Exploring the New Potential of BTCFi: How Core's Dual Stake Mechanism Impacts the BTC Ecosystem

With the continuous rise in the price of BTC and the continuous improvement of BTC’s ecological technology, BTCFi will experience a wave of explosion in the next six months.

Host: Joe Zhou, Foresight News Deputy Chief Editor

Guests: Core DAO core contributors Chanel, Crypto Wersearch Daily Coin Research Founder Alvin Hung, Cactus Product Director Alice Du, WaterDrip Capital Founder Jademont, Independent Researcher Ningning, Solv Protocol Ecosystem Cooperation Director Catherine

Host: Please introduce yourselves, six guests.

Chanel: I am Chanel, mainly responsible for the rise of the Core ecosystem in the Chinese and Asia-Pacific regions. Recently, the Core Mainnet has been upgraded, and I am glad to be here to share some perspectives on BTCFi with all of you.

Alvin Hung: I am Alvin Hung from Daily Coin Research. Daily Coin Research has its own website, providing project analysis for various tracks, and we have also opened a TG community.

Alice Du: I am Alice from Cactus. As a Compliance custodian service provider dedicated to institutional users, Cactus has been the first to support dual stake of CORE in the Wallet, bringing a secure and convenient BTC stake experience to users as soon as possible.

Jademont: Hello everyone, I am Dashan, the founding partner of Shuidi Capital. There have been many recent developments in the BTC ecosystem, and I hope to share them with you later.

Catherine：I am a partner of Solv Protocol, mainly responsible for the ecological rise of Solv. Solv is a multi-chain deployed BTC stake platform, currently cooperating with more than a dozen blockchain networks, and has built BTC liquidity pools, including Babylon’s re-stake pool. At the same time, there is also some product cooperation with CORE.

Moderator: What are your new perspectives on the BTCFi market?

Chanel: Currently, BTC holders hope to have more on-chain profit opportunities, and many BTC projects have also developed under this premise. Core’s non-custodial stakeBTC, launched in April this year, has achieved quite good results. Our goal is to allow all participants to stake BTC and earn profits with the lowest risk possible. In the process of communicating with many institutions, partners, and the community, we have found that everyone has expectations for the entire BTC market and more profit opportunities. We have made upgrades to two products. The first is non-custodial BTC restaking. After staking BTC, it can be further restaked to Core, which increases both individual profit opportunities and the overall Annual Percentage Rate. The second is our upcoming LSTBTC, which allows users to stake BTC while restaking BTC to other protocol layers to obtain more profit opportunities.

Alvin Hung: Although most of the attention in the market during this cycle is on memes, we have actually been studying the BTC ecosystem since the beginning of the year. At that time, Merlin brought the first wave of BTC ecosystem frenzy, and new assets such as inscription, rune, and Non-fungible Token (NFT) emerged. Later, Babylon also sparked the trend of staking BTC again, and we have published some summary articles on Babylon. Among the top 30 Blockchains in terms of TVL, 7 of them are related to the BTC ecosystem. Although BTC is not the hottest ecosystem in the market right now, it still holds weight. Whether it is large investors or institutions, they have always been participating in the market.

If you didn’t hold BTC this year, you would probably feel quite regretful. Obviously, BTC is the best-performing mainstream asset in this market. Both national governments and large companies have strategies to increase their BTC holdings. I think this is also influenced to some extent by MicroStrategy. When the price of BTC slowly breaks through to new highs, the attention to BTCFi will rise again. SUI and Aptos may be relatively outstanding public chains in recent months, with good progress in on-chain Decentralized Finance. SUI is more focused on lending or Derivatives, while Aptos is also starting to have some BTCFi projects. Both Move ecosystem users and funds will transition to the upcoming Movement. For retail investors, BTCFi may not be the first choice, because now everyone prefers to rush into protocols that can provide returns in the short term. But for medium- to long-term investors, or those who are already BTC holders, there are opportunities to look at on-chain returns, and players originally in the EVM ecosystem are also beginning to integrate various BTCFi protocols.

Jademont: Recently, we have been discussing BTCFi with some Western institutions. First of all, the BTCF track is different from Decentralized Finance on the ETH network, because the level of participants or groups is different. In the past year, Bitcoin has risen about three times, but MicroStrategy’s stock has risen 14 times. MicroStrategy, which was originally a pure BTC hoarding company, mentioned a few months ago that it wants to do BTCFi, which is to do something with Decentralized Finance combined with the BTC they hoard. If more players of this level come in, BTCFi will definitely be completely different from the public chain ecology or ETH protocol we have experienced in the past. Including Galaxy, which has expanded its business to Hong Kong, they also attach great importance to the BTCFi zone. They manage many BTC assets and also want to provide value-added services in the BTC ecosystem.

The second point I want to briefly talk about is the necessity of BTCFi development. Have you ever thought about where the biggest crisis in the crypto world is after BTC’s rise? Or where is the biggest risk for BTC? In fact, this risk is becoming bigger and bigger, but I haven’t seen much discussion about it on Chinese Twitter. The risk is that the BTC network is becoming increasingly insecure. Currently, the security of the BTC network is guaranteed by Mining Rigs. We know that the BTC network actually has a hidden risk of a 51% Computing Power attack, which means that if you control 51% of the Computing Power, you can attack a specific transaction. Of course, controlling 51% of the Computing Power doesn’t mean you can put all the 21 million BTC in your pocket. Roughly estimated, there are currently Mining Rigs worth about 1.5 billion USD to ensure the security of the entire network. In the past, when the BTC market capitalization was relatively low, such as below 1 trillion USD, it was generally difficult for a single transaction to exceed 10 billion USD. Assuming BTC is at 30,000 USD, the value of BTC is only about 6 or 7 billion USD. But if you want to attack the network, you need at least 10 billion USD worth of Mining Rigs, which means you would spend 10 billion USD to attack a potential profit of only 6 or 7 billion USD. It’s definitely not worth it, so BTC is relatively safe. However, now that BTC has tripled, rising to over 90,000 USD, and may even rise to 100,000, 200,000, or 300,000 later, the value of Mining Rigs has not increased. It may still be 10 billion USD. If I spend 10 billion USD to attack a potential profit of 18 or 20 billion USD, the likelihood increases. At this time, the BTC network will become less secure. How to make the BTC network secure? Simply put, we need to increase Miner income, increase on-chain revenue, and increase on-chain activities. This way, everyone will have the motivation to deploy more Mining Rigs, and the cost of Mining Rigs will increase, reducing the risk of being attacked.

Many people say that BTC L2, BTCFi, etc. are they repeating the Ethereum protocol? In fact, in the BTC community, people do not value the Ethereum protocol. The development of the BTC ecosystem is purely to protect the BTC network. So BTCFi is not something that people want or don’t want to do, it is something that has to be done. In addition, with more and more big players entering the market and increasing requirements for network security, the future of BTCFi will definitely be very bright.

Ningning: I am Ningning, an independent researcher. I used to work on TRON’s coin listing. Now I am also involved in a BTC L2 project with Western capital background stake. What impressed me is that a US-listed mining company is supporting them. Perhaps this mining company also believes that BTC needs some applications to generate some transaction fee income to maintain the current network situation. BTCHalving has passed for more than half a year, and the next round of halving is counting down. If the value of BTC cannot continue to increase the cost, and the cost of Miner’s Computing Power is still pumping exponentially, then there is a problem. If the scale of Computing Power rises with the value of the network, and the scale of Computing Power cannot continue to maintain the rising income, and the growth rate of Computing Power decreases, the market will become very panicked. Before this problem occurs, there will be a time window of 4 to 8 years.

But we can’t deny that the entire market is completely dominated by MEME and Bitcoin pump. Not only the Bitcoin ecosystem and the Ethereum ecosystem, but even the previously popular prediction market, are showing signs of decline.

Of course, some people may think that BTC’s second layer is not established and cannot deny that the market is indeed encountering a relatively low period and bottleneck period. I think this is a longer cycle thing, but in the current market environment, maybe everyone does not pay much attention to it, but I see that many partners or developers who are docking are still actively developing the Bit second layer. For example, the rise in Babylon’s data is still very obvious, which may be because it limits the overall scale, coupled with the current market situation, resulting in less market influence than everyone expected.

The most typical thing in our industry is the cycle, and another is rotation. When the cycle rotates, maybe the infrastructure in this area will be more complete than it is now, and then there will be a more intense rise.

**Host: What is the evolution of LST (Liquidity Staking Token) on the ETH network, and how will it demonstrate similar and different development paths in the BTCFi track?

Chanel: I still have Liquidity after staking, and then stake again to earn additional income, which is also the charm of DeFi. The focus of Core’s upcoming development is to launch an LSTBTC product, hoping to enable more people to maintain on-chain Liquidity.

Alvin: Before the appearance of staking in the Ethereum ecosystem, EigenLayer had a total volume of 15 billion US dollars. At that time, only a portion of the staking was liquid, and they were also one of the earliest protocols to do liquid staking. The innovation of LST is also very interesting. For example, some Decentralized Finance activities in this cycle use LST products for on-chain collateral lending and contracts. In the future, BTCFi may also have such applications, thereby increasing the usage and circulation of staked or restaked assets. This is also something that BTCFi’s protocol needs to consider. In the future, there may be a great integration space between Decentralized Finance and AI Agents, at which point all ecosystems will have the opportunity to participate, which is something I am looking forward to happening.

Jademont: We see an opportunity in the BTC ecosystem, where there are currently various BTC assets participating in stake or re-stake protocols, which was not a trend in the previous bull market or two years ago. Previously, there may have only been WBTC, but now we have counted at least five or six, such as TBTC, FBTC, and solvBTC, including BTC on the Lighting Network that many people are not following. BTC is approaching $100,000, but in reality, the entire EVM is very sluggish because there is not enough new funds coming in, and there are too many choices for new funds. Retail investors have very little capital, and it is difficult to push a project to several hundred million dollars solely relying on PvP. So overall, the AltCoin market is now worth over 1 trillion dollars, and it requires several hundred billion or even trillions of funds to drive the market as a whole. It is impossible to rely solely on retail investors.

And now there are too many choices for traditional institutional funds. They can directly buy a large amount of ETFs, buy BTC Spot, or buy stocks of various crypto-related companies. Many US encryption concept stocks actually outperform most mainstream altcoins by a wide margin. But now the altcoin market has another opportunity, such as encapsulating on-chain native BTC into EVM-compatible BTC, and then using the EVM-compatible wrapped BTC to participate in the stake lending or LP formation of the Decentralized Finance protocol, or even selling it to buy altcoins. This is actually a very important deposit channel, which means that many people may not be able to buy altcoins directly, but they can buy BTC first, and then use BTC to buy altcoins. So if the market for this type of wrapped BTC can increase to a level like, for example, several hundred thousand BTC, it will be a significant increase for the altcoin market, allowing funds to enter the altcoin market.

Host: What are your thoughts on the future development of Core on-chain after the issuance of SolvBTC.CORE?

Catherine: For Solv, we are the recipient of wrapped BTC assets, which means we may consider receiving some assets other than wrapped BTC. The competitive landscape is still quite interesting because cBTC started issuance a month after some negative information came out and now it follows a multi-chain deployment strategy. Then there are some decentralized wrapped BTC like TBTC, which have also gained some traction, as WBTC was previously an absolute leader. We are also seeing other exchanges with similar ideas of issuing their own wrapped BTC.

But we encounter the same difficulties as these centralized exchanges as issuers of packaged BTC, that is, there is no real profitable model. On-chain, it is a public good and cannot be profitable.

So when we communicate with cBTC, we hope they can provide us with some support, but they actually don’t have internal resources to give us because they do this for free, without any profit. It’s just a packaging of BTC assets, but the Intrerest Rate for lending is only 1%, so it’s not very profitable. Therefore, these packaged assets will rely heavily on some protocols that are particularly good at playing Decentralized Finance. For example, if Solv accepts you as our underlying asset, you will transform from an asset with one or two use cases to an asset with 20 use cases and with returns. Apart from solvBTC, we also have 4 LST options for users to choose from. LST itself is an asset with high composability.

Jademont: Packaged BTC may not necessarily be unprofitable, it may just not be very profitable at the moment. However, once the scale of funds increases, it will inevitably become profitable. I’ll share a new trend. There is a project called Ethena that many of you should know about. It is actually a combination of CeFi and Decentralized Finance. Now, more and more BTCFis are learning from Ethena’s gameplay. Packaged BTC is used to do financial management through custody, ensuring the safety of the principal. This is actually profitable. It is just a platform mentality. In short, you can get packaged BTC and then go do financial management or various value-added services. For example, if you earn 10 points of income, give users 8 points, and keep 2 points as profit.

Host: After the Fusion upgrade, BTCstake of Core has joined CORE stake Cactus as a Core institutional partner. What are the prospects for double stake seen?

Alice Du：Fusion is also the highlight of today’s event, as it brings new application scenarios. First, we certainly connected with the service provider of dual stake institutional custody at the first time. We believe that Core’s dual stake is a very good innovation and attempt. Core itself comes with an unmanaged stake protocol for BTC, which actually utilizes the time-lock mechanism of the BTC original chain. Users can enjoy returns without worrying about the security of BTC assets. Additionally, extra stake can also bring more rewards.

BTC dual stake can attract more project parties to enter the Core ecosystem. Moreover, with the native stake of Core, the price of Core will also be very stable. In the promotion of a virtuous cycle, every role in the ecosystem can benefit infinitely. When institutional users want to participate in stake to get high returns, they must rely on a very secure tool and channel. As a professional custody platform, Cactus achieves the highest industry standards in both the custody of Private Keys and the use of Private Keys, helping everyone to make security confirmations and prevent blind signatures, etc., to avoid asset losses while enjoying profits.

**Host: For BTC holder, security is often paramount. What risks should investors be aware of when participating in the BTCFi project?

Ningning: Because BTC itself cannot deploy Smart Contracts and has no mutability, we need a mechanism to cross BTC from the original chain to L2 or other chains. This is a very complex problem. We may have many solutions, such as centralized hosted Wallets, enterprise-grade multi-signature Wallets, MPC solutions, various Cross-Chain Interaction bridge solutions, and bridgeless Cross-Chain Interaction solutions, etc. Although the absolute leader WBTC has experienced a Crisis of Confidence, it has also explained it to the community and is currently adopted by Aave. From the perspective of the entire industry, many people actually don’t like to see a monopoly status. They still hope to have a more decentralized encapsulation of BTC assets, fully guaranteed by the on-chain.

If relying on centralized institutions, institutions or whales may hope for more native custodial solutions. Currently, there are some developing solutions, such as the BTVM Cross-Chain Interaction custody solution proposed by Babylon, EOTS, and Bitlayer, but it takes time to mature the technology and educate the public.

Chanel: In terms of technical development, we have been very careful in auditing, unlike a year or two ago when vulnerabilities were frequent. However, it cannot be denied that not everyone can accept or bear the risks of Cross-Chain Interaction bridges when BTCLarge Investors want to profit from them. Even if the players on the chain are quite familiar with these processes, we cannot say that it is risk-free. Here, I will take some time to introduce Core’s non-custodial stake.

Simply put, non-custodial means that the assets will not leave the stakeholder’s Wallet. Users can lock their assets for a certain period of time using a time lock, and then contribute BTC to the validation Node of the Core chain. We will provide some Token rewards, creating a potential profit opportunity. Our non-custodial staking solution has also been widely recognized by institutional partners. In terms of code auditing, how to conduct Open Source is a part that developers and users need to pay special attention to when participating.

Alvin: on-chain applications themselves will have certain risks, because when we decide to withdraw BTC from the exchange and perform more operations on-chain, these operations themselves will bring some additional risks. When using Decentralized Finance or various on-chain protocols, everyone should pay special attention to phishing websites and common hacker attack methods. Incidents where users are lured to fake websites leading to theft of wallet assets are very frequent.

Jademont：For the BTC network, BTCFi has no risks, only benefits. However, for users, BTCFi does have risks. Currently, BTCFi can be divided into two categories: one is on the BTC network, and the other is hosted by a trusted third party. If on the BTC network, there are two projects that I know of. One project is Babylon, which is being developed by a Stanford professor and has not yet been launched. It claims to be able to lock on-chain BTC in a Decentralization way. Another competitor is DRClink, which locks BTC on the BTC network through a Smart Contract-like method. The risk of these two projects lies in the contracts themselves, but it seems that there should be no problem now, because it has been more than three years from 2021 to the present, and these contracts have stood the test of time.

Another way is through custody, which I think can be divided into two categories. One is custody by relatively large centralized institutions. Although it is centralized, it does not necessarily mean it is not secure, because when the institution has a good reputation, or when the cost of malfeasance is high, we can also consider it as secure. When the scale is relatively small, it is completely acceptable to use their custody. But if the scale is large enough, this method may not be as good as the multi-signature method. Multi-signature is a very good solution, it’s just how you design it. If all three multi-signatures are controlled by one person, it is definitely not secure. But now there are many Decentralization multi-signature solutions. For example, there is a project proposing a protocol that uses a dynamic committee to implement multi-signature, and this multi-signature may be controlled by several dozen Private Keys. I think this method is already sufficiently decentralized and can be considered secure.

Host: How will BTCFi develop next?

Ningning: BTCFi has two main trends. One is to provide economic security for BTC L2, Oracle Machine, and cross-chain bridges through staking to earn native stake rewards. Eigenlayer has been validated in the market, so it will start over again in the BTC ecosystem. The other is BTC earning interest through borrowing. One of the most significant differences between BTC and ETH networks is that BTC itself does not have the ability to earn interest, while Ethereum can earn an annualized return of about 3% through native stake, which is lacking in BTC.

Chanel: We are launching dual stake, hoping that they can stake the rewards on our verification Node to maintain the positive development of the entire economic network without custody of BTC stake, Besides the issuance of LSTBTC, we hope to attract more ABS to Core, so that BTC assets can be encapsulated for more on-chain applications. Core’s layout is not only for retail investors, but also for institutional Miners, trying to align with the entire BTC community. The entire community is relatively complex and diverse, and the value of BTC lies in its role as a bridge between TradFi and digital finance, while our layout considers BTC, TradFi, and digital finance as a whole.

Alice Du：Cactus is very optimistic about the prospects of BTCFi. In the past few years, we have also observed that BTCFi first appeared in centralized financial management platforms, and then many packaged BTCs began to enter the Decentralized Finance protocol. This trend has become more obvious this year. BTCFi has entered an explosive rise, and a large number of financial behaviors based on the underlying protocol of BTC have emerged. We also believe that with the maturity of technology, BTC can enter more scenarios in a more native way and serve as a basic asset to build a more robust Blockchain financial system.

The development of BTCFi cannot be separated from Large Investors, institutions, Mining Pools, and Computing Power platforms, which are also the main customer groups of Cactus. Their demands are also very strong, especially for Miner clients who, due to the BTCHalving factor, also hope to have some ways to earn interest or generate income without sacrificing BTC control. Therefore, Cactus is actively laying out this year, cooperating with communities such as Core and Babylon, and supporting Core’s dual stake as soon as possible. The security is the biggest concern for Miners or Large Investors. Through our plugin wallet stake, stake operations can be carried out through the blockchain explorer. We will also provide measures such as Address verification, Allowlist verification, audit mechanism, and hardware signature to prevent blind signatures or asset loss.

Alvin: The hardest part of the project is not just about doing it well, but more importantly, how to gain market follow. A large part of the BTCFi ecosystem is institutional investors who want to get more returns, while what retail investors follow is different. At the beginning of the year, there were many new asset issuance methods during the first wave of BTC’s outbreak, such as inscription, rune, and even BTC Non-fungible Token, which I think are fun in cycles, and it is not simply to earn profits by operating on-chain through Wallet.

New assets will also appear on the BTCFi track, and it will not be simply depositing assets and earning profits. In the future, BTCFi may also combine with AI to create various innovative applications and generate more application scenarios.

Jademont：I think BTCFi is indeed getting closer to the outbreak, mainly for these reasons. First, everyone can see that this Bull Market is mainly the rise of BTC and MEME. MEME is a PvP market, and the amount of funds is not large. Although they all have the opportunity to get rich, once each target reaches several hundred million US dollars, it cannot rise further. In fact, this is a typical performance of lack of Liquidity. However, the Liquidity of BTC is very sufficient. When everyone feels that the price of BTC is relatively high, the shortest path to trade with other assets while holding BTC is BTCFi.

We have been discussing this issue with some foreign institutions before, this round of legalization or regulatory dividends of BTC, which allows many previously illegal BTC to be circulated normally using Wallet. After they download the BTC Wallet, there may be some ecological elements in the Wallet, and there may also be Lighting Network and other payment methods, which means that the BTC ecology is more easily accessible to the traffic brought by BTCFi. Another reason is that technically, several representative projects in the BTC ecosystem are relatively mature. For example, Lighting Network Taproot went online on the Mainnet in July, but there are still some minor issues being fixed. According to our understanding, basically all the fixes have been completed now. RGB off-chain calculations and client verification Smart Contracts are also very well developed. I estimate that within the next quarter, at the latest within half a year, leading projects of BTCFi will go live, such as Babylon and so on are also nearing launch. Including the BTC L2 launched by the ICP project party a few days ago, these projects have obtained huge financing, starting at tens of millions of dollars. With so much money in the hands of the project party and Tokens about to go live, I believe that there will be a joint force. So I am looking forward to the development of BTCFi in the next quarter.