As Bitcoin continues to set new highs in the aftermath of the US presidential election, the spotlight is also on the Bitcoin DeFi (Decentralized Finance) market. Staking, where Bitcoin is deposited to earn interest-like returns, is a representative Bitcoin DeFi service. Until now, Bitcoin has served as a store of value, but as the ecosystem has expanded with the 'derivative service' of Bitcoin staking, its utilization has increased.
According to DeFiLlama, the total value locked (TVL) in the Bitcoin network surpassed $4 billion (about 56.24 trillion won) on the 14th. The Bitcoin network TVL is the total amount of Bitcoin being used in various DeFi services such as staking, payments, and lending. The network's size, which was only $300 million (about 422.2 billion won) at the beginning of the year, has more than tripled in less than a year, with Bitcoin staking cited as the main driver. Staking is a service where investors can deposit Bitcoin and receive returns, similar to depositing cash in a bank and earning interest. The Bitcoin deposited by investors is used in the blockchain's verification process, contributing to enhanced security. The reward for this is the staking return. Ethereum and Solana also offer such staking services. For example, by depositing the minimum staking amount of 32 Ethereum in the Ethereum blockchain, you can receive an annual interest rate of 3.6% (as of the 13th).
Until last year, Bitcoin staking was considered impossible. Unlike other blockchains such as Ethereum and Solana, Bitcoin lacked smart contract functionality, making it difficult to build DeFi services. Smart contracts are blockchain-based contracts that automatically execute when certain conditions are met. This functionality is essential for DeFi services without intermediaries like banks or brokerages. DeFi is based on blockchain technology, where all transaction records are recorded and can be verified by anyone, allowing the creation of various financial services such as asset deposits and loans without intermediaries.
Bitcoin's use of the Proof-of-Work (PoW) consensus mechanism also posed a hurdle for staking. Unlike the Proof-of-Stake (PoS) mechanism, where block generation rights are obtained based on the staking amount, PoW requires computational power (mining) to generate blocks. Bitcoin was inherently not designed to support staking. In contrast, Ethereum transitioned to PoS two years ago, introducing staking functionality.
Despite Bitcoin's status as the leading cryptocurrency, its utilization was limited, but a breakthrough came with the launch of the Babylon Bitcoin staking protocol. In 2022, Babylon was established by Professor David Chu of Stanford University and Dr. Fisher Yu, allowing PoS chains to utilize not only their own cryptocurrencies but also Bitcoin for staking. Babylon has since attracted two rounds of staking, accumulating 23,857 BTC (worth about 3 trillion won) in August and October. Investors have flocked to Bitcoin staking, recognizing its potential, even though the specific interest rate has not yet been determined.
The third round of staking fundraising is scheduled for early next month. Jang Kyung-pil, head of the Zengel Research Center, said, "The size of other PoS chain ecosystems is small compared to Bitcoin's market capitalization, so the interest rate may not be high, and it may take time to verify stability, which are issues for institutional investors." However, he also noted, "If traditional financial institutions start using DeFi services like staking due to regulatory easing and technological advancements, it will have a positive impact on Bitcoin demand." He added, "In addition to Babylon, new attempts on Bitcoin, such as Ordinals, Loom, and the Lightning ecosystem, are expanding the ecosystem, and the Bitcoin bull run will accelerate this process."
The virtual asset sBTC, which is pegged 1:1 to the value of Bitcoin, is also expected to increase Bitcoin's utilization. sBTC, designed by the American blockchain company Stacks, is set to be issued in early next month. As there are no fees for converting between Bitcoin and sBTC, it is expected to have high utility in various DeFi services. Kyle Ellicott, the Asia Foundation representative of Stacks, explained, "Bitcoin has remained in the early stage from 2009 to 2021, but now it has become an asset that can engage in various activities such as lending, borrowing, and revenue generation, going beyond just being a store of value." He emphasized, "The growth of DeFi will increase the utilization of Bitcoin in the overall cryptocurrency ecosystem, attracting more capital and user participation."
- Reporters Kim Jung-woo and Do Ye-ri
- woo@decenter.kr
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