Bitcoin Finance ( BTC Fi ) Comprehensive Analysis: From Lending to Staking, Creating a Mobile Bitcoin Bank

As Bitcoin's position in the financial market continues to solidify, 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 delves into several key tracks of BTCFi, exploring stablecoins, lending services, staking services, re-staking services, and the combination of centralized and decentralized finance( CeDeFi).

BTCFi Track Overview

BTCFi( Bitcoin Finance) is like a mobile Bitcoin bank, which revolves around a series of financial activities related to Bitcoin, including Bitcoin lending, staking, trading, futures, and derivatives. According to relevant data, the market size of BTCFi reached approximately 10 billion USD in 2023. It is expected that by 2030, the BTCFi market will reach a scale of 1.2 trillion USD, which 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 gradually shown significant growth potential, attracting an increasing number of institutions to participate, such as Grayscale, BlackRock, and JPMorgan beginning to venture into the Bitcoin and BTCFi markets. The participation of institutional investors has not only brought in a large influx of funds, increasing market liquidity and stability, but also enhanced the maturity and regulation of the market, bringing higher recognition and trust to the BTCFi market.

BTCFi Track Segmentation

1. Stablecoin

Stablecoins are a type of cryptocurrency designed to maintain a stable value. They are typically pegged to fiat currencies or other valuable assets to reduce price volatility. Stablecoins achieve price stability through backing by reserve assets or algorithmic adjustments to 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 extreme fluctuations of traditional cryptocurrencies.

Classified by degree of centralization, stablecoins can be divided into 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.

In the BTC ecosystem, the stablecoin projects worth noting are mainly decentralized stablecoins, such as Bitsmiley Protocol, Bamk.fi(NUSD), Yala Labs, Satoshi Protocol, and BTU, among others. These projects use different mechanisms to achieve the minting and management of stablecoins, such as over-collateralization, algorithmic adjustments, and more.

( 2. Lending

Bitcoin Lending)BTC Lending( is a financial service that allows individuals to obtain loans by using Bitcoin as collateral or to earn interest by lending Bitcoin. Borrowers deposit Bitcoin into a lending platform, which provides loans based on the value of Bitcoin. Borrowers pay interest, and lenders earn returns. This model provides liquidity for Bitcoin holders while offering new income channels for investors.

The collateralized loans in BTC Lending are similar to home mortgages in traditional finance. If the borrower defaults, the platform can auction the pledged Bitcoin to recover the loan. BTC Lending platforms typically implement risk management measures, such as controlling the collateral ratio and loan-to-value ratio )LTV###, supplementing collateral and additional margin, forced liquidation mechanisms, and so on.

Popular BTC lending projects include Liquidium and Shell Finance. These projects utilize technologies such as PSBT( partially signed Bitcoin transactions ) and DLC( discrete log contracts ) to achieve secure, non-custodial Bitcoin lending services.

( 3. Staking Stake Track

Staking ) is generally recognized for its security and stable yield characteristics. When "staking" tokens, users typically gain certain access rights, privileges, or reward tokens over time in exchange for their locked coins, and they can withdraw their tokens anytime and anywhere. Staking occurs at the network level and is entirely used to secure the network.

In the BTCFi space, Babylon is a typical Bitcoin staking protocol. It is a POS public chain compatible with Cosmos IBC, allowing for the locking of Bitcoin on the Bitcoin mainnet to provide security for other POS consumption chains, while earning staking rewards on the Babylon mainnet or POS consumption chains. Babylon enables Bitcoin to leverage its unique security and decentralization features to provide economic security for other POS chains, facilitating the rapid launch of other projects.

4. Restaking stake track

Restaking is the process of using liquid staking token assets to stake with validators on other networks and blockchains to earn additional rewards, while also helping to enhance the security and decentralization of the new network. Through Restaking, investors can earn double rewards from both the original network and the Restaking network.

In the BTCFi field, Chakra and Bedrock are two Restaking projects worth paying attention to. Chakra is an innovative modular settlement infrastructure that employs zero-knowledge proof technology to ensure trustless security and efficiency. Bedrock, on the other hand, is a multi-asset liquidity restaking protocol supported by a non-custodial solution designed in collaboration with RockX.

( 5. Decentralized Custody

As BitGO, the entity behind wBTC, announced the relinquishment of control over wBTC, discussions about the security of WBTC are heating up. Against this backdrop, some new decentralized custody solutions, such as tBTC, FBTC, and dlcBTC, are starting to gain attention. These solutions aim to provide safer and more decentralized Bitcoin wrapping and custody services.

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( 6. CeDeFi

CeDeFi is a financial service that combines the characteristics of centralized finance ) CeFi ### and decentralized finance ( DeFi ). In the BTCFi sector, Solv Protocol and Bouncebit are two representative CeDeFi projects.

Solv Protocol is a unified Bitcoin liquidity matrix designed to consolidate the trillion-dollar liquidity of Bitcoin through SolvBTC. Bouncebit, on the other hand, is a BTC Restaking chain that is fully EVM compatible and features CeDeFi product design, utilizing LCT### liquidity custodian tokens ( for restaking and on-chain Farming.

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) 7. DEX AMM Swap

DEX AMM Swap( is a decentralized trading mechanism that operates on the blockchain. In the BTCFi space, Bitflow, Dotswap, and Unisat AMM Swap are three projects worth paying attention to.

Bitflow focuses on sustainable BTC yield, utilizing technologies such as PSBT, atomic swaps, AMM, and Layer-2 solutions like Stacks for trading BTC, stablecoins, and more. Dotswap is the native AMM DEX on the BTC mainnet, supporting assets including Runes, BRC 20, ARC 20, and the latest CAT 20. Unisat is a wallet application focused on Ordinals and brc-20, implementing trading in the inscription market based on an order book.

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Comparison of Different Asset Classes

In terms of security, yield, and ecological richness, BTCFi has its own characteristics compared to ETHFi and SolFi:

• Security: The BTC ecosystem places much greater emphasis on "security" than other ecosystems, which is determined by the characteristics of BTC ecosystem participants. From the storage of funds in wallets to the specific aspects of participating in FI schemes, security guarantees are essential, and the effective control of "asset ownership" is key.

• Yield: BTCFi has greater potential compared to ETHFi and SolFi, as the latter two have already gone through the first phase of explosive growth in TVL, while BTCFi is still a blue ocean. From this perspective, BTCFi's products have higher yield expectations.

• Ecological Richness: The ETH ecosystem includes Defi, NFT, RWA, and Restake, among others. On Solana, the total TVL of DEX Raydium and liquidity solution Kamino Finance is nearing $1B. As for BTCFi, besides BTC itself, there are already a variety of asset types available for participation, such as inscriptions, runes, and other layer one assets based on the BTC network, rgb++, taproot asset and other layer two assets based on the BTC network, as well as various LST or LRT certificates representing staked BTC.

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Conclusion

As global institutions and tech giants enter the arena, BTCFi is becoming an innovation engine in the crypto financial sector, driving the Bitcoin network towards higher levels of financial applications and global participation. BTCFi not only meets the market's thirst for BTC liquidity but also further enhances the activity of the BTC network by increasing the use cases of Bitcoin.

Looking ahead, with continuous technological advancements and the ongoing expansion of the market, BTCFi is expected to become a bridge connecting traditional finance and the cryptocurrency world, providing global users with richer, safer, and more efficient financial services. The development of BTCFi will continue to promote the maturation and diversification of the Bitcoin ecosystem, opening up new possibilities for the application of Bitcoin in the financial sector.