further unlocks the liquidity of staked assets, providing users with an additional source of income.

In addition, the research report also discusses the CeDeFi model, which combines the security of centralized finance with the flexibility of decentralized finance, providing users with a more convenient financial service experience.

Finally, the report reveals the unique advantages and potential risks of BTCFi compared to other areas of crypto finance by comparing the security, returns, and ecological richness of different asset classes. As the BTCFi sector continues to develop, it is expected to see more innovations and capital inflows, further solidifying Bitcoin's leadership position in the financial field.

BTCfi Track Overview

BTCFi( Bitcoin Finance) is like a mobile Bitcoin bank, 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 in 2023. According to predictions from Defilama, the BTCFi market is expected to reach $1.2 trillion by 2030, a figure that 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, with firms like Grayscale, BlackRock, and JPMorgan entering the Bitcoin and BTCFi market. The participation of institutional investors has not only brought in substantial capital inflow, increasing market liquidity and stability, but has also enhanced the maturity and regulation of the market, bringing greater recognition and trust to the BTCFi market.

This article will delve into several popular areas in the current cryptocurrency financial market, including Bitcoin Lending ( BTC Lending ), Stablecoin ( Stablecoin ), Staking Service ( Staking Service ), Restaking Service ( Restaking Service ), and the combination of centralized and decentralized finance known as CeDeFi. Through a detailed introduction and analysis of these areas, we will understand their operational mechanisms, market development, major platforms and products, risk management measures, and future development trends.

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

BTCFi Track Segmentation

1. Stablecoin

Introduction

Stablecoins are a type of cryptocurrency designed to maintain a stable value. They are usually pegged to fiat currencies or other valuable assets to reduce price volatility. Stablecoins achieve price stability through backing by reserve assets or algorithmically regulating supply, and 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 drastic fluctuations of traditional cryptocurrencies.

In economics, there is an impossible trinity: a sovereign nation cannot simultaneously achieve a fixed exchange rate, free capital movement, and an independent monetary policy. Similarly, in the context of Crypto stablecoins, there is also an impossible trinity: price stability, decentralization, and capital efficiency cannot be achieved at the same time.

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

Centralized stablecoins are basically fiat currency/physical asset-backed, essentially being RWA of fiat currency/other physical assets, such as USDT and USDC which are pegged 1:1 to the US dollar, and PAXG and XAUT which are pegged to the price of gold. Decentralized stablecoins are generally backed by crypto assets or are uncollateralized ( or under-collateralized ), with DAI and USDe both being backed by crypto assets, which can further be divided into fully collateralized or over-collateralized. Uncollateralized ( or under-collateralized ) are typically what are known as algorithmic stablecoins, represented by FRAX and the former UST. Compared to centralized stablecoins, decentralized stablecoins have a lower market value, are somewhat complex in design, and have given rise to many star projects. In the BTC ecosystem, the stablecoin projects worth noting are all decentralized stablecoins, so below we will introduce the mechanisms of decentralized stablecoins.

A Comprehensive Guide to BTCFi: From Lending to Staking, Build Your Own Mobile Bitcoin Bank

Decentralized Stablecoin Mechanism

Next, we will introduce the CDP mechanism represented by DAI, over-collateralization (, and the contract hedging mechanism represented by Ethena, equivalent collateralization ). In addition, there are also algorithmic stablecoin mechanisms, which will not be detailed here.

CDP (Collateralized Debt Position) represents a Collateralized Debt Position, which is a mechanism in decentralized financial systems to generate stablecoins by collateralizing crypto assets. After being pioneered by MakerDAO, it has been applied in many different categories of projects such as DeFi and NFTFi.

DAI is a decentralized, over-collateralized stablecoin created by MakerDAO, designed to maintain a 1:1 peg with the US dollar. The operation of DAI relies on smart contracts and the decentralized autonomous organization (DAO) to maintain its stability. Its core mechanisms include over-collateralization, collateralized debt positions (CDP), liquidation mechanisms, and the role of the governance token MKR.

CDP is a key mechanism in the MakerDAO system, used to manage and control the process of generating DAI. In MakerDAO, CDP is now referred to as Vaults, but its core functions and mechanisms remain the same. Here is a detailed operation process of CDP/Vault:

i. Generating DAI: Users deposit their crypto assets ( such as ETH) into the smart contract of MakerDAO to create a new CDP/Vault, and then generate DAI based on the collateral assets. The generated DAI is part of the debt that the user borrows, with the collateral serving as security for the debt.

ii. Over-collateralization: To prevent liquidation, users must maintain their CDP/Vault collateral ratio above the system's minimum collateral ratio of (, for example, 150%). This means that if a user borrows 100 DAI, they must lock up at least 150 DAI worth of collateral.

iii. Repayment/Liquidation: Users need to repay the generated DAI and a certain stability fee ( valued in MKR ) to redeem their collateral. If users fail to maintain a sufficient collateralization ratio, their collateral will be liquidated.

Delta represents the percentage change in the price of a derivative relative to the price of the underlying asset. For example, if the Delta of an option is 0.5, when the price of the underlying asset rises by 1 dollar, the option price is expected to rise by 0.5 dollars. A Delta-neutral position is an investment strategy that involves holding a certain amount of the underlying asset and derivatives to offset the risk of price movements. The goal is to make the overall Delta value of the portfolio zero, thereby maintaining the value of the position unchanged during price fluctuations of the underlying asset. For example, for a certain amount of spot ETH, buy an equal value of ETH short perpetual contracts.

Ethena tokenizes the "Delta neutral" arbitrage trading of ETH by issuing a stablecoin USDe that represents the value of Delta neutral positions. Therefore, their stablecoin USDe has the following two sources of income:

  • Staking Rewards
  • Basis spread and funding rate

Ethena achieves equivalent collateral and additional yield through hedging.

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

Project One, Bitsmiley Protocol

Project Overview:

  • The first native stablecoin project in the BTC ecosystem.
  • On December 14, 2023, OKX Ventures announced a strategic investment in the stablecoin protocol bitSmiley on the BTC ecosystem. This protocol allows users to mint the stablecoin bitUSD by over-collateralizing native BTC on the BTC network. At the same time, bitSmiley also encompasses lending and derivatives protocols, aiming to provide a brand new financial ecosystem for Bitcoin. Previously, bitSmiley was selected as a quality project at the BTC hackathon jointly held by ABCDE and OKX Ventures in November 2023.
  • On January 28, 2024, it was announced that the first round of token financing was completed, led by OKX Ventures and ABCDE, with participation from CMS Holdings, Satoshi Lab, Foresight Ventures, LK Venture, Silvermine Capital, and relevant individuals from Delphi Digital and Particle Network. On February 2, LK Venture, a subsidiary of Hong Kong listed company Blueport Interactive, announced on platform X that it had participated in the first round of financing for bitSmiley through the Bitcoin network ecosystem investment management fund BTC NEXT. On March 4, KuCoin Ventures tweeted to announce a strategic investment in the Bitcoin DeFi ecosystem project bitSmiley.

Operating mechanism:

  • bitSmiley is a Bitcoin native stablecoin project based on the Fintegra framework. It consists of the decentralized over-collateralized stablecoin bitUSD and the native trustless lending protocol (bitLending). bitUSD is based on bitRC-20, which is a modified version of BRC-20, while being compatible with BRC-20. bitUSD introduces Mint and Burn operations to meet the needs of stablecoin minting and destruction.
  • bitSmiley launched a new DeFi inscription protocol called bitRC-20 in January. The first asset of the protocol, OG PASS NFT, is also known as bitDisc. bitDisc is divided into two levels: Gold Card and Black Card, with the Gold Card allocated to Bitcoin OGs and industry leaders, totaling fewer than 40 holders. Starting from February 4, the Black Card will be made available to the public through whitelist activities and public minting activities in the form of BRC-20 inscriptions, causing temporary congestion on the chain. Subsequently, the project team announced that they would compensate for the inscriptions that were not successfully minted.
  • $bitUSD Stablecoin Operating Mechanism: The operating mechanism of $bitUSD is similar to that of $DAI, where users first over-collateralize, and then the bitSmileyDAO on L2, after receiving oracle information and conducting consensus verification, issues a Mint bitRC-20 message to the BTC mainnet.
  • The logic of liquidation and redemption is similar to MakerDAO, with liquidation adopting a Dutch auction format.

Project Progress & Participation Opportunities:

  • bitSmiley will launch Alphanet on BitLayer on May 1, 2024. Among them, the maximum loan-to-value ratio (LTV) is 50%. To prevent users from being liquidated, a relatively low LTV ratio has been set. As the adoption rate of bitUSD increases, the project team will gradually raise the LTV.
  • bitSmiley and the Merlin community will launch an exclusive liquidity incentive grant starting from May 15, 2024, to increase the liquidity of bitUSD.

Project Two, Bamk.fi(NUSD)

Project Overview:

  • The Bamk.fi protocol is the issuer of NUSD ( Nakamoto Dollar ), and NUSD is a synthetic dollar on Bitcoin L1. NUSD circulates on the BRC20-5 byte and Runes protocols (, currently both are equivalent ).

Operating Mechanism:

  • The project design has 2 phases. In the first phase, NUSD is supported by USDe at a 1:1 ratio.
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degenwhisperervip
· 17h ago
btc is going to da moon
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LonelyAnchormanvip
· 17h ago
Stablecoins are the foundation.
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HashBanditvip
· 17h ago
Bitcoin finally To da moon
View OriginalReply0
NotFinancialAdvicevip
· 17h ago
BTC is the bank of the future.
View OriginalReply0
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