Participated in an online discussion about a BTC staking protocol under development.
According to the introduction, the protocol is based on the implementation principle of UTXO, using technologies such as re-marking with OPRETURN, lock-time verification with OPCLTV, and Partially Signed Bitcoin Transactions (PSBT) to achieve local staking of BTC assets, thereby issuing protocol tokens.
After listening to the introduction, I organized my thoughts and found the following aspects easy to understand:
1. Security: This is local staking, so although the assets are constrained for a certain period of time due to staking, the control of the assets still remains in the hands of the user.
2. Adaptability: Since it is based on UTXO, staked assets can be used in all UTXO-based asset protocols, allowing for interoperability and asset staking with protocols such as Ordinals, ARC20, RUNES, RGB++, etc.
From the functionality described, it mainly involves issuing protocol tokens through staking, and this protocol can serve as a launchpad for other assets.
Based on this, I have a few opinions:
1. Asset Relevance: The staked assets and the assets to be issued are not directly related. It seems that the issuance of protocol tokens is achieved through staking assets such as BTC, but the protocol tokens have no direct relationship with the staked assets, unlike staking various assets on Merlin SEAL to distribute $Merl.
2. Means and Objectives: Staking is a means, and the objective is to consolidate various asset communities to enhance the consensus for issuing assets. Once involved in staking, the bottom line determines the mindset, making it easier to reach consensus.
3. What does TVL indicate?: Staked TVL to some extent can reflect the strength of consensus. In this sense, the protocol party needs to take various marketing measures to expand the types of staked assets and increase TVL. The more types of staked assets and the higher the TVL, the stronger the consensus. This requires the operational and resource integration capabilities of the protocol party.
However, fundamentally, TVL does not reflect token market value, nor does it create token liquidity, and cannot reflect or create the real value of the token.
4. Fairness and Decentralization: Issuing protocol tokens through staking seems fair and decentralized, but the results of token distribution may not be rational or decentralized. Financial strength determines the amount of tokens obtained, so a few people may obtain a large number of tokens, exacerbating token concentration.
5. Programmable and Combinable DeFi Capabilities: Since it is local staking and the issuance is also based on UTXO assets, both the staked assets and the protocol assets lack programmable capabilities and scalability, making it difficult to expand and combine DeFi capabilities. How can tokens be empowered? Currently, it is not known how the protocol party considers this.
6. Deviation of Asset Issuance, Liquidity, and Token Value: For this crypto cycle, BTC ecosystem issuance is an important narrative. However, it is increasingly recognized that the issuance of innovative asset categories will bring about a wave of enthusiasm, but how to provide sustainable liquidity to give tokens long-term consensus and value is a daunting challenge.
This problem remains unsolved, and overall, the marginal benefits of asset issuance are diminishing, meaning that the enthusiasm for newly issued assets quickly fades, such as the RUNES-like assets, which were highly anticipated but only gained attention for a few days after launch.
7. Staker Returns: In terms of returns, although the staking method of this protocol also involves local staking of high-quality BTC assets, it is different from staking BTC in Babylon. In Babylon, BTC enhances the security of various POS chains, allowing for continuous returns provided by the POS chain.
In this protocol, staking BTC is used to issue protocol tokens, and stakers can receive protocol token rewards. However, this is just a distribution method, and staking any asset is not directly related to the protocol tokens. The protocol tokens do not receive the empowerment and support of BTC.
In other words, staker returns are actually filled with uncertainty. In the short term, they are related to staking mining rewards, and in the medium to long term, they depend on whether the protocol tokens have other continuous empowerment methods such as consensus, liquidity, and value capture.
If not, then the ability to activate idle BTC is limited, and the ability to attract other BTC ecosystem assets will also be restricted.
In other words, if it cannot be achieved through the protocol mechanism and form automatic vitality, it will have to rely on off-chain operations, which becomes a "hard labor" activity.
However, in the discussion, the protocol party mainly introduced the narrative of "staking mining", and the above analysis is based on this, so the analysis may be one-sided or incorrect.
Perhaps they have more in-depth and comprehensive considerations, so let's wait and see. This is just a record for now.
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