Unlocking the future of Bitcoin staking: Understanding the BTCFI ecosystem in one article

24-09-15 20:28

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Author: Kevin, Caiya researcher from BlockBooster

Bitcoin’s potential for yield has been limited by its Proof of Work (PoW) consensus. Unlike Proof of Stake (PoS), Bitcoin lacks a native staking mechanism. However, with the rise of BTCFi, new ways are gradually emerging that allow Bitcoin to generate yield without sacrificing security. The BTCFi ecosystem is roughly divided into two parts: BTC layer and restaking, and asset protocols such as ARC20 and BRC20. This article will explore how emerging players in the BTCFi space are reshaping the Bitcoin restaking landscape and compare their main advantages.

The Current Bitcoin Restaking Landscape

Bitcoin restaking is not a new topic in this cycle, with well-known projects such as BounceBit, Coredao, Stakelayer, and Babylon and Symbiotic, which have received widespread attention recently.

First, let's analyze Babylon's solution. Babylon's Bitcoin staking solution includes several innovations designed to enhance security and user experience, making it stand out from many protocols:

Remote staking:Babylon uses Bitcoin's UTXO model and script system for staking, slashing, and reward distribution. A significant advantage is that users who stake Bitcoin are not at risk of slashing penalties, only node operators are affected. This means that users' Bitcoin is not at risk of loss, but they cannot unlock the staked funds in advance, which is more secure.

Timestamp server:Babylon's timestamp server records events from the PoS chain to the Bitcoin mainnet, providing tamper-proof timestamp records. Although the Bitcoin mainnet ensures that these records cannot be changed once on the chain, the accuracy of the timestamp still relies on Babylon's PoS network.

Three-layer architecture:Babylon's architecture is divided into three layers - Bitcoin as the base layer, Babylon as the middle layer, and the PoS chain as the top layer. Babylon records the checkpoints of the PoS chain on the Bitcoin blockchain to ensure the immutability of the data. By using Cosmos as the middle layer, it enhances its scalability and flexibility, attracts node operators, and enables native Bitcoin staking to support Babylon's PoS network.

While Babylon is leading the way in native Bitcoin staking, it is not the only protocol exploring re-staking. Let’s take a look at two other star projects’ Bitcoin staking solutions:

Symbiotic: Co-founded by Lido and Paradigm, Symbiotic is considered a direct competitor to EigenLayer. Symbiotic recently announced support for Bitcoin re-staking, but currently only accepts WBTC staking. Unlike the native Bitcoin staking offered by Babylon, Symbiotic requires users to transfer Bitcoin to a third-party escrow address. So far, Symbiotic has staked 1,630 WBTC and incentivizes user participation through point rewards.

CoreDAO:CoreDAO provides two staking methods: one is native staking, which allows Bitcoin holders to delegate Bitcoin to Core validators without transferring funds; the other is custodial staking, where users send Bitcoin to a lock-up address and mint coreBTC on the CORE chain. Currently, CoreDAO only supports the custodial staking option.

All three hope to bring more application scenarios to the Bitcoin ecosystem and stimulate cross-chain communication or data sharing between Bitcoin and other chains. The re-staking platform itself shares the security of the underlying network through modular thinking, and empowers AVS upwards, providing infrastructure for a wide range of applications, greatly improving the efficiency and performance of the blockchain.

Advantages:

Babylon and CoreDAO shorten the staking process of the Pos chain through the timestamp mechanism of Bitcoin;

Symbiotic has the support of Lido and Paradigm, and has an advantage in protocol cooperation and ecological promotion;

Babylon is the first to realize native staking and realize trustlessness in Bitcoin staking.

Disadvantages:

CoreDAO and Symbiotic still rely on third-party custody to solve trust assumptions;

Babylon's PoW+PoS architecture has deficiencies in security logic, and can only passively rely on the Bitcoin network to realize the accounting function, and cannot actively use the security of the Bitcoin network.

Unlike Ethereum re-staking platforms, Bitcoin re-staking platforms do not directly transmit the security of the Bitcoin network to their respective PoS networks, which is also the focus of future development.

Bitcoin Re-staking Ecosystem

There are already multiple protocols working with the Bitcoin re-staking ecosystem, and these projects aim to increase the liquidity and utility of staked Bitcoin assets:

Bedrock:As the first round of Babylon pre-staking lead project, holding about 30% of the shares, Bedrock supports staking WBTC to mint uniBTC. After the Babylon mainnet is launched, users will be able to receive rewards from uniBTC and Babylon staking, and may receive airdrops through Bedrock's Diamonds program.

Lombard:Lombard allows users to stake Bitcoin through Babylon, and Lombard is responsible for managing the re-staking process. When users stake Bitcoin, Lombard mints an equal amount of LBTC on Ethereum. Users can use LBTC to participate in DeFi activities and enjoy the flexibility of cross-chain income.

Lorenzo: Lorenzo provides liquid staking and re-staking through a principal-income separation model, allowing users to stake Bitcoin or BTCB to obtain stBTC (liquidity principal token) and YAT (income token). This dual-token system enables users to accumulate Lorenzo points while earning Babylon's native staking rewards.

Pell Network:Pell is the first security network built on Bitcoin re-staking and runs on Babylon's AVS network. Pell's TVL has exceeded $200 million in three weeks, with more than 410,000 unique addresses. Pell offers four ways to re-stake, ranging from native Bitcoin staking to staking LP tokens containing liquid BTC derivatives, and its AVS architecture enables it to capture a large amount of revenue from middleware, oracles, modular chains, and more.

PumpBTC:Allows users to stake WBTC or BTCB and receive pumpBTC tokens at a 1:1 ratio. PumpBTC is unique in that the re-staking process is handled by third-party custodians such as Cobo and Coincover. Users can enjoy returns without interacting directly with the protocol, simplifying the staking process.

Solv Protocol:Solv has developed a cross-chain Bitcoin asset liquidity layer that supports cross-chain bridging of WBTC on Arbitrum, BTCB on the BNB chain, and BTC.b on Avalanche. Users can earn XP points by holding solvBTC, participating in lending agreements, or adding liquidity to liquidity pools. In addition, although the Babylon mainnet has not yet been launched, users can still bridge to Babylon through Solv's vault to earn more points.

Stakestone:It is expected to adopt a model similar to ETH-STONE, where users stake native Bitcoin to Babylon and mint yield-based STONEBTC for cross-chain liquidity. Users can earn points from various ecosystems, such as 2x Scroll points.

Conclusion

It is of great significance to transform Bitcoin into an asset that can generate income. Bitcoin re-staking is an effective supplement to the definition of Bitcoin as "digital gold", which greatly improves its liquidity. Unlike the Ethereum ecosystem, BTCFi protocols such as Babylon, Symbiotic and Coredao do not rely on pre-existing infrastructure, which brings both challenges and opportunities. Platforms such as Solv, Lombard and Lorenzo are gradually developing, focusing on multiple rewards, security flexibility and dual incentive systems respectively. BTCFi is still in its early stages, and the technology and ecosystem are developing rapidly. We will continue to pay attention to the dynamics of this field.

Note:About BlockBooster: BlockBooster is an Asian Web3 venture studio supported by OKX Ventures and other top institutions, committed to becoming a trusted partner for outstanding entrepreneurs. Through strategic investment and deep incubation, we connect Web3 projects with the real world and help high-quality entrepreneurial projects grow.

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