The crypto world in 2024 witnessed significant milestones, with Bitcoin’s price approaching the symbolic $100,000 mark. The halving event, ETF approvals, and Donald Trump’s rumored plan to adopt Bitcoin as a strategic reserve have pushed Bitcoin deeper into the realm of traditional finance. These developments force us to revisit a fundamental question:

What is finance?

The essence of finance lies in the allocation of assets across space and time.

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

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

Historically, Bitcoin has been largely static, stored in wallets without much movement in terms of space or time. Over 65% of Bitcoin has remained dormant for over a year. The idea that “BTC should only be stored in wallets” has become deeply ingrained, almost like an ideological stamp.

As a result, BTCFi was not highly regarded for a long time.

Even though Bitcoin was originally designed to hedge against traditional financial systems, Satoshi Nakamoto had envisioned multiple scenarios for Bitcoin’s use as early as 2010. These included use cases that resemble today’s DeFi applications. However, as Bitcoin’s identity gradually shifted toward being “digital gold,” exploration of its financial functionalities stalled.

On another timeline, Rune Christensen announced the vision of MakerDAO in March 2013. In 2016, the first decentralized exchange (DEX) on Ethereum, OasisDEX, was officially launched. By 2017, Stani Kulechov, then still a student, founded AAVE in Switzerland. In August 2018, Bancor and Uniswap—platforms now familiar to everyone—went live, ushering in the transformative DeFi Summer.

This signaled that, at least for the time being, the future possibilities of DeFi belonged to Ethereum.

By 2024, Bitcoin’s timeline advanced to a pivotal moment. Its price reached $99,759, just shy of the $100,000 milestone, and its market cap surpassed $2 trillion. BTCFi has become a $2 trillion “conspiracy in plain sight,” reigniting innovation and discussion around Bitcoin’s financial applications.

This marks a new chapter in Bitcoin’s journey, where its potential to allocate assets across time and space is finally being rediscovered.

1. The $2 Trillion Master Plan for Bitcoin: BTCFi

Although Ethereum spearheaded the DeFi (Decentralized Finance) era, Bitcoin is poised to make its mark in BTCFi, albeit later to the game. Ethereum’s experimentation in DeFi has provided a wealth of lessons for Bitcoin. Today, Bitcoin is like 15th-century Europe—on the brink of discovering a “New World.”

1.1 Transforming Bitcoin from a Passive to an Active Asset

Bitcoin is evolving from a passive asset into an active one, driven by the increasing FOMO (fear of missing out) among its holders and their growing motivation for active asset management. This transformation is laying the groundwork for BTCFi’s development.

• Institutional Holdings Are Growing: According to Feixiaohao, 47 companies currently hold $141.342 billion worth of Bitcoin, accounting for 7.7% of Bitcoin’s total circulating supply. With Bitcoin ETFs gaining approval, this trend is accelerating. Year-to-date, Bitcoin spot ETFs have facilitated a net inflow of approximately 17,000 BTC. Compared to early miners and long-term holders, institutions are more sensitive to capital efficiency and returns, making them not only more inclined to participate in BTCFi but also potential key drivers of its development.
• A More Complex Bitcoin Ecosystem: The rise of Bitcoin inscriptions and the broader BTC ecosystem has diversified the composition of the Bitcoin community. Traditional Bitcoin holders prioritize security above all else, while newer participants are more intrigued by emerging narratives and innovative assets.
• Ethereum’s DeFi Path as a Model: Ethereum’s DeFi ecosystem has gradually found a sustainable path. Protocols like Uniswap, Curve, AAVE, MakerDAO, and Ethena have developed ways to achieve economic cycles relying on internal or external revenues, without heavy dependence on token incentives.

Under these multifaceted influences, interest within the Bitcoin community in scalability and BTCFi has significantly increased. Forum discussions have become more active, and even contentious proposals like Bitcoin Core developer Luke Dashjr’s “Proposal to Disable Inscriptions“ failed to gain traction, ultimately being shelved in January of this year.

1.2 Infrastructure Improvements Are Paving the Way

Bitcoin’s historical limitation as merely a store of value has been primarily due to technical constraints—something that is now gradually changing.

• The Historical Context: The scaling debates from 2010 to 2017 culminated in the Bitcoin-Bitcoin Cash split. However, efforts to enhance scalability didn’t stop there. The SegWit and Taproot upgrades have since paved the way for asset issuance, setting the stage for developments like inscriptions to gain visibility.
• Emerging Technologies for BTCFi: \ The broad creation of new assets has generated tangible demand for transactions and financialization. With the advent of technologies such as Ordinals, Sidechains, Layer 2 solutions (L2), OP_CAT, and BitVM, the construction of BTCFi scenarios is now realistically feasible.

Bitcoin is no longer confined to being a static store of value; its transformation into a dynamic ecosystem opens the door to a new era of financial innovation. With improved infrastructure and an increasingly engaged community, BTCFi may yet bring Bitcoin into the forefront of DeFi-like applications.

1.3 Strong Demand Drives Growth

In terms of transaction volume, asset diversification has significantly boosted trading frequency. According to data from The Block, over the past year, the average daily transactions of BTC have exceeded 500,000 per day, with RUNES and BRC-20 taking the lead. Going forward, the demand for trading, lending, credit derivatives, and yield generation is naturally increasing. BTCFi enables Bitcoin to become a productive asset, allowing BTC holders to earn returns on their holdings.

Source: The Block

In terms of Total Value Locked (TVL), BTC, as the cryptocurrency with the largest market capitalization, holds immense potential. Currently, the TVL on the BTC network is approximately $1.6 billion (including L2 and sidechains), which represents only 0.14% of Bitcoin’s total market capitalization. In comparison, the TVL-to-market capitalization ratio of other major blockchains is much higher: 15.7% for Ethereum, 5.6% for Solana, and 6.8% for BNBChain. Using the average of these three ratios as a benchmark, BTCFi still has a potential growth space of 65 times.

The TVL-to-market capitalization ratios of major smart contract-enabled blockchains are much higher: 14% for Ethereum, 6% for Solana, and approximately 3% for Ton. Even at a modest 1% ratio, BTCFi still has the potential for a tenfold growth.

Source：Defillama，Coinmarketcap

2. The Year of BTCFi

As Bitcoin soared to a $2 trillion market cap in 2024, it also ushered in the inaugural year of BTCFi. Combining Bitcoin with “finance” unlocked new possibilities for Bitcoin, expanding its boundaries across time and space.

As previously mentioned, the essence of finance lies in reallocating assets across time and space. Bitcoin Finance (BTCFi) extends Bitcoin’s capabilities by enabling its value to transcend temporal and spatial limitations.

BTCFi enhances Bitcoin’s yield-generating potential through mechanisms such as staking, time locks, interest-bearing instruments, and options. For example:

@babylonlabs_io: Adds a time dimension to Bitcoin.

@SolvProtocol: Provides yield opportunities for Bitcoin.

@Lombard_Finance: Advocates for “semi-decentralization as the optimal solution.”

@LorenzoProtocol: Integrates Pendle-like functionality.

@use_corn: A blockchain purpose-built for BTCFi.

Space-Based Allocation

BTCFi boosts Bitcoin’s liquidity through lending, custody, and synthetic assets. Examples include:

Custody platforms like @AntalphaGlobal, @Cobo_Global, and @SinohopeGroup.

Lending newcomer @avalonfinance_.

CeDeFi pioneer @bounce_bit.

A diverse ecosystem of Wrapped BTC solutions.

Stablecoin innovator @yalaorg.

The rise of BTCFi has not only reinvigorated Bitcoin’s financial ecosystem but also paved the way for new possibilities. Innovative BTCFi projects are emerging at an explosive rate, creating a burgeoning Bitcoin financial landscape.

Source: ABCDE Capital

Whether it’s enhancing Bitcoin’s yield potential or increasing its liquidity, the two core functions of BTCFi align perfectly with Bitcoin’s current narrative. Regardless of market conditions—bull or bear—as long as Bitcoin remains the most recognized digital gold, the BTCFi sector is unlikely to be invalidated or even needs to be.

Take physical gold as a comparison. Gold’s value traditionally rests on three pillars:

Jewelry and industrial applications.

Investment demand.

Strategic reserves by central banks.

From an investment perspective, the introduction of gold ETFs 20 years ago caused gold prices to skyrocket sevenfold. Before ETFs, gold investment required physical ownership, which involved costly insurance, storage, and transportation. Gold ETFs revolutionized the market by offering “paper gold,” which eliminated storage hassles and made gold as tradable as stocks, greatly enhancing its liquidity and investment accessibility.

For Bitcoin, the Bitcoin ETF lacks the transformative impact of gold ETFs, as trading Bitcoin—the “digital gold”—already has a relatively low barrier to entry. Bitcoin ETFs primarily improve compliance, regulation, and ideological acceptance, but their price impact is unlikely to rival that of gold ETFs. On the other hand, BTCFi, by introducing temporal and spatial financial capabilities to Bitcoin, makes Bitcoin more “useful” than before, akin to gold’s jewelry and industrial applications.

In the long run, BTCFi may have a greater impact on Bitcoin’s value and price compared to Bitcoin ETFs.

2.1 Time: Enhancing Bitcoin’s Yield-Generating Potential

2.1.1 Babylon: Unlocking the Time Dimension for Bitcoin

A key concept in BTCFi that cannot be overlooked is Babylon. With Babylon, the concept of “on-chain yield-generating BTC” truly comes to life.

As is well known, Bitcoin’s Proof of Work (PoW) consensus mechanism does not incorporate inflation or yield generation, which means it doesn’t have a built-in annual issuance or yield, unlike Ethereum’s Proof of Stake (PoS) mechanism, which provides a relatively predictable 3-4% annual issuance (adjusted based on staking participation). However, with Eigenlayer bringing the concept of Restaking to the blockchain space, people suddenly realized that while Restaking adds value to Ethereum, it is a much-needed innovation for Bitcoin.

Of course, you cannot directly apply Eigenlayer to Bitcoin, as these are fundamentally two different chains. Replicating Eigenlayer’s functionality directly on the Bitcoin chain is also not feasible, as Bitcoin does not support Turing-complete smart contracts. So, the question becomes: Is it possible to bring the core concept of Restaking for PoS Security to Bitcoin? This is exactly what Babylon aims to achieve.

In simple terms, Babylon uses Bitcoin’s existing scripting language and advanced cryptography to simulate staking and slashing functionality on the Bitcoin network, without involving bridges or third-party wrap technologies that are common in the EVM ecosystem, which can present security and decentralization risks. Bitcoin’s scripting language allows for the concept of a time lock, which enables users to define a lockup period during which the Bitcoin (UTXO) cannot be transferred. This mechanism is similar to staking on PoS chains. Babylon uses this feature to ensure that participating BTC in staking never leaves the Bitcoin network, but instead is locked on a Bitcoin “Staking Address” using time lock technology.

Source: Babylon

So, if Bitcoin is locked using its script, what happens if an issue arises that requires a slashing mechanism? How does Babylon achieve this without the use of smart contracts?

This is where Babylon employs advanced cryptographic techniques—specifically EOTS (Extractable One-Time Signatures). The principle behind EOTS is simple: if a signer uses the same private key to sign two different pieces of information simultaneously, the private key is automatically exposed. This is analogous to the common security vulnerability in PoS chains, where a validator signs two different blocks at the same block height. By exposing the private key through malicious behavior, Babylon effectively implements an “automatic slashing” mechanism.

Through the Restaking technique, Babylon is primarily used to enhance the security of PoS chains. However, to achieve the full Eigenlayer technology stack (e.g., features like EigenDA) or more complex slashing mechanisms, it would require collaboration from other projects within the Babylon ecosystem.

Babylon employs an innovative approach: by enabling self-custody of Bitcoin through a locking mechanism combined with on-chain staking and slashing functionality, it provides Bitcoin holders with a trustless way to earn yield for the first time. Before Babylon, Bitcoin holders could only earn yield through centralized exchanges (CEXs) or by converting BTC into WBTC to participate in Ethereum’s DeFi ecosystem. These methods still relied on trusting centralized security assumptions.

Therefore, although Babylon is modeled after Ethereum’s Eigenlayer Restaking ecosystem, due to Bitcoin’s natural lack of a staking mechanism, we are inclined to view Babylon as a crucial component in building the Bitcoin staking ecosystem.

2.1.2 Bitcoin Yield Gateway: Solv Protocol

When discussing the staking ecosystem, we cannot overlook another project: Solv Protocol. Solv is not a direct competitor to Babylon, but rather introduces a new technological architecture by creating an abstraction layer for staking, which enables the creation of various LSTs (Liquidity Staking Tokens). These LSTs can generate yield from a diverse range of sources, including:

Staking rewards from staking protocols (such as Babylon),

Earnings from PoS network nodes (like CoreDAO, Stacks),

Or profits from trading strategies (such as Ethena).

Currently, Solv has launched several successful LST products, including SolvBTC.BBN (Babylon LST), SolvBTC.ENA (Ethena LST), and SolvBTC.CORE (CoreDAO LST), all of which have performed excellently. According to data from DeFiLlama, the total value locked (TVL) in SolvBTC on the Bitcoin mainnet has already surpassed the Lightning Network, making it the leading platform.

Source: Solv

Solv’s yield generation methods include, but are not limited to, the following:

SolvBTC: Can be minted on 6 chains, with full liquidity across 10 chains, integrated with over 20 DeFi protocols to earn yield.

SolvBTC.BBN: BTC can enter Babylon through Solv to earn yield.

SolvBTC.ENA: BTC can enter Ethena through Solv to earn yield.

SolvBTC.CORE: BTC can enter CoreDAO through Solv to earn yield.

SolvBTC.JUPITER: A yield-bearing asset focused on net asset value growth.

By creating a platform where BTC holders can earn yield across multiple ecosystems, Solv has expanded the potential for Bitcoin to become a productive asset, effectively providing multiple entry points for Bitcoin to generate passive income.

Source: Solv

Therefore, instead of viewing Solv as just a BTC staking protocol, we prefer to describe it as a “BTC balance treasure” (similar to a savings account). Solv offers a diverse range of yield sources, whether from staking rewards, node rewards, or trading strategy profits, allowing BTC holders to have a more flexible way of generating income.

What is particularly noteworthy is that Solv has demonstrated the best performance among all BTCFi protocols:

Wide Coverage: Solv is already circulating across 10 blockchains and has integrated with over 20 DeFi protocols.

Innovative Partnerships: For example, Solv’s collaboration with Pendle has enabled Bitcoin users to earn nearly 10% fixed annual percentage yield (APY), with liquidity provider (LP) market-making rewards reaching up to 40%.

Wide Adoption: The number of SolvBTC holders has exceeded 200,000, with a total market cap surpassing $1 billion.

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

Based on these achievements, Solv Protocol has established a leading position in the BTCFi space and continues to iterate on its products. The next focus will be on launching more types of LST products. Solv is planning to launch a new product called SolvBTC.JUP in collaboration with Jupiter, which will bring perpetual DEX market-making rewards into BTC LST products, further expanding the boundaries of BTC staking.

At the same time, Babylon offers a trustless mechanism that enables BTC holders to earn staking-like rewards. This paves the way for projects to compete for an ecosystem similar to Lido, aiming to create LST liquidity assets similar to stETH. While Babylon has achieved secure BTC locking and provides base-level yield, to further unlock BTC’s liquidity and boost earnings, the BTC locked in Babylon can be used to participate in DeFi applications across both EVM and non-EVM ecosystems through warrant tokens. Fully leveraging the unique composability of blockchain will be key to building the LST ecosystem, with SolvBTC.BBN serving as a successful example.

In addition to Solv, there are other heavyweight projects in the market, such as Lombard and Lorenzo, that are also competing for the LST ecosystem. These LST projects largely align in terms of unlocking BTC liquidity and participating in DeFi yield generation.

Solv’s core advantage lies in its ability to offer Bitcoin users a wider range of yield types, including re-staking rewards, node validator rewards, and trading strategy profits. With this diversified yield model, Solv provides Bitcoin holders with more flexible and varied options.

2.1.3 Echo Protocol: BTCFi Hub in the Move Ecosystem

Echo is the BTCFi hub in the Move ecosystem, providing a one-stop financial solution for Bitcoin and enabling seamless interoperability between Bitcoin and the Move ecosystem. Echo introduces the concept of BTC liquidity staking, restaking, and yield infrastructure into Move, creating a new class of liquidity assets within the Move ecosystem. By partnering with the Bitcoin ecosystem, Echo seamlessly integrates all native Bitcoin Layer 2 solutions, including Babylon, and supports various BTC liquidity staking tokens. This makes Echo a key entry point for attracting new capital into the Move DeFi ecosystem.

Echo’s flagship product, aBTC, is a cross-chain liquidity Bitcoin token that is 1:1 backed by BTC. This innovation facilitates Bitcoin’s DeFi interoperability, allowing users to earn real yield in ecosystems like Aptos. aBTC will be fully supported throughout the Aptos DeFi network, making it a crucial asset for users within that ecosystem.

Echo also introduces eAPT, an innovative product that brings restaking to the Move ecosystem. This enables restaking to protect the MoveVM chain, or any other project that develops its own blockchain, providing security and validation services through Aptos.

As a result, Echo becomes the BTCFi hub of the Move ecosystem, offering four key Bitcoin-related products:

Bridge: Allows the bridging of BTC Layer 2 assets to Echo, enabling interoperability between the Move ecosystem and BTC Layer 2.

Liquidity Staking: Users can stake BTC on Echo to earn Echo points.

Restaking: Synthesizes the Move ecosystem’s LRT token, aBTC, allowing Bitcoin to interact within the Move ecosystem and earn multi-layered yield.

Lending: Users can deposit APT, uBTC, and aBTC, offering staking and lending services, with profits shared with users, yielding close to 10% APT.

2.1.4 “Semi-Centralization Might Be the Optimal Solution” – Lombard

The core feature of Lombard lies in the balance between the security and flexibility of its LBTC assets. Generally, absolute decentralization tends to offer higher security but often sacrifices flexibility. For example, the large market cap disparity between RenBTC and TBTC compared to WBTC is a typical case of this trade-off. On the other hand, fully centralized management can provide the greatest flexibility but tends to have limited growth potential due to the trust assumptions and potential security risks involved. This is one reason why WBTC’s market cap share in the total Bitcoin market remains relatively low.

Lombard cleverly strikes a balance between security and flexibility. By maintaining a relatively secure structure, Lombard maximizes the flexibility of its LBTC, thus opening up new development opportunities for Bitcoin liquidity assets. This approach provides a solution that combines the benefits of decentralization with the practical advantages of centralized management, offering an attractive alternative for Bitcoin liquidity and asset flexibility in DeFi.

Source: Lombard

Compared to the traditional multi-signature Mint/Burn model, Lombard introduces a more secure concept called the “Consortium Security Alliance.” This concept was first seen in early consortium blockchains and differs significantly from the multi-signature nodes controlled by project teams in many current DeFi projects, particularly in cross-chain bridge projects. Lombard’s security alliance is composed of highly reputable nodes, including project teams, well-known institutions, market makers, investors, and exchanges. These nodes reach consensus through the Raft algorithm.

Although this mechanism cannot be entirely described as “100% decentralized,” it offers far greater security than the traditional multi-signature model while retaining the features of full-chain circulation, flexible minting, and redemption with a 2/3 multi-signature data notarization process. Moreover, complete decentralization does not necessarily equate to absolute security. For example, whether it is PoW or PoS, the attack costs and security models can be calculated based on the mechanism design and market cap. Aside from high-market-cap blockchains like BTC, ETH, and Solana, most decentralized projects may not have the same level of security as Lombard’s “Consortium Security Alliance” model. With this design, Lombard achieves a balance between security and flexibility, providing users with a trustworthy and efficient BTC liquidity solution.

In addition to the Consortium Security Alliance design, Lombard also utilizes CubeSigner, a hardware-supported, non-custodial key management platform. CubeSigner plays a crucial role in preventing key theft, mitigating risks from violations, hacks, and internal threats, and preventing key misuse. This adds another layer of security to LBTC.

Furthermore, the $16 million seed round financing led by Polychain undoubtedly signals Lombard’s resource richness within the space. This will greatly benefit the reputation of its Consortium nodes and facilitate future integrations with DeFi and other blockchain projects. LBTC is set to become one of the most formidable competitors to WBTC.

Source: Lombard

2.1.5 “Pendle-Enabled” Lorenzo

In contrast to Lombard’s unique advantages in asset security, Lorenzo, as a Babylon LST gateway backed by Binance, stands out with its compelling features.

In the current wave of DeFi innovation, most traditional DEX and lending protocols have continued with the momentum of DeFi Summer or are merely “living off their past success.” The stablecoin sector, after the collapse of Terra, has seen minimal innovation, with Ethena being one of the few exceptions. The only truly promising sectors are LST (Liquid Staking Tokens) and LRT (Liquidity Restaking Tokens), which have gained attention due to Ethereum’s shift to PoS and the leverage effects of Eigenlayer Restaking.

Among these, the biggest winner is undoubtedly Pendle. It’s not an exaggeration to say that nearly all yield-bearing assets in the Ethereum ecosystem have flowed into Pendle. Its yield tokenization design has introduced a new playbook for DeFi: users seeking risk control can use Pendle’s hedging mechanism, while more aggressive players can enhance their returns by effectively leveraging their assets.

Lorenzo clearly aims to dominate this space by integrating the best features of this trend. After Babylon introduced staking, its LST products gained functionalities similar to stETH, Renzo, and EtherFI, enabling tokenized principal and yield separation. Lorenzo’s LST products can be split into two types of tokens:

Liquidity Principal Token (LPT) (stBTC)

Yield Accumulation Token (YAT)

Both tokens can be freely transferred and traded, allowing holders to either earn yield or withdraw staked BTC. This design not only enhances the flexibility of the assets but also provides users with more diverse investment choices.

Source: Lorenzo

Through this design, Lorenzo unlocks additional possibilities for using staked BTC in DeFi via Babylon. For instance, LPT and YAT can be paired with assets like ETH, BNB, and USD stablecoins, creating trading pairs and offering arbitrage and investment opportunities for various investors. Lorenzo also supports lending protocols centered around LPT and YAT, as well as structured Bitcoin yield products (e.g., fixed-income Bitcoin investment products). In essence, Lorenzo can replicate and build upon many of the innovative features currently available on Pendle.

As one of the few Bitcoin ecosystem projects personally supported by Binance, and the only LST project in the BTCFi space with built-in Pendle capabilities, Lorenzo is certainly worth market attention. This project not only extends the boundaries of BTC liquidity, but it also brings more flexible yield management and investment strategies to the DeFi ecosystem, providing investors with a wider range of choices.

2.1.6 Corn: The Chain Born for BTCFi

Corn is the first Ethereum Layer 2 solution that uses Bitcoin (BTC) as its gas token. Its goal is to offer a variety of financial services, including lending, liquidity mining, and asset management. The chain is built entirely around the financial needs of Bitcoin, and its unique feature is that it maps Bitcoin (BTC) into the network’s native gas token, BTCN, enabling Bitcoin to be more widely used within the Ethereum ecosystem.

Key Features of Corn:

BTCN Token: Corn introduces the BTCN token as the gas fee for transactions on the Corn network. BTCN can be viewed as a mapped version of Bitcoin in ERC-20 format, similar to wBTC, but with technical differences in implementation. The advantages of using BTCN as gas include reduced transaction costs, enhanced efficiency in utilizing Bitcoin, and the creation of new opportunities for value capture for Bitcoin holders.

Ecosystem – “Crop Circle”: Corn presents a concept called “Crop Circle”, which aims to create additional yields by recycling the value of Bitcoin in various ways. Users can stake BTCN to earn network rewards, participate in liquidity mining, engage in lending, and develop derivative markets based on BTCN, among other activities. This system provides a comprehensive and circular model for Bitcoin’s value within the Corn ecosystem.

Token Economic Model: Corn introduces two primary tokens: $CORN and $popCORN.

$CORN is the base token, which can be acquired by staking BTCN or participating in liquidity provision.

$popCORN is a governance token that can be earned by locking up $CORN, granting users voting rights in governance and access to additional rewards. This model encourages users to hold tokens for the long term, and enhances community participation through dynamic weight and lock-up mechanisms.

Corn provides an innovative Layer 2 solution for Ethereum by integrating Bitcoin into its ecosystem. It creates new opportunities for Bitcoin holders to earn yield and participate in DeFi activities. By mapping BTC into BTCN, Corn not only brings Bitcoin into Ethereum’s DeFi space but also introduces novel ways for users to interact with their Bitcoin holdings, thus generating additional value and financial services.

2.2 Space: Enhancing Bitcoin Liquidity

2.2.1 Custody Platforms: Antalpha, Cobo, Sinohope

While decentralization remains the “politically correct” stance within the blockchain community, if we exclude the black swan event of the FTX crash, centralized exchanges, custody, and financial service platforms have generally outperformed most decentralized platforms in terms of funds security. In fact, the annual losses due to hacks on non-custodial wallets and DeFi protocols often exceed those of centralized custody platforms by an order of magnitude.

As such, leading Bitcoin custody and financial service platforms play a crucial role in enhancing Bitcoin liquidity and enabling the cross-temporal and cross-spatial allocation of Bitcoin. Here are three examples:

Antalpha: Antalpha is a strategic partner of Bitmain and boasts the largest Bitcoin community in the industry. The platform’s ecosystem product, Antalpha Prime, is focused on developing services around the Bitcoin ecosystem, offering institutional clients services such as hardware financing (for mining rigs), electricity financing, and BTC custody storage using MPC solutions.

Cobo: Cobo is a well-known name in the industry, co-founded by Shen Yu and Dr. Jiang Changhao. With over 1 billion addresses and more than $200 billion in transactions, Cobo has become a trusted provider of wallet solutions. Cobo offers multiple services, including MPC (Multi-Party Computation) and smart contract wallets, making it a one-stop wallet provider for both institutional and individual users.

Sinohope: Sinohope is a Hong Kong-listed company that offers comprehensive blockchain services, including L1/L2 explorers, Faucets, basic DEX services, lending, NFT marketplaces, and more. Sinohope is not only a wallet solution provider but also offers an entire suite of blockchain infrastructure services.

These platforms have a large number of real, business (B2B) clients, and their security levels are highly trusted. Many DeFi protocols have partnered with these platforms, blurring the lines between centralized and decentralized concepts. Here, security and trust are paramount, and a stable balance between technology and commercialization is sought.

2.2.2 The New Lending Star: Avalon

Avalon is a decentralized lending platform designed specifically to provide liquidity for Bitcoin holders. Users can pledge their Bitcoin as collateral to borrow funds, and Avalon automates the entire lending process using smart contracts. With fixed borrowing rates as low as 8%, Avalon stands out in the highly competitive DeFi market.

Key Features:

Focus on Bitcoin: Avalon has integrated with BTC Layer 2 solutions such as Bitlayer, Merlin, Core, and BoB, providing services tailored to Bitcoin holders’ liquidity needs.

Collateral Management: Avalon operates using an over-collateralization model, where users must pledge more Bitcoin than they borrow, mitigating the platform’s risk.

Performance Data: The platform currently holds over $300 million in Total Value Locked (TVL) and is actively collaborating with other BTCFi projects like SolvBTC, Lorenzo, and SwellBTC to expand its user base.

Avalon’s focus on providing liquidity to Bitcoin holders, along with its low-interest lending options and partnerships with leading BTCFi projects, makes it a promising player in the space.

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 utilizing Restaking strategies. It transforms Bitcoin from a passive asset into an active participant in the crypto ecosystem.

Key Features of BounceBit:

• Bitcoin Restaking: BounceBit allows users to deposit Bitcoin into the protocol and earn additional yields through restaking. This increases the liquidity and yield opportunities for Bitcoin assets. Users can deposit various types of Bitcoin assets, including native BTC, WBTC, renBTC, and more.
• Dual-Coin PoS Consensus Mechanism: BounceBit uses a hybrid PoS (Proof of Stake) mechanism involving BTC and BB (BounceBit’s native token). Validators accept both BBTC (the Bitcoin token issued by BounceBit) and BB tokens as staking collateral. This enhances the network’s security and resilience while broadening the participant base.
• BounceClub: BounceBit offers BounceClub, a tool that enables even non-programmers to create their own DeFi products. This makes DeFi development more accessible and user-friendly.
• Liquidity Custody: BounceBit introduces liquidity custody, which allows staked assets to remain liquid, providing users with additional yield opportunities. This is a departure from traditional locking models and offers greater flexibility to users.

With its innovative restaking model and dual-coin PoS consensus, BounceBit provides Bitcoin holders with new yield opportunities, while driving Bitcoin’s involvement in the DeFi ecosystem. Its liquidity custody and BounceClub tool also simplify and democratize DeFi development.

2.2.4 New Stablecoin Star: Yala

Yala is a stablecoin and liquidity protocol on BTC. Through its self-built modular infrastructure, Yala allows its stablecoin $YU to flow freely and safely among various ecosystems, releasing BTC liquidity and bringing benefits to the entire crypto ecosystem. Come with huge financial vitality.

Core products include:

• Overcollateralized Stablecoin $YU: This stablecoin is generated through overcollateralized Bitcoins. The infrastructure is not only based on the Bitcoin native protocol, but can also be freely and securely deployed in EVM and other ecosystems.
• MetaMint: The core component of $YU allows users to easily use native Bitcoin to mint $YU in various ecosystems, injecting Bitcoin liquidity into these ecosystems.
• Insurance derivatives: Provide comprehensive insurance solutions within the DeFi ecosystem to create arbitrage opportunities for users.

Yala’s series of infrastructure and products serve its vision of bringing Bitcoin liquidity to various crypto ecosystems. Through $YU, Bitcoin holders can earn additional income in various cross-chain DeFi protocols while maintaining the security and stability of the Bitcoin main network; through the governance token $YALA, Yala realizes the development of various products and ecology Decentralized governance.

2.2.5 Flourishing Wrapped BTC Solutions

WBTC (Wrapped Bitcoin)

Wrapped Bitcoin (WBTC) is an ERC-20 token that connects Bitcoin (BTC) with the Ethereum (ETH) blockchain. Each WBTC is backed by 1 BTC, ensuring that its value is directly pegged to the price of Bitcoin. The launch of WBTC allowed Bitcoin holders to utilize their assets within the Ethereum ecosystem, enabling participation in Decentralized Finance (DeFi) applications. This significantly increased Bitcoin’s liquidity and use cases within the DeFi space.

WBTC has been the dominant Wrapped BTC solution, but on August 9, BitGo, the custodian for WBTC, announced a joint venture with BiT Global to migrate the BTC management address for WBTC to a multi-signature wallet controlled by the joint venture. On the surface, this was a routine corporate collaboration, but BiT Global’s connections to Justin Sun, a controversial figure, sparked significant controversy. In response, MakerDAO quickly proposed reducing the collateral backing WBTC in its vaults to zero, citing concerns over centralization and governance.

This event raised questions about the future of WBTC, creating opportunities for newer Wrapped BTC solutions to gain traction.

BTCB (Binance BTC)

BTCB is a Bitcoin token on Binance Smart Chain (BSC), designed to allow users to trade and use Bitcoin on BSC. BTCB aims to enhance Bitcoin’s liquidity while leveraging the low transaction fees and fast confirmation times of BSC. Binance has been actively expanding the use cases for BTCB, with plans to launch more DeFi products related to BTCB on BSC, including lending, derivatives, and more, all designed to increase the token’s utility and liquidity.

BTCB has already gained support from several DeFi protocols on BSC, such as Venus, Radiant, Kinza, Solv, Karak, pStake, and Avalon. These protocols allow users to use BTCB as collateral for lending, liquidity mining, and stablecoin minting, further boosting the liquidity of BTCB and broadening Bitcoin’s use within BSC’s DeFi ecosystem.

Binance aims to strengthen BTCB’s market position and promote Bitcoin’s broader adoption within the BSC ecosystem, providing new scenarios for Bitcoin holders and contributing additional liquidity to BSC’s DeFi platforms.

dlcBTC (Now iBTC)

iBTC (formerly dlcBTC) is a Bitcoin asset based on Discrete Logarithm Contracts (DLC) technology, designed to offer a secure, privacy-preserving method for creating and executing complex financial contracts. The key features of iBTC include:

Decentralization: iBTC does not rely on third-party custody or multi-signature mechanisms, ensuring users maintain full control over their assets. This significantly reduces risks associated with centralization.

Self-Wrapping Mechanism: iBTC utilizes a unique self-wrapping process, meaning Bitcoin is always under the user’s control, and only the original depositor can withdraw the funds. This mitigates the risk of theft or government confiscation.

Zero-Knowledge Proofs (ZKPs): iBTC enhances transaction privacy and security through ZKPs, enabling users to execute complex financial trades within the contract without revealing the transaction details, thus protecting their personal information.

iBTC is regarded as one of the most decentralized Wrapped BTC solutions, addressing the transparency issues associated with centralized custodians. This makes it a highly secure and privacy-conscious solution for Bitcoin holders who wish to engage in DeFi while retaining full ownership and control over their assets.

Other Wrapped BTC Solutions

In addition to the aforementioned Wrapped BTC solutions, there are various other alternatives in the market, including FBTC, M-BTC, and SolvBTC. These different Wrapped BTC solutions offer diverse ways for Bitcoin holders to participate in DeFi and other blockchain ecosystems, further contributing to the growing liquidity and utility of Bitcoin within decentralized networks.

3. Conclusion:

It has been 15 years since the birth of Bitcoin. Bitcoin is no longer just digital gold, but a $2 trillion financial system. A continuous stream of builders is pushing the boundaries of Bitcoin, extending it into a new sector—BTCFi. We make the following judgments:

1. The essence of finance is the allocation of assets across time and space. Typical examples of spatial allocation include lending, payments, and trading; typical examples of time-based allocation include staking, interest, and options. With Bitcoin’s market capitalization reaching $2 trillion, the demand for cross-time and cross-space allocation around Bitcoin is gradually emerging, forming the BTCFi landscape.
2. Bitcoin is about to become the national reserve of the United States, further solidifying its position as an asset for national and institutional allocation. This will create substantial institutional-level financial demand surrounding Bitcoin, such as lending, staking, etc., leading to the emergence of institutional-level BTCFi projects.
3. The completion of Bitcoin’s asset issuance, second-layer networks, staking, and other underlying infrastructure will also pave the way for BTCFi scenarios.
4. The Total Value Locked (TVL) on the Bitcoin network is around $2 billion (including L2 and sidechains), which is only 0.1% of Bitcoin’s total market value, while Ethereum’s is 15.7% and Solana’s is 5.6%. We believe BTCFi still has a tenfold growth potential.
5. BTCFi will develop around two main directions regarding Bitcoin:
   • Increasing Bitcoin’s income-generating properties, with representative projects like Babylon, Solv, Echo, Lombard, Lorenzo, Corn, etc.
   • Enhancing Bitcoin’s liquidity, with representative projects like Wrapped BTC, Yala, Avalon, etc.
6. As BTCFi develops, Bitcoin will transition from a passive asset to an active asset and from a non-income-generating asset to an income-generating one.
7. Looking at the history of gold, the launch of the Gold ETF 20 years ago drove the price of gold up by 7 times. The essence of this transformation was turning gold from a passive asset into a financial asset, which enabled the development of more financial services based on gold ETFs. Today, BTCFi is similarly giving Bitcoin financial properties across time and space, enhancing Bitcoin’s financial scenarios and value capture. Over the long term, this will have a huge impact on Bitcoin’s value and price.

About ABCDE:

ABCDE is a VC focused on leading top Crypto Builders. It was co-founded by Huobi Co-founder Du Jun and former Crypto & Internet founder BMAN. As entrepreneurs, they have built companies with multi-billion-dollar valuations in the crypto industry from the ground up. These include the Hong Kong-listed company Xinhuo Technology (01611.HK), exchanges (Huobi & BitTrade), SAAS companies (ChainUP), developer platforms (BeWater.xyz), and other end-to-end ecosystems.

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