BTC Staking: Potential Narratives and Opportunities in the Second Half of the Year

Author: blockpunk Source: X, @blockpunk2077

BTC Staking may be an important narrative in the second half of the year, and an important opportunity to open up the BTC ecosystem.

The narrative of BTC asset launch has come to an end. Memecoin can always be played, but it is not the final form of the BTC ecosystem. The narrative of BTC asset interest will soon become mainstream.

Represented by Babylon, staking BTC provides economical security for other Pos chains and earns income through staking. This has opened up the track for BTC staking and will completely change the way the BTC ecosystem is played. Everyone will play with BTC interest instead of BTC principal.

BTC staking is driven by two important narratives. The first is to increase the yield of the overall assets, just like ETH's DeFi.

According to DefiLlama data, the current market size of BTC interest-bearing exceeds 10 billion US dollars, with a yield of between 0.01% and 1.25%, which generally needs to be entrusted to a third-party CeFi institution. The staking rewards of PoS blockchains often range from 5% to 20%, and the income from staking BTC to provide staking for other PoS chains will not be too low. BTC Staking can obtain 50 times the income of traditional BTC interest-bearing, which will be a huge growth point.

The second point is the hot background of BTC L2, filling the narrative gap of the connection between L2 and BTC. There are nearly 80 BTC L2s on the market, and if the BTC mainnet block is completely filled with DA, it can only carry 20 L2s at most. Many L2s have already made a second choice and changed the frequency of uploading BTC data to once every few months. How can these BTC L2s that use centralized custody bridges, whose security is not guaranteed by BTC, and built with EVM convince the community to be related to the BTC ecosystem? There is a huge narrative gap here.

Obviously, being able to serve as a validator network for Babylon or BounceBit and being reduced to BTC L2s brings huge legitimacy, and at the same time, being able to get the overflow of Staking BTC as soon as possible through PoS interest generation will obviously benefit the token and the ecosystem more directly.

Of course, the market situation faced by Eigenlayer, the restaking project of ETH, is different. Most BTC holders are passive holders, and 67% of BTC holders have not moved for more than 1 year. Therefore, it is difficult to convince BTC holders to participate in staking.

At the same time, BTC staking does not have native currency interest like ETH staking. The interest is often L2's own tokens, which has certain risks. Of course, some L2s that use BTC as gas fee also try to distribute the BTC received from the handling fee to staking users, but obviously this is enough to support it.

To put it bluntly, the significance of BTC L2's existence is to attract (ignore) BTC deposits, and BTC Staking is a more efficient way.

In addition to Staking, we should also think about the performance of BTC. Building L3 based on the existing mature L2 stake is not a pseudo-demand, but a necessity. Projects like Nubit that can make L2 nested with DA or CBK's UTXO Stack framework can gain greater advantages in technology selection.

Babylon chain

Babylon provides POS security guarantees for other blockchains through the native staking of BTC layer in a cryptographic way.

Babylon's staking is cross-chain staking. The staked bitcoins are retained in the script on the Bitcoin network. The staker can specify the selected validator and earn validator income on the corresponding POS chain.

At the technical level, the Babylon pledge process is completely run in the cryptographic way of "extractable one-time signature EOTS", without relying on any third-party bridges and custodians. Babylon has also designed a complete BTC Staking function including confiscation. If the pledger (also the validator of this POS chain) remains honest and only signs one valid block at a time, it will receive the validator reward of the POS chain; if it tries to do evil and signs two blocks at the same block height at the same time, its EOTS private key will be reversed, and anyone can use this private key to transfer the pledged BTC on the BTC chain to achieve confiscation.

Currently, Babylon is staking on the test network, and will launch the next sBTC test in May, and will start pre-deposits in the second half of the year. The token may be issued at the end of the year. Babylon revealed in space that it will also issue liquid assets that pledge BTC (similar to stETH). Subsequent restaking and lrt, lst projects currently have @ChakraChain @LorenzoProtocol @yalaorg @SataBTC ChakraChain Chakra is a BTC staking & restaking protocol. The BTC deposited by users will be invested in BTC Staking protocols such as Babylon to obtain multiple benefits. At the same time, Chakra provides verification services maintained by Staker to provide security for BTC L2. Chakra aggregates the signatures of a series of users through the MuSig2 protocol to generate a UTXO containing a time lock, which can "pledge" Bitcoin within a certain period of time to complete the pledge action. Bitcoin holders do not need to transfer BTC to any third-party custody address, but achieve self-custody at the L1 layer through a derived address.

There are only two conditions for unlocking the BTC UTXO after staking: one is to retrieve it after the Chakra network and the user sign together. This may be that the user has initiated a request for early unlocking in the Chakra network, which provides flexibility; the second is that when the initial lock-up period is reached, the user will automatically obtain control of these BTC, and even after the Chakra network stops running, the user can still withdraw BTC on time.

Unlike Babylon, which also uses self-custody BTC staking, the Chakra network does not have the ability to confiscate the BTC staked by users, but instead guarantees consensus by cutting consensus rewards, which further avoids some possible erroneous confiscations that threaten users' BTC assets.

Chakra also introduced ZK capabilities into the BTC staking ecosystem and received investments from Starkware, ABCDE, Bixin, and Coin Summer. The testnet is currently being tested. You can go to http://chakrachain.io/devnet to connect your wallet to receive the early participant certificate.

build_on_bob

BOB is a BTC EVM sidechain architecture implemented using the OP Superchain SDK. It uses wrapped BTC on ETH such as wBTC and tBTC as gas fees. In the future, it will also introduce BTC security through a new POW merged mining protocol.

The BOB testnet has been running for several months and has a certain ecosystem. The mainnet will be launched on May 1st. The first phase of deposit activities is currently underway. The Spice points accumulated by deposits correspond to the future $BOB tokens, which will be directly TGE after the mainnet is launched.

To participate in BOB's pre-staking, you need to operate on the ETH mainnet. If it is BTC, you need to cross-chain to $tBTC, $wBTC, and the return multiple is 1.5 times. It also accepts DAI, eDLLR, rETH, USDC, USDT, wstETH, STONE, and the staking reward multiple is 1.3 times. It also accepts ALEX, ETH, and eSOV staking, and the reward multiple is 1 times.

BOB has strong resources. It has launched BTC L2 in cooperation with $MARA, the largest listed mining company in the US stock market, and has just announced a $10 million investment from Coinbase. It can be regarded as a project benchmarking Binance and bouncebit. At present, the TVL of BOB's first phase of deposits is currently around $250 million, which has great potential.

BotanixLabs

Botanix Labs has built an EVM equivalent L2 on Bitcoin, which is run by POS. Users can deposit BTC into a multi-signature address to participate in L2 staking, or bridge BTC to L2 to participate in the ecosystem. Its feature is that these BTC assets are protected by a decentralized multi-signature network Spiderchain.

You can participate in PoS and multi-signature network Spiderchain by staking BTC to become a validator node. Botanix uses the Bitcoin block hash value as a source and randomly selects nodes to participate in PoS block generation. A block header after implementation will be engraved into the BTC block to complete the final confirmation.

The settlement layer of Botanix L2 is BTC, and its gas is also BTC from the collapsed chain. Its consensus also uses the security of BTC as a guarantee.

L2's assets on BTC are all protected by the multi-signature network Spiderchain, and the nodes also randomly form multi-signature groups to control the BTC in the multi-signature address. The cost of nodes doing evil is high because their staked BTC can be confiscated.

Currently, Botanix's testnet has been running for half a year, https://botanixlabs.xyz/en/testnet, users can participate in the test and receive a series of NFT certificates. Botanix Labs has been building L2 on BTC since 2022 and has certain technical strength. Its testnet is a good opportunity to participate.

BounceBit

BounceBit is a BTC-based interest-bearing and restaking infrastructure. BounceBit attempts to integrate CeFi and DeFi businesses in BTC interest-bearing, and uses BTC pledges to guarantee the security of the blockchain.

BounceBit itself is also a BTC EVM L2. In addition to staking its native token BB, L2's PoS staking can also stake BTC assets.

At the same time, the BTC assets absorbed by BounceBit (including mainnet BTC and BTCB and WBTC on BNBChain) are all hosted in centralized custody services supported by Mainnet Digital and Ceffu, which is the only institutional custody service used by Binance. BounceBit attempts to eliminate BTC users' concerns about security through this endorsement.

The BTC assets deposited by users become bounceBTC on BounceBit. Users can choose to stake these BTC to other validator networks, such as EVM chains, decentralized bridges and oracles, to earn verification income from these networks.

BounceBit brings triple benefits to users through a series of businesses. The mainnet BTC assets are held in cefi such as Binance to obtain stable income. Users can also earn BB tokens by staking on the bouncebit chain, or restaking to other validator networks to earn rewards, or use them for DeFi businesses such as AMM and lending. BounceBit is supported by Binance and will provide 8% of the tokens to BNB stakers of Binance Megadrop.

MezoNetwork

Mezo is a BTC L2 built on tBTC. It uses the architecture of Cosmos EVM and realizes asset transfer from BTC to Mzeo L2 through tBTC's multi-signature cross-chain bridge.

Mezo’s feature is the introduction of a Ponzi economics called HODL Proof, which is similar to ve33 for BTC staking. Users can lock BTC on Mezo to participate in the consensus. The longer the lock-up time, the more stake verification weight they get, and the higher the reward.

Mezo’s PoS is divided into two parts, the BTC part and the native token MEZO part, both of which can get veMEZO as a reward. The incentives are divided into different incentive pools, and 1/3 of the total incentives are obtained by BTC stakers, and 2/3 by MEZO stakers.

On April 9, Bitcoin’s second-layer network Mezo completed a $21 million Series A financing round, led by Pantera Capital, with participation from Multicoin, Hack VC, Draper Associates, etc.

Mezo has started early deposit activities, and now native BTC, wBTC and tBTC can be deposited and withdrawn. The Mezo mainnet is expected to be launched in the second half of 2024.

LorenzoProtocol

A Bitcoin liquidity staking protocol built on Babylon, providing L2-as-a-service rapid deployment services. Lorenzo attempts to lower the participation threshold of BTC staking projects such as Babylon, reduce the risk of penalties for pledgers, and release the liquidity of pledged BTC assets.

Babylon is a relatively low-level BTC staking protocol, which is similar to ETH's native staking and may have certain requirements for the minimum number of BTC staked.

At the same time, for individual users, the staking income is not stable, but there is a risk of being fined. Therefore, it is necessary to participate in the liquidity staking agreement of BTC Staking as a risk-return unit by rewarding the BTC staking pool. This is what the Lorenzo protocol is going to do, which is similar to Lido.

Stakers can wish to participate in the staked PoS chain and deposit their Bitcoin into the corresponding Lorenzo delegation vault, which is a Bitcoin multi-signature address.

Stakers can obtain an equal amount of stBTC on Lorenzo's own chain as a liquidity proof of participating in Babylon's staked Bitcoin, and use it to receive staking income.

The Lorenzo chain itself is protected by Babylon Bitcoin Shared Security, EVM-compatible Bitcoin L2, and will also use a modular approach to help more BTC L2 deployments in the future. The Lorenzo chain serves as a direct interoperability chain for these L2 chains.