What is BTCFi?
BTCFi (BTC DeFi), a decentralized financial system built on Bitcoin assets and the Bitcoin network, has shined in this bull market by combining the security and stability of Bitcoin assets with the innovation of DeFi.
Origin of Bitcoin
Since its launch in 2009, Bitcoin, as a digital asset with a fixed total amount, has continuously attracted the attention of global investors and gradually won the broad consensus of "digital gold". In the process, the price of Bitcoin has repeatedly set new highs and reached a historical high of 1.4 trillion US dollars in early 2024. In addition, the U.S. Securities and Exchange Commission (SEC) officially approved the Bitcoin Exchange Traded Fund (BTC ETF) in January 2024. This move not only marks the recognition of cryptocurrency in the traditional financial field, but also means that the mainstream capital market has begun to legally allocate Bitcoin, pushing the entire crypto ecosystem into a stage of rapid growth.
Bitcoin is not just a digital asset, it is a revolutionary electronic payment network. By using the Proof of Work (PoW) consensus algorithm, Bitcoin has become the most decentralized payment network in human history. Unlike the traditional financial system, users do not need to trust any centralized institution in the Bitcoin network, but only need to rely on the underlying code to ensure the security of assets and transactions.
The integration of BTC and DeFi
With the development of blockchain technology, decentralized finance (DeFi) has gradually become an important branch of financial technology. DeFi refers to a series of automated financial products built on blockchain technology. Compared with traditional financial systems, DeFi has higher inclusiveness and interoperability. Users only need an Internet connection to easily purchase and trade digital assets through DeFi products. In addition, DeFi also cleverly integrates various traditional financial businesses, such as deposits and loans, financing, and equity trading. These functions are like Lego blocks, which can be flexibly combined to create new financial products to meet the diverse needs of users and enhance user experience.
In the past, most DeFi products were built on the Ethereum platform because Ethereum has the most complete smart contract programming language and developer ecosystem. However, with the success of the Bitcoin mainnet Taproot upgrade in November 2021, and the introduction of the Ordinals protocol and BRC-20 standard using Segwit technology, the Bitcoin mainnet can not only perform BTC value transfer and storage, but also support the issuance, trading, lending and other application scenarios of native assets.
Technological progress has driven the exploration of various DeFi applications on the Bitcoin network. Developers have begun to replicate DeFi applications on Ethereum on the Bitcoin network, gradually building a prosperous Bitcoin ecosystem, such as asset issuance protocols represented by Runes and BTC Layer2 expansion solutions represented by BitLayer.
Resonance between technology and needs
Technological progress in the Bitcoin ecosystem has been accompanied by the simultaneous development of users’ demand for Bitcoin appreciation. In the current market cycle, many investors prefer to hold Bitcoin rather than other Altcoin, and hope to gain additional benefits while holding Bitcoin. The rise of DeFi on the Bitcoin network provides Bitcoin holders with more secure and native financial management opportunities, such as PoS mining and arbitrage, thus meeting users’ demand for asset appreciation.
The resonance between technology and demand has allowed developers to explore a more native DeFi path on the Bitcoin network. As a result, BTCFi has flourished in this bull market and has gradually become an important force in the crypto market.
What is the difference between BTCFi and DeFi?
Compared to DeFi on other blockchains, BTCFi has four key features that are particularly important for Bitcoin holders:
- Security: For Bitcoin maximalists and Bitcoin holders, protecting the security of assets is always a prerequisite for all DeFi activities. This not only refers to the security of participating in mainnet DeFi activities, but also refers to the security of each chain and the cross-chain bridge used when bridging to its various chains. To this end, Uniquid Layer uses ADV technology to maximize the security of liquidity aggregation.
- Nativeness: Bitcoin core developers and the community have always adhered to a simple and robust technology stack (small blocks, fixed total amount, PoW consensus mechanism), and advocated building applications without changing the mainnet code. This is the nativeness of Bitcoin technology. For BTCFi-like products, products built with mature and time-tested native technologies can gain recognition from the mainstream Bitcoin community. On the other hand, BTC and homogeneous token protocols such as BRC20 and Runes on the main network also have the nativeness of their assets. They are also distinguished from assets on each chain in terms of community culture, asset categories, and holder needs.
- Decentralization: Decentralization has always been regarded as a guiding principle by the Bitcoin community and is also the cornerstone of the crypto industry. The Bitcoin network itself is sufficiently decentralized, which is why it has achieved its current status as digital gold. Whether the management and access of the underlying locked BTC in the BTCFi protocol is safe, whether a sufficiently decentralized multi-money wallet is used, or whether ZKP is used to eliminate the risk of single point failures, are all factors that BTC holders first consider when participating in the BTCFi protocol.
- Interoperability: The BTCfi protocol needs to attract more support from BTC holders, which requires the protocol itself to work seamlessly with the mainnet Bitcoin, achieve smoother integration between BTC and BTCFi, and release the liquidity potential of Bitcoin assets. Currently, many BTCFi protocols have seized BTC liquidity through high APY commitments and issued their own LST assets, which to a certain extent hindered the interoperability of the entire BTC chain and raised the threshold for users to use it. With Uniquid Layer, users no longer need to understand how to use various Restaking protocols. They only need to pledge their assets on Uniquid Layer to enjoy the optimal returns after integrating various Restaking projects, obtain liquidity certificates, and participate in the larger DeFi ecosystem.
BTCFi is not just an extension of DeFi, but also needs to provide Bitcoin holders with a more secure, native, decentralized and liquid decentralized financial solution based on these four characteristics. This allows Bitcoin holders to continue to trust the core advantages of the Bitcoin network and Bitcoin itself while enjoying DeFi innovations.
What are the sources of BTCFi’s revenue?
In order to meet the needs of BTC holders for asset appreciation and awaken idle Bitcoin liquidity, BTCFi needs to continue to create real and sustainable returns for holders in order to achieve long-term development. Currently, the underlying returns of BTCFi can be divided into the following categories:
- PoS verification income. Users stake BTC into staking protocols represented by Babylon, participate in node verification and governance of the PoS blockchain, and receive staking AVS rewards while ensuring the security of the consumption chain.
- CeFi fee arbitrage. Since there is no physical delivery link in cryptocurrency futures, cryptocurrency exchanges have created a funding rate mechanism to balance the asset price difference between perpetual contracts and spot contracts to adjust the cost or benefit of traders holding contracts. Users can entrust their BTC to professional quantitative institutions and conduct futures and spot arbitrage of funding rates in centralized exchanges.
- Lending income. Users can lend Bitcoin to lenders to earn interest, use Bitcoin to borrow other assets, or over-collateralize stablecoins to participate in the DeFi ecosystem.
- Liquidity mining. Users can deposit Bitcoin into the DEX liquidity pool to earn corresponding transaction fees.
- Token subsidies. In order to encourage Bitcoin holders to participate in the protocol and contribute TVL and transaction volume to the protocol, the BTCFi protocol often subsidizes a portion of the project's token shares to early participating users in the form of token subsidies. This part of the income often accounts for the bulk of the protocol APY calculation and is also the source of income with the highest volatility and uncertainty.
The diversity of BTCFi protocol revenue sources, the fragmentation of revenue between protocols, and the contradiction between actual APY and expected APY have prevented users from accurately grasping the underlying structure and amount of each platform's revenue and capturing the highest security and highest yield. Uniquid Layer recognizes this core pain point and integrates various Restaking projects. Professional analysts and quantitative strategies calculate the underlying real yield of each BTCFi protocol to maximize the liquidity income of Bitcoin holders.
Summarize
With the continuous advancement of Bitcoin mainnet technology and the increasing demand of users for Bitcoin asset interest, BTCFi has begun to thrive in this cycle and is developing rapidly. Different from the DeFi ecosystem of other chains, BTCFi is not just a simple one plus one equals two. BTCFi has its own inherent characteristics. Only by satisfying these characteristics and maximizing asset returns through various DeFi means as much as possible can the BTCFi protocol win the recognition of Bitcoin holders and develop organically and healthily.
With the advancement of Bitcoin mainnet technology and the increasing demand for Bitcoin asset appreciation by users, BTCFi has flourished in this market cycle. Compared with the DeFi ecosystem of other chains, BTCFi has its inherent characteristics. Only on the basis of these characteristics and by maximizing asset returns through various DeFi means can the BTCFi protocol win the recognition of Bitcoin holders and develop healthily.
About Uniquid Layer
Uniquid Layer is a liquidity platform designed for the broader community, committed to becoming a gateway starting point for newcomers in the Bitcoin space to maximize Bitcoin returns with the highest security.
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