In the last twelve months, the 16-year-old blockchain Bitcoin has witnessed the introduction of several new features including Ordinals, Runes, and BRC-20 tokens. Despite recent market corrections, developers remain optimistic about the future of this burgeoning ecosystem.
“There are currently two main challenges hindering BTCFi’s progress: the absence of a base yield and fragmented liquidity,” explained Ryan Chow, co-founder of SolvBTC, in an interview with Cointelegraph. “These issues have resulted in a significant amount of Bitcoin being inactive, unable to fully engage in the DeFi ecosystem.”
SolvBTC, as a Bitcoin yield protocol, is actively developing Liquid Yield Tokens. These tokens will enable Bitcoin holders to deposit their assets and earn income through DeFi, akin to liquid staking tokens on Ethereum. Since its launch earlier this year, SolvBTC has amassed $1.3 billion in total locked value from 292,000 users.
“To illustrate Solv’s approach in providing stable base yield and lucrative earning opportunities to Bitcoin users, consider the SolvBTC Ethena Vault,” Chow elaborated. “The Vault utilizes Bitcoin as collateral to borrow stablecoins, which are then used to mint and stake Ethena’s USDe. This process captures yield from funding rates derived from delta hedging derivatives positions, offering users a competitive APY of approximately 15% net.”
Chow added, “Additionally, Solv and Ethena offer bonus token incentives within the Vault, potentially boosting overall yield further. Concurrently, Solv is actively integrating with various DeFi platforms to enhance yield opportunities across multiple networks.”
SolvBTC is poised to launch on the Ethereum mainnet soon, enabling users to leverage wrapped Bitcoin (wBTC) liquidity directly within the Ethereum DeFi ecosystem.
Master Yield Market, another recent Bitcoin yield protocol, consolidates yield-bearing assets from across the Bitcoin ecosystem. The protocol allows users to purchase Bitcoin yield assets directly from blockchain-native DeFi protocols using Tether, Ethereum, and wrapped Bitcoin.
Meanwhile, efforts are underway to enhance the underlying capabilities of the Bitcoin blockchain to improve its performance in DeFi applications. Sunny Fung, core developer at MetaID, highlighted that while Bitcoin may not resolve congestion and high fees in the near term, layer solutions can mitigate these issues by batching transactions into single applications.
“MetaID introduces the Unified UTXO Chain and Unified Bitcoin Address concepts, effectively addressing Bitcoin’s congestion issues and fully unlocking the potential of Layer 2 networks that are compatible with Bitcoin,” Fung explained to Cointelegraph. “Whether it’s a Bitcoin sidechain, Layer-2 solution, or even BCH compatible with Bitcoin, MetaID theoretically supports seamless integration.”
Fung also noted that despite being the earliest blockchain design and lacking smart contract capabilities, Bitcoin remains the optimal platform for Web3 applications due to its unmatched consensus mechanism, decentralization, security features, and on-chain data storage capabilities through satoshis.
Related: ‘Bitcoin Layer 2s’ aren’t really L2s at all: Here’s why that matters