In the post-ETF era, the BTCFi narrative has just begun
Original Author: Haotian (X: @tmel0211)
I didn't expect the topic of "BTCFi is dead" to come so quickly. Indeed, since the launch of @babylonlabs_io, the market has expected Babylon to bring a number of ecosystems to boost the BTCFi track, but it obviously backfired. As for whether BTCFi is dead, I think it's too early to judge, and there is a misunderstanding of the evolution logic of the BTCFi track. Below, I would like to share the following observations:
1) One point is that the market performance of Babylon after its launch is obviously different from the prospect of the BTCFi track.
Because Babylon can lock users' BTC assets in the form of script contracts on the Bitcoin mainnet, it can output "secure consensus services" on many BTC layer 2s, and then get rich benefits provided by other extension chains. From the supply side, Babylon's technological innovation services are indeed useful, but from the demand side, who will procure this security consensus service, and who will provide continuous benefits?
Obviously, from the perspective of the B-side demand for "security consensus" of some large, medium and small new chains, the prospect of BTCFi is obviously not as expected, but if we look at the demand side of C-end users, every BTC holder has the need to continue to earn interest for the BTC they hold, and the goal of BTCFi technical solutions is to access trillions of dollars of traditional financial capital, and how to integrate Bitcoin's unique decentralized consensus with global financial liquidity is the ultimate goal of this BTCFi narrative.
Following this logic, in the post-ETF era, the narrative of BTCFi has just begun.
2) In fact, the technical solutions around BTCFi have been maturing, from the initial EVM-Compatible to the UTXO Stack architecture, to the zkVM protocol framework, the RGB client verification framework, the Optimistic Proof of Challenge (OCP) architecture, etc., BTC's technical solutions once presented a chaotic chaos, but on the surface it seems to be scattered and chaotic, but in fact, it is also following the natural evolution and choice direction of the market.
The following focuses on the comparison of the two technical paths of OP_CAT_ and BitV M2, and argues that BitV M2 has more potential because it does not require changes to BTC's existing scripts:
1. OP_CAT Path - Logically reasonable but requires changes to BTC OpCodes, which is difficult to be accepted by core developers.
2. BitV M2+OCP mechanism - Off-chain computation and interaction are realized through the OCP challenger mechanism, and when the "challenge" arises, the on-chain protocol will be executed on the Bitcoin mainnet, and the Bitcoin layer 1 will act as an arbiter to ensure security.
Immature solutions are eliminated or corrected under market pressure. For example, in the early days, Bitcoin cross-chain solutions generally adopted a centralized custody model, and now the combination of BitV M2 and OCP can provide a trustless and natively secure cross-chain mechanism.
When technical solutions such as BitV M2 that do not require changes to BTC's core code mature, Bitcoin will usher in its own "OP moment", just as the value of Ethereum in Optimistic Rollups has been recognized, directly giving rise to a wave of market ecological explosion.
3) Let's let the technical solutions continue to roll in and evolve, because there is another layer of logic: the biggest challenge for BTCFi is not the technical feasibility, but the sustainable Tokenomics economic model.
Many of the current solutions rely on token issuance and incentives, which is clearly unsustainable. And a truly sustainable BTCFi economic model should be built on the value of its network use. When the layer 2 network processes transactions and collects fees, and a portion of the proceeds are returned to BTC stakers, a value cycle based on actual demand is formed.
This model does not rely on the procurement of external chains, but obtains benefits by serving its own ecology, which is significantly better in terms of the sustainability of the economic model.
Above.
In short, from another perspective, the prospect of BTCFi will suddenly become clearer, but now the track is in the early stage of infrastructure construction, technical solutions are converging, the Tokenomics economic model is improving, and the door to global financial liquidity access for ETFs has just opened.
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