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Comprehensive Analysis of BTCFi: From Lending to Staking, Creating a Mobile Bitcoin Bank
Comprehensive Interpretation of BTCFi: From Lending to Staking, Build Your Own Mobile Bitcoin Bank
Summary
As Bitcoin's position in the financial market continues to solidify, the BTCFi sector is rapidly becoming the forefront of cryptocurrency innovation. This report provides an in-depth analysis of several key tracks in BTCFi, including stablecoins, lending services, staking services, re-staking services, and the combination of centralized and decentralized finance.
The report first introduces the scale and growth potential of the BTCFi market, emphasizing the impact of institutional investor participation on the market. It then explores in detail various aspects such as stablecoin mechanisms, lending platforms, and staking services. The focus is on how key projects like Babylon utilize the security of Bitcoin to provide staking services for other PoS chains while creating revenue opportunities for Bitcoin holders.
In addition, the report also explores the CeDeFi model, which combines the security of centralized finance with the flexibility of decentralized finance to provide users with a more convenient financial service experience.
Finally, by comparing the security, yield, and ecological richness of different asset classes, the unique advantages and potential risks of BTCFi relative to other areas of crypto finance have been revealed. As the BTCFi sector continues to develop, it is expected to welcome more innovations and capital inflows, further consolidating Bitcoin's leadership position in the financial domain.
BTCfi Track Overview
BTCFi( Bitcoin Finance) refers to a series of financial activities centered around Bitcoin, including Bitcoin lending, staking, trading, futures, and derivatives. According to data, the BTCFi market size reached approximately 10 billion USD in 2023. It is expected that by 2030, the BTCFi market will reach a scale of 1.2 trillion USD.
In the past decade, the BTCFi market has shown significant growth potential, attracting more and more institutional participation from firms such as Grayscale, BlackRock, and JPMorgan Chase. The involvement of institutional investors has not only brought in substantial capital inflows, increasing market liquidity and stability, but has also enhanced market maturity and regulation.
This article will delve into several hot areas in the current cryptocurrency financial market, including Bitcoin lending, stablecoins, staking services, re-staking services, and the combination of centralized and decentralized finance known as CeDeFi.
BTCFi Track Segmentation
1. Stablecoin
Stablecoins are a type of cryptocurrency designed to maintain a stable value, typically pegged to fiat currencies or other valuable assets. They achieve price stability through reserve assets or algorithmic adjustments to supply, and are widely used in scenarios such as trading, payments, and cross-border transfers.
According to the degree of centralization, they can be classified into centralized stablecoins ( such as USDT, USDC ) and decentralized stablecoins ( such as DAI, FRAX ). According to the type of collateral, they can be classified into fiat/physical collateral, crypto asset collateral, and under-collateralized.
In the BTC ecosystem, the stablecoin projects worth paying attention to are mainly decentralized stablecoins. Here are a few representative projects:
Project One, Bitsmiley Protocol
Bitsmiley Protocol is the first native stablecoin project in the BTC ecosystem. Users can mint the stablecoin bitUSD by over-collateralizing native BTC on the BTC network. The project has completed multiple rounds of financing, attracting several well-known investment institutions.
The operational mechanism is similar to MakerDAO, using the CDP model. After users over-collateralize BTC, bitSmileyDAO sends a Mint bitRC-20 message to the BTC mainnet after receiving and verifying oracle information. The liquidation and redemption logic is also similar to MakerDAO.
The project will launch Alphanet on BitLayer on May 1, 2024. The maximum loan-to-value ratio (LTV) is currently 50%. The project team plans to gradually increase the LTV as the adoption rate of bitUSD increases.
Project Two, Bamk.fi(NUSD)
The Bamk.fi protocol is the issuer of NUSD (Nakamoto Dollar), which is a synthetic dollar on Bitcoin L1. NUSD circulates on the BRC 20-5 byte and Runes protocols.
The project design is divided into two phases: Phase 1, NUSD is supported by USDe at a 1:1 ratio; Phase 2, NUSD will be fully supported by delta-neutral Bitcoin positions and will earn native yields.
Project Three, Yala Labs
Yala, through its self-built modular infrastructure, allows its stablecoin $YU to flow freely and securely across ecosystems, releasing BTC liquidity. Core products include the over-collateralized stablecoin $YU, Metamint, and insurance derivatives.
Yala's roadmap focuses on building a strong liquidity layer that connects Bitcoin to the outstanding Layer 1/Layer 2 ecosystems in the market.
Project Four, Satoshi Protocol
The Satoshi Protocol is the first CDP stablecoin protocol in the BTC ecosystem, based on the BEVM ecosystem. Users can mint the USD stablecoin $SAT by depositing BTC and other BTC-based interest-bearing assets with a minimum collateralization ratio of 110%.
The protocol has two tokens: the USD-pegged stablecoin SAT and the utility token OSHI that incentivizes ecosystem participants. Users can participate in trading, liquidity pools, lending, and other scenarios to earn returns.
Project Five, BTU
BTU is the first decentralized stablecoin project in the Bitcoin ecosystem, utilizing the collateralized debt position ( CDP ) model, allowing users to issue stablecoins based on BTC assets. BTU addresses the liquidity shortage problem faced by Bitcoin holders in the existing DeFi ecosystem through a seamless decentralized design.
The characteristics of BTU include: fully collateralized by Bitcoin, no cross-chain bridge required, proof of assets without transactions, decentralized CDP model, etc. These designs ensure a high degree of decentralization and complete control of assets by users.
2. Lending track
Bitcoin Lending(BTC Lending) is a financial service that allows individuals to obtain loans by using Bitcoin as collateral or to earn interest by lending Bitcoin. Borrowers deposit Bitcoin into the lending platform, which provides loans based on the value of Bitcoin, while borrowers pay interest and lenders earn returns.
BTC lending platforms typically adopt the following risk management measures:
The following introduces several representative projects in the BTC Lending sector:
Project One, Liquidium
Liquidium is a P2P lending protocol running on Bitcoin that supports users in borrowing and lending native Bitcoin using native Ordinals and Runes assets as collateral.
The platform completes Bitcoin lending in a secure and non-custodial manner through partially signed Bitcoin transactions on Bitcoin L1 (PSBT) and discrete log contracts (DLC). Currently, lending for Ordinals and Runes assets (BRC-20 is in testing.
)# Project Two, Shell Finance
Shell Finance is a stablecoin protocol based on BTC L1, supporting the use of BTC, Ordinals NFT, Runes, BRC-20, and ARC-20 assets as collateral to obtain $bitUSD.
Similar to Liquidium, it implements native BTC lending based on PSBT and DLC technology. The difference is that Shell Finance adopts a Peer-to-Pool scheme to maximize utilization.
![Comprehensive Analysis of BTCFi: From Lending to Staking, Build Your Own Mobile Bitcoin Bank]###https://img-cdn.gateio.im/webp-social/moments-5a2b839d69aad511862449ed31e05391.webp(
) 3. Staking track
Staking ### is commonly recognized for its characteristics of security and stable yield. Users staking tokens can obtain certain access rights, privileges, or reward tokens, while these tokens are used to protect network security.
The following introduces representative projects in the Staking track:
(# Project 1, Babylon
Babylon is a Bitcoin staking protocol, with a core component being a POS public chain compatible with Cosmos IBC. It allows for locking Bitcoin on the Bitcoin mainnet to provide security for other POS consumption chains, while earning staking rewards on the Babylon mainnet or POS consumption chains.
Babylon uses UTXO to implement staking contracts, referred to as Remote Staking ). This means the security of BTC is transmitted to the PoS chain through an intermediary layer. The specific implementation steps include: locking funds, condition verification, state updates, and profit distribution.
The overall architecture of Babylon is divided into three layers: Bitcoin ### as a timestamp server (, Babylon ) as a Cosmos Zone, serving as the intermediate layer (, and the PoS chain demand layer.
Currently, Babylon has implemented BTC timestamping testnet and BTC staking poc. The Mainnet is expected to launch in Q2 2024, and Data Availability will be released in Q3-Q4.
![Comprehensive Interpretation of BTCFi: From Lending to Staking, Build Your Own Mobile Bitcoin Bank])https://img-cdn.gateio.im/webp-social/moments-4f11bf9081e7a26f233662a6536eae41.webp(
) 4. Restaking Track
ReStaking is the use of liquid staking token assets to stake with validators on other networks and blockchains to earn additional rewards, while still contributing to the security and decentralization of the new network.
The following introduces several representative projects in the Restaking track:
(# Project One, Chakra
Chakra is an innovative modular settlement infrastructure that utilizes zero-knowledge proof technology to ensure trustless security and efficiency. By integrating decentralized Bitcoin liquidity, Chakra offers a more secure and seamless settlement experience.
Chakra enables the free flow of BTC derivative assets across major public chains by providing a highly modular Bitcoin settlement network, injecting liquidity into DeFi protocols. At the same time, Chakra helps Layer 2, DEX, and DeFi protocols circumvent the complexities of building Bitcoin settlement infrastructure.
)# Project Two, Bedrock
Bedrock is a multi-asset liquidity re-staking protocol supported by a non-custodial solution designed in collaboration with RockX. Bedrock utilizes its universal standards to unlock liquidity and maximize value of PoS tokens, as well as existing liquid staking tokens.
Bedrock provides institutional-level services to users, with a total staked value exceeding 200 million USD on May 2, 2024, and has built the first liquid staking Bitcoin ###uniBTC### on Babylon.
![Comprehensive Interpretation of BTCFi: From Lending to Staking, Build Your Own Mobile Bitcoin Bank]###https://img-cdn.gateio.im/webp-social/moments-6287248a2cf9eb242a43cb204942b855.webp(
) 5. Decentralized Custody
Recently, BitGO, the entity behind wBTC, announced the surrender of control over wBTC, sparking discussions in the market about the security of WBTC. The following introduces several decentralized custody solutions:
( 6. CeDeFi
CeDeFi is a financial service that combines the characteristics of centralized finance (CeFi) and decentralized finance (DeFi). In the CeDeFi model, users lock their Bitcoin in an independent off-exchange settlement network managed by a third-party custodian, and these Bitcoins are mapped to tokens on the exchange at a 1:1 ratio.
The following introduces several representative projects in the CeDeFi track:
)# Project 1, Solv Protocol
The Solv protocol is a unified Bitcoin liquidity matrix designed to consolidate the trillion-dollar liquidity of Bitcoin through SolvBTC. SolvBTC is the liquidity layer for Bitcoin and is currently live on Ethereum, BNB Chain, Arbitrum, and Merlin Chain.
By staking SolvBTC, users can obtain SolvBTC Ethena ###SolvBTC.ENA### or SolvBTC Babylon (SolvBTC.BBN).
(# Project Two, Bouncebit
Bouncebit is a BTC Restaking chain, fully compatible with EVM, featuring CeDeFi product design, utilizing LCT) liquidity support.