Bitcoin's current market value has exceeded $1.3 trillion, but its potential value has not been fully released because it does not support smart contracts and has problems such as expansion. In contrast, EVM tokens such as $ETH and $SOL have shown considerable returns under the blessing of a prosperous ecosystem.
BTC ETF has brought in a large amount of institutional funds. As the Bitcoin halving approaches, the income of Bitcoin miners is about to decline again. How to make the $BTC in hand obtain passive income has become an urgent problem to be solved. However, unlike Ethereum, Bitcoin is not a POS network and has no native staking income; it also cannot run smart contracts. Therefore, under the premise of ensuring security, improving the capital efficiency of $BTC has become an important task for Bitcoin Layer 2.
As the current leader of Bitcoin Layer 2, Merlin Chain has always been committed to finding a breakthrough in $BTC interest-earning. This article will introduce a series of interest-earning gameplay and security guarantees of Merlin Chain, providing new ideas for participants in the Bitcoin ecosystem.
PoS node staking mechanism and $stMBTC
Merlin Chain adopts a multi-token PoS consensus mechanism. Users can stake $BTC, $MERL or other mainstream BRC 20 assets to compete for node qualifications. Users who stake $BTC will receive LSD tokens $stMBTC at a 1: 1 ratio. The re-staking of $stMBTC is the core of $BTC interest generation on Merlin Chain.
Before explaining the specific benefits, let’s first look at the “underlying needs” and “security guarantees” that everyone is most concerned about.
The re-staking demand of the ecological agreement
Middleware, application chain and other protocols usually face the following problems:
Cost and threshold are too high: You need to build and maintain your own AVS (actively validated service), which consumes a lot of resources
Security is difficult to guarantee: Validators are usually required to stake their own native tokens. The security is directly related to the value of the staked tokens. As the price of the token fluctuates, the risk exposure of the protocol also changes.
Merlin Chain Security
The security of blockchain depends on its destruction cost, and the key to ensuring security is to ensure that the destruction cost is higher than the destruction benefit.
Previous articles have described in detail the various security measures of Merlin Chain. Here are just a few brief points:
After users pledge their assets, the assets on the first layer of Bitcoin will be deposited into the MPC multi-signature wallet jointly managed by Cobo and Merlin Chain, avoiding single-point risk. Cobo is a well-known digital asset custody service provider in the industry, founded by Shenyu. This provides security for Merlin Chain's pledged assets from the perspective of institutional reputation and legal aspects.
Merlin Chain has designed a perfect penalty mechanism, which uses potential penalty risks to constrain node behavior. If a node behaves maliciously, the pre-pledged assets will be deducted as user compensation.
Merlin Chain supports multiple asset pledges including $BTC and $MERL. Multiple tokens play a role in mutual value support, avoiding network risks caused by price fluctuations of a single token.
Merlin Chain plans to introduce Bitcoin Time Stamping to store Merlin Chain's on-chain history records on the Bitcoin layer, using Bitcoin's timestamp to avoid long-distance attacks.
By using $stMBTC as a pledge token and setting up a unique penalty mechanism, the ecological protocol can enjoy the same security as Merlin Chain and improve economic efficiency
No longer need your own AVS, saving a lot of time and money, reducing operating costs
Since Merlin Chain adopts a multi-token staking mechanism, the risk of value fluctuation of a single token is dispersed.
$BTC’s strong consensus and Merlin Chain’s penalty mechanism provide trust guarantee for $stMBTC
In addition, for users who are interested in maintaining the Merlin Chain network but whose hardware equipment and funds are temporarily unable to meet the requirements, Merlin Chain has launched a delegated pledge mechanism to achieve a greater degree of decentralization.
The delegator can entrust his tokens and rights to the node, which will pledge them to Merlin Chain and distribute the corresponding $stMBTC and the profit to the delegator.
Each node can set up a delegation contract to specify how to distribute the benefits to the delegator. In addition, if the node behaves maliciously, the interests of the delegator will also be damaged. Therefore, the delegator must choose a trustworthy node for delegation.
For ecological agreements
Enjoy the collective security of the Merlin Chain ecosystem
More time, energy and resources can be devoted to project innovation
For nodes and delegators
You can get node income, including network fees$BTC and node rewards $MERL, and reinvest them in node operation/delegation
You can use $stMBTC to participate in the staking of Merlin Chain ecological projects, obtain multiple benefits and governance rights without occupying more funds, and maximize capital utilization
$stMBTC re-staking income
$stMBTC can be used to provide security for RPC nodes, DA, Oracle, MEV management, cross-chain bridges, Rollup sequencers, and other scenarios. With the development of the Merlin Chain ecosystem, infrastructure and application chains will usher in a big explosion, and the channels for obtaining re-staking income of $stMBTC will gradually expand.
In addition, users can stake $stMBTC into the Merlin Chain ecosystem’s re-staking agreement to further gain benefits, including:
1. Solv Protocol
Staking$stMBTC can mint Merlin Chain's liquidity strategy token $SolvBTC at a 1:1 ratio, achieving risk-free returns based on the currency standard.
$SolvBTC's income comes from a combination of multiple neutral trading strategies, including Perp DEX market-making income, Funding Rates neutral escape strategy, etc., which ensures stable income while minimizing the impact of market price fluctuations on income.
2. StakeStone
$mSTONEBTC is the first yield-generating BTC derivative token issued by StakeStone based on the BTC Layer 2 PoS mechanism.
$stMBTC can be used to exchange $mSTONEBTC at a 1:1 ratio, thereby entering the StakeStone liquidity distribution network and enjoying the benefits of mainstream staking pools, re-staking pools, and LSD blue chip DeFi strategies.
Merlin Ecosystem DeFi Benefits
$stMBTC and tokens such as $SolvBTC and $mSTONEBTC obtained through the re-staking agreement can be used to participate in a series of DeFi in the Merlin Chain ecosystem to obtain additional income.
DEX
Purpose: Provide liquidity for DEX trading pairs and earn fees
Protocol: MerlinSwap
Stablecoins
Purpose: Pledge to mint stablecoins
Protocol: bitSmiley
Derivatives DEX
Purpose: Pledge for derivatives trading
Protocol: Surf Protocol
Loan Agreement
Purpose: Pledge loan
Protocol: Mage Finance, Avalon Finance
LaunchPad
Purpose: Used to participate in IDO
Protocols: MerlinStarter, UniCross
Off-chain CeFi income
After users pledge $BTC, $MERL and other mainstream BRC 20 assets to Merlin Chain, these assets will be deposited in the MPC wallet managed by multiple parties, thereby minimizing single point risk.
Users can choose to apply CeFi (centralized finance) custody services for layer-1 assets. Merlin Chain works with top asset management teams that have maintained positive returns for a long time to mirror users' on-chain assets on exchanges and achieve over-the-counter settlement. Users can safely access the deep liquidity of the exchange and earn income through diversified trading strategies, while funds are safely retained in the MPC wallet on the chain, improving asset security and transaction efficiency.
Access to CeFi will bring significant off-chain financial market gains to Merlin Chain's pledged assets, including pledge mining, lending services, and investment products. At the same time, these assets will be supervised by transparent public disclosure mechanisms and asset usage authorization thresholds to ensure the integrity and credibility of the system.
Babylon staking income
In addition to CeFi, users can also choose to use Babylon's staking protocol for a layer of staking $BTC to earn staking income.
Babylon's staking is trustless and non-custodial. The staked $BTC will be kept in the multi-signature wallet without transfer, and can be unstaked at any time and returned in just a few days. Users can also choose to stake $BTC to multiple PoS networks to achieve additional benefits.
In addition, Babylon will provide further consensus security protection for Merlin Chain by stamping the on-chain information of Merlin Chain with Bitcoin timestamps, thereby using Bitcoin as the security of the timestamp server.
Applying re-staking on Bitcoin with PoW consensus is not an easy task. It is full of challenges and is also the key to activating Bitcoin's huge liquidity. As the leader of Bitcoin Layer 2, Merlin Chain has made many attempts in the field of $BTC re-staking, including product development and ecological cooperation. We hope that Merlin Chain, as a navigator, can open up new paths and bring more possibilities to the Bitcoin ecosystem and the entire crypto industry.
