Original authors: @BMANLead, @Wuhuoqiu, @LokiZeng, @Kristiancy

In 2024, major events in crypto are set to unfold as Bitcoin's price approaches the $100,000 mark. With the Bitcoin halving and ETF approvals, and Trump planning to use Bitcoin as a strategic reserve, as Bitcoin delves deeper into traditional finance, we are prompted to reconsider a question:

What is finance?

The essence of finance is the cross-spatial and temporal allocation of assets.

Typical cross-spatial allocation: lending, payments, trading.

Typical cross-temporal allocation: staking, interest, options.

In the past, Bitcoin was merely stored in wallets, remaining static in both time and space. Over 65% of Bitcoin has not moved for more than a year, "BTC should only be stored in wallets" has become a stamped ideology.

Thus, BTCFi has not been favored for a long time.

Although Bitcoin was originally created to hedge against the traditional financial system, and Satoshi Nakamoto pointed out various potential scenarios for Bitcoin back in 2010, including multiple DeFi scenarios, the exploration of Bitcoin DeFi or financial scenarios gradually ceased as Bitcoin's positioning moved closer to that of digital gold.

On another timeline, Rune Christensen announced the vision for MakerDAO in March 2013, followed by the launch of the first DEX on ETH—OasisDEX—in 2016. In 2017, Stani Kulechov, still a student, founded AAVE in Switzerland. In August 2018, the well-known Bancor and Uniswap launched, marking the beginning of a grand DeFi summer. This also signaled that the future possibilities of DeFi were temporarily handed over to ETH at that time.

But as Bitcoin's timeline advances to 2024, Bitcoin returns to the center of the crypto world, with its price reaching $99,759, nearing the $100,000 mark, and a market cap exceeding $2 trillion. BTCFi has become a $2 trillion conspiracy, and discussions and innovations around BTCFi are quietly emerging…

### I. Bitcoin's $2 Trillion Conspiracy: BTCFi

Although it was Ethereum that opened the era of DeFi, for Bitcoin, BTCFi may be late, but it will never be absent. Ethereum serves as a testing ground for DeFi, providing Bitcoin with numerous references. Today's Bitcoin is akin to 15th-century Europe, at the dawn of a new continent.

1.1 BTC Transitions from Passive to Active Asset

The increasing FOMO attributes and proactive management motivations of Bitcoin holders will drive Bitcoin's transition from a passive asset to an active asset, providing fertile ground for the development of BTCFi.

Institutional holdings are on the rise. According to data from feixiaohao, currently, 47 companies hold $141.34 billion in BTC, accounting for 7.7% of the total circulating supply of BTC. This trend continues to accelerate following the approval of the BTC ETF. Since the beginning of the year, BTC spot ETH has brought in nearly 17,000 BTC in net inflows. Compared to early miners and hoarders, institutions are more sensitive to capital efficiency and returns, not only showing a higher inclination to participate but also likely becoming proactive promoters of BTCFi.

The rise of inscriptions and the BTC ecosystem has made the composition of the BTC community more complex. Traditional BTC holders prioritize security, placing it at a higher priority, while new members show greater interest in new narratives and new assets.

ETH DeFi has gradually found its path to sustainable development. Projects like Uniswap, Curve, AAVE, MakerDAO, and Ethena have found ways to achieve economic cycles relying on internal or external income without depending on token incentives.

Under the influence of multiple factors, the Bitcoin community's interest in scalability for BTCFi has significantly increased, with forum discussions becoming more active. Last year, the proposal to [disable inscriptions] put forth by Bitcoin core developer Luke Dashjr did not receive support and was officially closed in January this year.

1.2 Infrastructure Improvements Have Paved the Way

Technical limitations have long been a reason Bitcoin was viewed solely as a value storage tool, but this is gradually changing. The route dispute from 2010 to 2017 ultimately resulted in the fork of BTC and BCH, but the enhancement of scalability did not stop. The two upgrades, SegWit and Taproot, paved the way for asset issuance, and subsequently, inscriptions began to appear in people's endeavors. The widespread creation of assets has brought about an objective demand for trading and financialization. With the emergence of technologies like Ordinal, Side-chain, L2, OP_CAT, and BitVM, the construction of BTCFi scenarios has become genuinely feasible.

1.3 Huge Demand Drives Development

In terms of trading volume, asset diversification has already driven an increase in trading frequency. The Block data shows that in the past year, the average daily BTC transfers have exceeded 500k/day, with RUNES and BRC-20 dominating. The subsequent demands for trading, lending, credit derivation, and earning interest have become a natural progression, allowing BTCFi to transform Bitcoin into a productive asset, enabling BTC to earn returns from its held assets.

Source: The Block

In terms of TVL, BTC, as the cryptocurrency with an absolute market cap advantage, has immense potential. Currently, the total value locked (TVL) in the BTC network is approximately $1.6 billion (including L2 and side chains), accounting for only 0.14% of Bitcoin's total market cap. In contrast, the TVL to market cap ratio of other mainstream public chains is much higher, with ETH at 15.7%, Solana and BNBChain at 5.6% and 6.8% respectively. Based on the average of these three, BTCFi still has 65 times the growth potential.

The TVL to market cap ratios of mainstream public chains with smart contract capabilities are significantly higher: Ethereum at 14%, Solana at 6%, and Ton at about 3%. Even at a 1% ratio, BTCFi has the potential for tenfold growth.

Source: Defillama, Coinmarketcap

### II. The Year of BTCFi

So, as we reach 2024, with BTC soaring to $2 trillion, we also welcome the inaugural year of BTCFi.

Combining Bitcoin with "finance" instantly opens up the possibility of $2 trillion, expanding the boundaries of Bitcoin's time and space.

As we have stated: the essence of finance is the cross-spatial and temporal allocation of assets.

Thus, Bitcoin finance, BTCFi, represents Bitcoin's cross-spatial and cross-temporal allocation.

Cross-temporal allocation: enhancing Bitcoin's earning attributes, such as staking, time locks, interest, options, etc., for example:

• Opening the time dimension for Bitcoin @babylonlabs_io

• Bitcoin earning entry @SolvProtocol

• "Semi-centralization may be the optimal solution" @Lombard_Finance

• "Self-contained Pendle" @LorenzoProtocol

• A chain born for BTCFi @use_corn

Cross-spatial allocation: enhancing Bitcoin's liquidity, such as lending, custody, synthetic assets, etc., for example:

• Custody Platforms @AntalphaGlobal, @Cobo_Global, @SinohopeGroup

• Lending New Star @avalonfinance_

• CeDeFi Pioneer @bounce_bit

• Diverse Wrapped BTC

• Stablecoin New Star @yalaorg

Financial applications have not only returned to the endeavors of BTC ecosystem participants but have also given birth to entirely new possibilities. BTCFi innovative projects have begun to emerge in droves, forming a financial landscape for Bitcoin:

Source: ABCDE Capital

Whether enhancing the "digital gold" with earning attributes or increasing its liquidity, these two core functions of BTCFi align perfectly with Bitcoin's current main narrative. Regardless of whether the market is bullish or bearish, as long as BTC remains unchanged and continues to be recognized as the most accepted digital gold in the circle, the BTCFi sector is unlikely to be disproven, or rather, "does not need" to be disproven.

Taking gold as a corresponding example, the value of gold is generally supported by three main pillars:

1. Jewelry and industrial uses

2. Investment

3. Central bank strategic reserve demand

From the perspective of investment demand, the approval of gold ETFs 20 years ago propelled gold prices to soar sevenfold. The reason is that before ETFs, the only channel for gold investment was physical gold, which involved high barriers for many due to requirements for insurance, transportation, and storage. The gold ETF, which does not require storage and can be traded like stocks, is undoubtedly a transformative existence that greatly enhances the liquidity and investment convenience of gold.

Conversely, looking at BTC, BTC ETFs clearly lack the transformative nature of gold ETFs because the trading threshold for users dealing with this "digital gold" is already low. ETFs merely take compliance, regulation, and ideological aspects a step further. Therefore, the price-driving effect of BTC ETFs is likely not as significant as that of gold ETFs. However, BTCFi, by endowing Bitcoin with financial allocation attributes of time and space, makes BTC more "useful" than before, corresponding more closely to the jewelry and industrial uses of gold. Thus, compared to Bitcoin ETFs, BTCFi may provide greater long-term assistance in enhancing BTC's value and price.

2.1. Time: Enhancing Bitcoin's Earning Attributes

2.1.1. Opening the Time Dimension for Bitcoin with Babylon

The concept of BTCFi cannot overlook Babylon, as it is with Babylon that the true meaning of "on-chain earning BTC" is realized.

As is well known, BTC uses POW, which does not have the concept of inflation/earning, so it cannot have a relatively certain annual issuance return of about 3-4% (adjusted according to the staking ratio curve) like ETH's POS. However, with Eigenlayer bringing the concept of Restaking into the circle, people suddenly realized that if Restaking is a bonus for ETH, it is undoubtedly a timely help for BTC.

Of course, you cannot directly throw BTC into Eigenlayer; they are fundamentally two different chains. Technically, it is also impossible to completely replicate an Eigenlayer on the BTC chain, as BTC does not even have Turing-complete smart contracts. So, is it possible to bring the core concept of Eigenlayer's Restaking for POS Security to BTC? This is what Babylon aims to achieve.

In simple terms, Babylon uses existing Bitcoin scripts and advanced cryptography to simulate staking and slashing functions based on Bitcoin, and the entire process does not involve bridges or third-party wraps, which are common terms that pose security and decentralization threats in the EVM ecosystem. Because Bitcoin's script allows the concept of "time lock," which permits users to customize a locking period during which the Bitcoin (UTXO) cannot be transferred, its functionality is quite similar to staking on POS chains. Babylon utilizes this feature, ensuring that BTC participating in staking does not leave the BTC chain but is simply locked on a "Staking Address" on Bitcoin through time lock technology.

Source: Babylon

With BTC locked through scripts, how does Babylon achieve a slashing mechanism in the event of a problem without contracts?

This brings us to the advanced cryptographic technology used by Babylon - EOTS (Extractable One-Time Signatures). When a signer uses the same private key to sign two pieces of information simultaneously, the private key will be automatically exposed. This is equivalent to the most common security breach assumption on POS chains - "at the same block height, the validator signs two different blocks." By exposing the private key through malicious actions, Babylon effectively implements a mechanism for "automatic slashing."

Through "Restaking" technology, Babylon is primarily used to enhance the security of POS chains. However, to achieve a complete Eigenlayer technology stack (such as functionalities similar to EigenDA) or more complex slashing mechanisms, collaboration with other projects within the Babylon ecosystem is still required.

Babylon adopts an innovative approach: by self-custodially locking Bitcoin and combining on-chain staking and slashing functions, it provides BTC holders with a trustless way to earn returns for the first time. Previously, BTC holders wanting to earn returns typically had to rely on centralized exchanges (CEX) or other wealth management platforms, or convert BTC to WBTC to participate in Ethereum's DeFi ecosystem. These methods all rely on trust assumptions regarding centralized security.

Therefore, although Babylon is benchmarked against Ethereum's Eigenlayer Restaking ecosystem, due to BTC's inherent lack of a staking mechanism, we prefer to view Babylon as an important part of building the BTC staking ecosystem.

2.1.2 Bitcoin Earning Entry: Solv Protocol

When discussing the staking ecosystem, another project must be mentioned - Solv Protocol. Solv is not a direct competitor to Babylon; rather, it introduces a staking abstraction layer that can create various LST (liquid staking token) products. The sources of returns for these LSTs can be quite diverse, such as:

• Staking returns from staking protocols (like Babylon);

• Returns from POS network nodes (like CoreDAO, Stacks);

• Or returns from trading strategies (like Ethena).

Currently, Solv has launched several successful LST products, including SolvBTC.BBN (Babylon LST), SolvBTC.ENA (Ethena LST), and SolvBTC.CORE (CoreDAO LST), all performing excellently. According to DeFiLlama data, the current TVL (Total Value Locked) of SolvBTC on the Bitcoin mainnet has surpassed that of the Lightning Network, ranking first.

Source: Solv

Its earning methods include but are not limited to the following:

SolvBTC - can be minted on 6 chains, fully circulated on 10 chains, and connected to over 20 DeFi protocols to earn returns.

• SolvBTC.BBN - BTC can enter Babylon through Solv to earn returns.

• SolvBTC.ENA - BTC can enter Ethena through Solv to earn returns.

• SolvBTC.CORE - BTC can enter Core through Solv to earn returns.

• SolvBTC.JUPITER and other subsequent net asset growth yield-bearing assets.

Source: Solv

Therefore, rather than viewing Solv as a BTC staking protocol, we prefer to describe it as a "BTC balance treasure." Solv provides diverse sources of returns, whether from staking returns, node returns, or trading strategy returns, allowing BTC holders to have more flexible earning methods.

It is noteworthy that Solv currently exhibits the most impressive data performance among all BTCFi protocols:

1. Wide Coverage: Solv is currently circulating on 10 blockchains and has integrated with over 20 DeFi protocols.

2. Innovative Collaboration: For example, Solv's partnership with Pendle offers Bitcoin users a fixed income APY of nearly 10%, with LP market-making returns reaching up to 40%.

3. Widespread Acceptance: The number of SolvBTC holders has surpassed 200,000, with a total market capitalization exceeding $1 billion.

4. Strong Reserves: The Bitcoin reserve of SolvBTC has exceeded 20,000 BTC.

Based on these achievements, Solv Protocol has gained a leading position in the BTCFi field and continues to iterate on its products. The next focus will be on launching more types of LST products. It is reported that Solv plans to collaborate with Jupiter to launch a new product called SolvBTC.JUP, which will introduce market-making returns from Perp DEX into BTC LST products, further expanding the boundaries of BTC Staking.

At the same time, Babylon provides a trustless mechanism that allows BTC holders to earn returns similar to staking. This also paves the way for projects to compete for an ecological niche similar to Lido, aiming to create liquidity assets like stETH. Although Babylon has achieved secure locking of Bitcoin and provides basic returns, to further release BTC's liquidity and enhance returns, BTC locked in Babylon can participate in EVM and non-EVM DeFi applications in the form of warrant tokens. Fully utilizing the unique composability of blockchain will be key to building the LST ecosystem, with SolvBTC.BBN being a successful case.

In addition to Solv, there are other heavyweight projects in the market competing for the LST ecosystem, such as Lombard and Lorenzo. These LST projects generally align in technical directions for releasing BTC liquidity and participating in DeFi returns.

Solv's core advantage lies in its ability to provide Bitcoin users with a richer variety of return types, including restaking returns, validator node returns, and trading strategy returns. With this diversified return model, Solv offers Bitcoin users more flexible and diverse options.

2.1.3 BTCHub of the Move Ecosystem: Echo Protocol

Echo is the BTCFi center of the Move ecosystem, providing a one-stop financial solution for Bitcoin within the Move ecosystem, allowing BTC to seamlessly interoperate with the Move ecosystem.

Echo is the first to introduce BTC liquid staking, restaking, and yield infrastructure into the Move ecosystem, bringing a new category of liquid assets to the Move ecosystem. By collaborating with the Bitcoin ecosystem, Echo seamlessly integrates all native BTC Layer 2 solutions, including Babylon, and supports various BTC liquid staking tokens, making Echo a key entry point for attracting new capital into the Move DeFi ecosystem.

Echo's flagship product, aBTC, is a cross-chain liquid Bitcoin token, backed 1:1 by BTC. This innovation promotes the DeFi interoperability of Bitcoin, enabling users to earn actual returns in ecosystems like Aptos, and aBTC will receive comprehensive support across the entire Aptos DeFi network.

Echo introduces restaking into the Move ecosystem for the first time through its innovative product eAPT. This will allow restaking to protect MoveVM chains or any projects developing their own blockchains, enabling them to rely on Aptos for security and validation.

Thus, Echo will become the BTChub of the Move ecosystem, providing four Bitcoin-centric products:

• Bridge: Allows BTC Layer 2 assets to be bridged to Echo, enabling interoperability between the Move ecosystem and BTC Layer 2;

• Liquid Staking: Stake BTC on Echo to earn Echo points;

• Restaking: Synthesize the Move ecosystem's LRT token aBTC, allowing Bitcoin to interoperate within the Move ecosystem and earn multi-layered returns;

• Lending: Deposit APT, uBTC, and aBTC to provide staking lending services, with profits from lending shared with users to earn nearly 10% APT returns.

2.1.4 "Semi-Centralization May Be the Optimal Solution": Lombard

Lombard's core feature lies in its balance between security and flexibility for its LBTC assets. Generally, absolute decentralization can bring higher security but often sacrifices flexibility. For example, the significant market cap gap between RenBTC and TBTC compared to WBTC is a typical case of this trade-off. While fully centralized management can provide maximum flexibility, its development ceiling is relatively limited due to trust assumptions and potential security risks. This is also one reason why WBTC's market cap share has always been low in the total BTC market cap.

Lombard cleverly finds a balanced solution between security and flexibility. While maintaining relative security, it maximizes the flexibility of its LBTC, thereby opening up new development space for BTC liquid assets.

Source: Lombard

Compared to the traditional multi-signature Mint/Burn model, Lombard introduces the more secure "Consortium Security Alliance" concept. This concept first appeared in early consortium chains and differs from the multi-signature nodes controlled by project parties in many current DeFi projects, especially cross-chain bridge projects. Lombard's security alliance consists of highly reputable nodes, including project parties, well-known institutions, market makers, investors, and exchanges, with consensus reached among nodes through the Raft algorithm.

Although this mechanism cannot be completely termed "100% decentralized," its security is far superior to traditional multi-signature models while retaining the characteristics of 2/3 data notarization for full-chain circulation, flexible minting, and redemption. Moreover, complete decentralization does not necessarily equate to absolute security. For instance, whether POW or POS, the attack costs and security models can be calculated based on mechanism design and market cap. Aside from high-market-cap public chains like BTC, ETH, and Solana, the vast majority of decentralized projects may not be as secure as Lombard's "Security Alliance" model. Through this design, Lombard achieves a balance of security and flexibility, providing users with a trustworthy and efficient BTC liquidity solution.

In addition to the design of the security alliance, Lombard also utilizes CubeSigner, a hardware-supported non-custodial key management platform. It has strict policy restrictions in various aspects to prevent key theft, mitigate violations, hacking, and internal threats, and prevent key misuse, adding an extra layer of security for LBTC.

The $16 million seed round financing led by Polychain undoubtedly signals Lombard's resource richness within the circle, which greatly aids the credibility of its Consortium nodes and subsequent connections with DeFi and other public chain projects. LBTC is bound to be one of the strongest competitors to WBTC.

Source: Lombard

2.1.5 "Self-Contained Pendle": Lorenzo

Compared to Lombard's unique advantages in asset security, Lorenzo, as the Babylon LST entry invested by Binance, also exhibits highly attractive features.

In the current wave of DeFi innovation, traditional DEX and lending protocols largely continue the inertia of DeFi Summer or are "living off past glory." After the collapse of Terra, the stablecoin sector has seen little innovation aside from Ethena, which can barely be considered relatively innovative. The only noteworthy sectors are LST (liquid staking tokens) and LRT (liquidity restaking tokens), thanks to the LST effect brought by Ethereum's transition to POS and the leverage effect stimulated by Eigenlayer Restaking.

In this sector, the biggest winner is undoubtedly Pendle. It is no exaggeration to say that the vast majority of yield-bearing assets in the Ethereum ecosystem ultimately flow to Pendle. The design of separating principal and interest brings a new gameplay to DeFi: users looking to control risk can obtain a complete hedging mechanism through Pendle, while aggressive players seeking higher returns can effectively leverage their investments.

Lorenzo clearly aims to integrate all these features in this sector. After Babylon enabled staking functionality, its LST products possess operational characteristics similar to stETH, Renzo, and EtherFI's LRT assets. Lorenzo's LST products can be split into two types of tokens: liquidity principal token LPT (stBTC) and yield accumulation token YAT. Both tokens can be freely transferred and traded, allowing holders to use them to earn returns or withdraw staked BTC. This design not only enhances the flexibility of the assets but also provides users with more investment options.

Source: Lorenzo

Through this design, Lorenzo unlocks more possibilities for participating in DeFi with BTC staked in Babylon. For example, LPT and YAT can establish trading pairs with ETH, BNB, and USD stablecoins, providing arbitrage and investment opportunities for different types of investors. Additionally, Lorenzo can support lending protocols around LPT and YAT, as well as structured Bitcoin yield products (such as fixed-income wealth management products for BTC). In other words, the vast majority of innovative gameplay currently on Pendle can be referenced and realized by Lorenzo.

As one of the few Bitcoin ecosystem projects personally backed by Binance and the only LST project in the current BTCFI track that comes with "Pendle" attributes, Lorenzo undoubtedly deserves significant market attention. This project not only expands the boundaries of BTC liquidity but also introduces more flexible yield management and investment methods to the DeFi ecosystem, providing investors with more diversified options.

2.1.6 ChainCorn Born for BTCFi

Corn is the first Ethereum L2 project that uses Bitcoin as Gas, aiming to provide users with various financial services, including lending, liquidity mining, and asset management. This chain is entirely built around the financial needs of Bitcoin, and its uniqueness lies in mapping Bitcoin (BTC) as the native Gas token BTCN for the network, allowing Bitcoin to be used more widely within the Ethereum ecosystem.

Core Features:

BTCN Token:

Corn introduces the BTCN token as the Gas fee for transactions on the Corn network. BTCN can be seen as a Bitcoin mapping in ERC-20 format, similar to wBTC, but with different technical implementations. The benefits of using BTCN as Gas include reduced transaction costs, improved efficiency of Bitcoin usage, and the creation of new value capture opportunities for Bitcoin.

Ecosystem "Crop Circle":

Corn proposes an ecosystem concept called "Crop Circle," aimed at recycling the value of Bitcoin in various ways to generate additional returns. Users can stake BTCN to earn network rewards, participate in liquidity mining, borrow, and develop derivative markets based on BTCN, among other activities.

Token Economic Model:

The introduction of $CORN and $popCORN. $CORN serves as the base token, which users can obtain by staking BTCN or participating in liquidity provision; $popCORN is the governance token obtained by locking $CORN, granting users the right to participate in governance and receive additional rewards. This model encourages users to hold tokens long-term and enhances community engagement through dynamic weighting and locking mechanisms.

Corn provides an innovative L2 solution by bringing Bitcoin into the Ethereum ecosystem, aiming to create more earning opportunities for Bitcoin holders.

2.2. Space: Enhancing Bitcoin Liquidity

2.2.1 Custody Platforms Antalpha, Cobo, Sinohope

While decentralization is the absolute "politically correct" stance in the industry, if we exclude the black swan event of FTX's collapse, the leading centralized trading/custody/financial service platforms actually perform much better in terms of fund security than most decentralized platforms. The losses caused by hacks on non-custodial wallets/DeFi protocols exceed those of centralized custody platforms by an order of magnitude each year.

Thus, leading Bitcoin custody and financial service platforms play an undeniable role in releasing Bitcoin liquidity and enabling the allocation of Bitcoin across time and space.

Here are three examples:

Antalpha - With the largest Bitcoin community in the industry, Antalpha is a strategic partner of Bitmain. Its ecological product, Antalpha Prime, develops around the BTC ecosystem, providing institutions with hardware energy financing services in BTC production, such as mining machine financing, electricity financing, and BTC custody storage MPC solutions.

Cobo - The name of Cobo is well-known in the industry. The Cobo custody wallet was co-founded by Shen Yu and Dr. Jiang Changhao, and it has over 100 million addresses and a transaction volume of $200 billion. Today, Cobo offers various solutions such as MPC and smart contract wallets, making it a trusted one-stop wallet provider for many institutions and users.

Sinohope - A licensed listed company in Hong Kong, Sinohope provides a one-stop full-stack blockchain solution, including L1/L2 browsers, faucets, basic DEX, lending, NFT marketplaces, and other comprehensive services, in addition to wallet solutions.

These platforms have a large number of real B-end users and consistently high security levels, so many DeFi protocols have collaborated with the above platforms. Here, the concepts of centralization and decentralization are not so clearly defined; everything is approached from the perspective of security and trust, finding a relatively stable balance in technology and commercialization.

2.2.2 Lending New Star Avalon

Avalon is a decentralized lending platform focused on providing liquidity for Bitcoin holders. Users can use Bitcoin as collateral for loans, and Avalon automates the lending process using smart contracts. The fixed lending rates offered by Avalon are as low as 8%, making it attractive in the competitive DeFi market.

Focus on Bitcoin: Avalon has launched BTC layer 2 services, including Bitlayer, Merlin, Core, and BoB, focusing on providing lending services for Bitcoin holders to meet their liquidity needs.

Collateral Management: Avalon employs an over-collateralization mechanism, requiring users to provide Bitcoin collateral exceeding the loan amount to reduce platform risk.

Data Performance: The platform has surpassed $300 million in TVL and is actively collaborating with various BTCFi projects such as SolvBTC, Lorenzo, and SwellBTC to expand its user base.

2.2.3 CeDeFi Pioneer Bouncebit

BounceBit is an innovative blockchain platform focused on empowering Bitcoin assets. By merging centralized finance (CeFi) and decentralized finance (DeFi), along with restaking strategies, it transforms Bitcoin from a passive asset into an active participant in the crypto ecosystem.

Features of BounceBit:

BTC Restaking: BounceBit allows users to deposit Bitcoin into the protocol and earn additional returns through restaking. This increases the liquidity and earning opportunities of the assets. Users can deposit various types of on-chain Bitcoin assets into BounceBit, including native BTC, WBTC, and renBTC.

Dual-Token PoS Consensus Mechanism: BounceBit employs a hybrid PoS mechanism using BTC and BB (BounceBit's native token) for validation. Validators accept both BBTC (the Bitcoin token issued by BounceBit) and BB tokens as collateral, enhancing the network's resilience and security while expanding the participant base.

BounceClub: BounceBit provides the BounceClub tool, allowing users without programming skills to create their own DeFi products.

Liquidity Custody: BounceBit introduces the concept of liquidity custody, keeping the staked assets liquid and providing more earning opportunities.

This differs from traditional locking models, offering users greater flexibility.

Through its innovative restaking model and dual-token PoS consensus, BounceBit provides Bitcoin holders with more earning opportunities and promotes the application of Bitcoin in the DeFi ecosystem. Its liquidity custody and BounceClub tools also make DeFi development simpler and more user-friendly.

2.2.4 Stablecoin New Star Yala

Yala is a stablecoin and liquidity protocol on BTC. Yala's self-built modular infrastructure allows its stablecoin $YU to flow freely and securely between various ecosystems, releasing BTC liquidity and bringing significant capital vitality to the entire crypto ecosystem.

Core products include:

• Over-collateralized stablecoin $YU: This stablecoin is generated through over-collateralization of Bitcoin, and the infrastructure is based not only on the native Bitcoin protocol but can also be deployed freely and securely in EVM and other ecosystems.

• MetaMint: A core component of $YU, enabling users to conveniently mint $YU using native Bitcoin across various ecosystems, injecting Bitcoin liquidity into these ecosystems.

• Insurance Derivatives: Providing comprehensive insurance solutions within the DeFi ecosystem, creating arbitrage opportunities for users.

Yala's series of infrastructures and products serve its vision of bringing Bitcoin liquidity into various crypto ecosystems. Through $YU, Bitcoin holders can earn additional returns across various cross-chain DeFi protocols while maintaining the security and stability of the Bitcoin mainnet; through the governance token $YALA, Yala achieves decentralized governance of its products and ecosystems.

2.2.5 Flourishing Wrapped BTC

WBTC

Wrapped Bitcoin (WBTC) is an ERC-20 token that connects Bitcoin (BTC) with the Ethereum (ETH) blockchain. Each WBTC is backed by 1 Bitcoin, ensuring its value is pegged to the BTC price. The launch of WBTC allows Bitcoin holders to use their assets within the Ethereum ecosystem and participate in decentralized finance (DeFi) applications. This greatly enhances the liquidity and use cases of Bitcoin in the DeFi space.

WBTC has always been the leader in Wrapped BTC, but on August 9, WBTC custodian BitGo announced a joint venture plan with BiT Global to migrate the WBTC BTC management address to the joint venture's multi-signature. This seemingly ordinary corporate collaboration caused a stir due to BiT Global being controlled by Sun Yuchen. MakerDAO immediately initiated a proposal to "reduce the scale of WBTC collateral," demanding that the collateral amount related to WBC in the core treasury be reduced to zero. The market's concerns about WBTC have also provided new opportunities for new types of Wrapped BTC.

BTCB

BTCB is a Bitcoin token on the Binance Smart Chain that allows users to trade and use it on BSC. BTCB is designed to enhance Bitcoin liquidity while leveraging BSC's low transaction fees and fast confirmation times.

Binance is actively expanding the functionality of BTCB, planning to launch more decentralized finance (DeFi) products related to BTCB on BSC. These new products will include lending, derivatives trading, and more, aimed at enhancing the utility and liquidity of BTCB. The application of BTCB on BSC has already received support from multiple DeFi protocols, including Venus, Radiant, Kinza, Solv, Karak, pStake, and Avalon. These protocols allow users to use BTCB as collateral for lending, liquidity mining, and stablecoin minting.

Binance hopes to strengthen BTCB's market position through these measures and promote the broader application of Bitcoin within the BSC ecosystem. The introduction of BTCB not only provides Bitcoin holders with new use cases but also injects more liquidity into the DeFi ecosystem of BSC.

dlcBTC (now iBTC) @ibtcnetwork

iBTC is a Bitcoin asset based on Discreet Log Contracts (DLC) technology, designed to provide users with a secure and privacy-protecting way to create and execute complex financial contracts. Its core feature is complete decentralization, allowing users to use dlcBTC without relying on third-party custody or multi-signature mechanisms, ensuring full control over their assets and reducing the risks associated with centralization. Additionally, the security of iBTC benefits from its unique self-wrapping mechanism, where users' Bitcoins are always under their control, and only the original depositors can withdraw funds, effectively preventing the risk of asset theft or government seizure.

iBTC also utilizes zero-knowledge proof technology to enhance the privacy and security of transactions. Users can execute complex financial transactions within contracts without disclosing specific transaction details, thereby protecting personal information. Through this innovative mechanism, iBTC enables Bitcoin holders to participate in decentralized finance (DeFi) activities while maintaining ownership and control over their assets.

iBTC is the most decentralized solution among all Wrapped BTC options, addressing the transparency issues of centralized custody in its commercialization process.

In addition to the above Wrapped BTC solutions, there are various BTC solutions such as FBTC, M-BTC, and SolvBTC.

### Conclusion:

Since the birth of Bitcoin, it has been 15 years, and Bitcoin has evolved from being merely digital gold to a $2 trillion financial system. A continuous stream of builders is expanding the boundaries of Bitcoin, extending it into a new track—BTCFi. We have the following judgments:

1. The essence of finance is the allocation of assets across time and space. Typical cross-space allocations include lending, payments, and trading, while typical cross-time allocations include staking, interest, and options. As Bitcoin's market value reaches $2 trillion, the demand for cross-temporal and spatial allocation around Bitcoin is gradually emerging, forming BTCFi scenarios.

2. Bitcoin is about to become a national reserve in the United States, further becoming an asset for national and institutional allocation, leading to significant institutional-level financial demand around Bitcoin, such as lending and staking, resulting in institutional-level BTCFi projects.

3. The improvement of underlying infrastructure such as Bitcoin asset issuance, layer two networks, and staking has also paved the way for BTCFi scenarios.

4. The TVL of the Bitcoin network is approximately $2 billion (including L2 and sidechains), accounting for only 0.1% of Bitcoin's total market value, while Ethereum is at 15.7% and Solana at 5.6%. We believe BTCFi still has tenfold growth potential.

5. BTCFi is developing in two major directions around Bitcoin: first, enhancing Bitcoin's yield-generating properties, represented by projects such as Babylon, Solv, Echo, Lombard, Lorenzo, and Corn; second, enhancing Bitcoin's liquidity, represented by projects such as Wrapped BTC, Yala, and Avalon.

6. With the development of BTCFi, Bitcoin will transform from a passive asset into an active asset; from a non-yielding asset into a yielding asset.

7. Comparing to the history of gold, the launch of gold ETFs 20 years ago drove gold prices up sevenfold. Essentially, it transformed gold from a passive asset into a financial asset, allowing for more financial operations based on gold ETFs. Today, BTCFi also endows Bitcoin with financial attributes of time and space, enhancing Bitcoin's financial scenarios and value capture, which will have a significant long-term impact on the value and price of Bitcoin.

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