The rise of Bitcoin: new opportunities to increase liquidity

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I. Introduction

Since Satoshi Nakamoto published the Bitcoin white paper in 2009, Bitcoin has been hailed as digital gold and has occupied an unshakable position in the field of cryptocurrency. Its decentralization, scarcity and security have enhanced its appeal as a long-term value storage tool.

In contrast, Ethereum has quickly become another important pillar of the blockchain industry with its powerful smart contract platform and flexible development environment since its launch in 2015. Ethereums smart contract function provides unlimited possibilities for the development of decentralized applications (dApps), enabling it to achieve remarkable achievements in the fields of decentralized finance (DeFi) and non-fungible tokens (NFTs).

Despite its importance in the crypto world, the Bitcoin ecosystem faces some unique challenges compared to Ethereum:

  • Lack of smart contract platform: The lack of a strong smart contract platform in the Bitcoin ecosystem limits the development of complex dApps and DeFi.

  • Underutilization of Assets: A significant challenge for many Bitcoin holders is that their assets are underutilized, resulting in missed opportunities to profit in emerging industries such as DeFi and NFTs.

  • The fragmentation problem of BTC in various blockchain networks: Bitcoin is scattered across multiple independent blockchain networks and second-layer solutions, which may lack effective interoperability and compatibility, thus limiting the application and liquidity of Bitcoin.

Although Bitcoins original design is relatively simple, its community and developers continue to promote technological innovation to improve its functionality and usability. Among them, the SegWit update solves the transaction scalability problem and increases block capacity by separating transaction information from signature information; the Taproot update introduces Schnorr signature technology, which improves the privacy and efficiency of transactions and lays the foundation for the development of on-chain smart contracts; the BRC-20 standard enables the Bitcoin network to support the creation and trading of tokenized assets, expands its application scenarios and enhances its competitiveness in decentralized finance and other blockchain applications, providing potential and foundation for Bitcoins financial application scenarios.

Entrepreneurs have not stopped moving forward, and they continue to explore new solutions and application scenarios. With the advancement of technology, the liquidity of Bitcoin is gradually improving. GeekCartel aims to lead everyone to understand the development and technical principles of these projects by sorting out some Bitcoin liquidity solutions, and observe the latest developments from a more comprehensive perspective, helping users to better utilize Bitcoin assets and explore more application scenarios. Note: This article does not constitute investment advice.

2. Bitcoin Liquidity Exploration: A New Path to Enhance Application and Value

Babylon: Bringing Bitcoin Security into the PoS Ecosystem

Technical realization:

Babylon is a Layer 1 PoS chain developed based on the Cosmos SDK. Babylon proposes a Bitcoin staking protocol , which is designed as a modular plug-in for many different PoS consensus algorithms, providing a primitive for a restaking protocol.

Babylon is able to deliver the security of Bitcoin to all the numerous PoS chains (such as Cosmos , Binance Smart Chain , Polkadot , Polygon and other blockchains that already have strong, interoperable ecosystems), creating a more powerful and unified ecosystem.

Babylon achieves secure sharing of Bitcoin through the Bitcoin timestamp protocol and the Bitcoin pledge protocol .

Bitcoin Timestamp Protocol: Babylon uses Bitcoin鈥檚 timestamp technology to enhance the security of the PoS protocol by sending the hash of the PoS block and its validator signature to the Bitcoin blockchain. This process includes the following key steps:

  • Checkpointing: At the end of each epoch, honest validators sign the hash of the last PoS block of that period and submit this hash and their signature as a checkpoint to the Bitcoin network. Due to the immutability and chronological nature of the Bitcoin blockchain, these checkpoints provide an unalterable proof of time.

  • Slashing : If a validators behavior is judged to be malicious (for example, signing a conflicting block), their staked funds will be slashed. The checkpoints on the Bitcoin blockchain provide a temporal proof of this slashing behavior, proving that the malicious behavior did occur before a certain time.

The Bitcoin Timestamp Protocol can also solve the PoS long-distance attack . Long-distance attacks are the possibility of using the PoS chain to start a forked chain by returning to a historical block where they were still stakers after the validator nodes unstake. This problem is inherent in the PoS system and cannot be completely solved by simply improving the consensus mechanism of the PoS chain itself. Both Ethereum and Cosmos PoS chains face this challenge.

By introducing the Bitcoin timestamp, the on-chain data of the PoS chain will be stored on the Bitcoin chain in the form of a Bitcoin timestamp. Even if someone wants to create a fork of the PoS chain, its corresponding Bitcoin timestamp will definitely be later than the original chain, so long-distance attacks will be ineffective at this time.

Bitcoin Staking Protocol: This protocol allows Bitcoin holders to stake their idle Bitcoins to increase the security of the PoS chain and earn returns in the process.

The core infrastructure of the Bitcoin staking protocol is the Control Plane between Bitcoin and the PoS chain, as shown in the figure below.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 1: System architecture with control plane and data plane Source: Bitcoin Staking Protocol White Paper

The Control Plane is implemented in the form of a chain to ensure that it is decentralized, secure, censorship-resistant, and scalable. The Data Plane represents the PoS chain. This control plane is responsible for various key functions, including:

  • Provides Bitcoin timestamping services for PoS chains so that they can synchronize with the Bitcoin network.

  • Acts as a marketplace, matching Bitcoin stakes with PoS chains, and tracking staking and validation information such as EOTS key registration and refresh;

  • Record the final signature of the PoS chain;

Babylon uses advanced cryptography techniques such as One-Time Extraction Signatures (EOTS) to convert slashable PoS attacks into Bitcoin UTXOs that can be used to destroy.

EOTS is a special digital signature scheme that can lead to key leakage if different blocks are signed at the same height. The Bitcoin network uses the UTXO model to track transactions and account balances. Each UTXO represents a certain number of bitcoins at an address in the Bitcoin network, which can be controlled by the private key holder of the address.

When PoS validators stake Bitcoin to participate in the networks consensus process, their stake is locked in a specific UTXO. By using EOTS, it is ensured that if a validator violates the protocol (such as signing two different blocks at the same height), their private key will be leaked. Once the private key is leaked, it can sign a transaction that sends the original staked Bitcoin to a burn address. In this way, the violating validator will be financially punished for his dishonest behavior.

In summary, Babylon is a Layer 1 blockchain that delivers the security of Bitcoin to numerous PoS chains through Bitcoin timestamps and Bitcoin staking protocols, enhancing the security of these chains and providing income opportunities for Bitcoin holders. Its unique staking scheme allows Bitcoin holders to stake BTC without the need for bridging. However, since the staked BTC is locked in a smart contract, these BTC will be presented in UTXO as unspent. As the amount of stake increases, it may lead to a decrease in the speed of transaction processing on the Bitcoin chain and an increase in transaction fees, which is one of the main challenges facing Babylon.

project progress:

Babylon is currently in the testnet stage, and the official announcement is that it will cooperate with a series of projects at the forefront of the Bitcoin revolution, including Ankr , Lorenzo Protocol , B虏 Network , Nubit , Yala , Nomic , Automata , Glacier , Solv , etc.

According to official data , Babylon has been integrated with 50 Cosmos chains through the IBC protocol, covering areas such as DeFi, games, and infrastructure.

Investment Information:

On December 6, 2023, Babylon received $18 million in Series A financing led by Polychain Capital and Hack VC . Other participating investors included Framework Venture , Breyer Capital , Symbolic and GeekCartel .

In February 2024, Binance Labs announced an investment in Babylon for an undisclosed amount.

On May 30, 2024, Babylon announced the completion of a new round of financing with a financing amount of 70 million, led by Paradigm .

The rise of Bitcoin: new opportunities to increase liquidity

Figure 2: Baylons latest financing situation Source: Official Twitter

BounceBit: The fusion of DeFi and CeFi

Technical realization:

The BounceBit chain is a PoS Layer 1 secured by validators staking BTC and its native token – a two-token system (native tokens BB and BTC) leveraging native Bitcoin security with full EVM compatibility.

BounceBits validators stake BB or BBTC to record and verify transactions on the network, and receive transaction fees as staking rewards. There is no minimum requirement for holding tokens. This dual-token system not only expands the stakeholder base, but also adds an additional layer of resilience and security to the networks consensus mechanism.

BounceBit also supports interoperability with EVM-compatible chains, recognizing and incorporating equity assets such as BTCB and ERC 20 token WBTC on the BNB chain. This diversifies BTC鈥檚 use cases and increases user engagement.

BounceBit introduces a unique feature – generating yields from CeFi and DeFi in parallel. Users can use Liquid Staking Derivatives (LSD) to stake BTC and mine on-chain, a process called Bitcoin Restaking, while earning raw CeFi yields. The ecosystem offers three types of yields to Bitcoin holders: CeFi yields, node operation rewards for staking BTC on the BounceBit chain, and opportunity yields from participating in on-chain applications and Bounce Launchpad.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 3: User Flow, Source: BounceBit Docs

As shown in Figure 3, users deposit various tokens into BounceBit Portal and convert them into LCT (BBTC or BBUSD). Through bridging, these LCTs (liquid custody tokens) can be transferred to the BounceBit chain to participate in CeFi income. BB or BBTC can also be pledged to the verification node and stBB or stBBTC as LSD can be obtained. These tokens can be re-pledged to enhance network security.

BounceBit has introduced the concept of Liquid Custody, which theoretically ensures safe storage of assets, keeps collateral assets liquid, and provides more opportunities to earn returns. As in the above process, when users deposit assets into BounceBit, they will receive a (LCT)-BB or BBTC, which represents their assets while being securely held and can be bridged to BounceBit and used in supported scenarios to earn more returns.

BounceBit allows Staking Validators to participate in the network鈥檚 security and consensus mechanisms, helping to ensure the stability and security of the network.

  • Shared Security and Consensus: Inspired by the shared security model of Restaking, BounceBits BTC bridge implements a system where validators jointly maintain and protect the cross-chain bridge. This cooperative approach distributes security responsibilities and enhances the reliability of cross-chain transactions.

  • More than 50% approval of transactions: In order to verify and execute any cross-chain transaction, more than 50% of validators need to approve it. This consensus mechanism ensures that each transaction has been carefully reviewed and approved by validators across the entire network, adding an additional layer of security and trust to the bridging process.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 4: CeFi integration flow chart Source: BounceBit Medium

Through the innovative CeFi + DeFi framework, BounceBit empowers BTC holders to earn yield on multiple networks. Unlike many protocols that emphasize decentralization, Bitcoin cannot generate yield when stored in a multi-signature wallet (decentralized protocols often have complex yield generation mechanisms built in, which require assets to run in smart contracts, and Bitcoins smart contract capabilities are limited). BounceBit solves this problem by integrating the CeFi model, using Mainnet Digital s custody service, supplemented by Ceffu s MirrorX technology, so that BTC can be traded both on-chain and on credit in CEX subaccounts.

As shown in Figure 4, the user interacts with BSC (BNB Smart Chain) and deposits BTCB into the Ceffu multi-party computation (MPC) wallet. In MPC, a given number of participants each hold a piece of private data. Participants can work together to calculate the value of a public function on that private data while keeping their own data confidential. This wallet uses multiple keys to secure transactions, including: the mainnet digital key, the Ceffu key, and the BounceBit key. Finally, it is mapped to a Binance subaccount. The components of this part (Higgs Capital, Chainup, Pythagoras, TradeTerminal) support the different needs of subaccounts.

In summary, BounceBit is a PoS Layer 1 network that supports Bitcoin re-staking, integrates CeFi and DeFi models, provides auctions, DEX and other financial services, and allows Bitcoin holders to earn returns on multiple networks. It is fully compatible with EVM, supports interoperability with other EVM chains, and securely transfers and maps BTC through its bridge system. BounceBit also However, this approach of combining CeFi and DeFi may face security challenges, especially in terms of the security mechanism of cross-chain bridges and the management of multi-signature wallets, which requires maintaining a high degree of security and stability to ensure the security of funds and transactions.

project progress:

According to the latest official report : Mainnet launch on May 13, its on-chain TVL has reached 882 million, with nearly 400,000 early contributors. As of the time of writing, according to official data , the total amount of BBTC tokens bridged by BounceBit is 1,482, the number of users holding BBTC is 155,583, and the pledge amount (LSD) has reached 5,099 BBTC.

BounceBit recently announced a partnership with Ethena , where users can participate in BounceBit and Ethenas activity incentives by staking $BBUSD. It also cooperated with Nubit to improve data integrity and data capacity; in addition, the official has also reached cooperation with LayerZero Labs , USDX , zkLink Nova , Pell Network , Free , etc.

Investment Information:

BounceBit raised $6 million in a seed round in February this year, led by Breyer Capital and Blockchain Capital . In March and April, it received strategic financing from OKX Ventures and Binance Labs , respectively.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 5: Investment institutions supporting BounceBit Source: BounceBit official website

Solv: Unleashing the power of SolvBTC and opening the door to BTCFi

Technical realization:

Solv Protocol launches SolvBTC , a groundbreaking full-chain yield-bearing Bitcoin asset. Developed within a secure asset management framework, SolvBTC unlocks new possibilities and opportunities for Bitcoin holders while creating an efficient BTCFi ecosystem.

Solv, as a unified liquidity portal, integrates various liquidity resources and investment opportunities into one platform. Users can find and manage their investments on Solv Protocol without having to visit multiple different platforms or protocols. By converting idle underlying assets into interest-bearing assets and promoting cross-protocol and cross-ecological Lego combinations, Solv will stimulate the liquidity vitality of the entire network and create an efficient liquidity distribution layer.

Taking SolvBTC as an example, as shown in Figure 6, the user end can tokenize BTC and BTC-related assets (such as wBTC, BTBC, MBTC, etc.) through the DeFi protocol of the application layer (such as DEX-decentralized exchange, stablecoin, lending, etc.) to pledge, re-pledge and DeFi transaction income. Merlin , Stacks , Botanix , Bitlayer , etc., are all infrastructure platforms and chains that support the operation of SolvBTC. They provide SolvBTC with the necessary technical support and ecosystem connection to ensure that SolvBTC can run smoothly on multiple blockchains and protocols.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 6: Solv architecture Source: Official Medium

In addition, SolvBTC is fully integrated with DeFi and CeFi projects in various ecosystems, allowing users to explore new growth avenues and maximize their profit potential. This integration brings Bitcoin liquidity to various DeFi protocols to promote the prosperity of BTCFi. SolvBTC has also become a unified liquidity portal for BTCFi.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 7: SolvBTC Navigation Chart Source: Official Twitter

Solv implements a decentralized asset management architecture, which also includes built-in Solv Guard and Oracle . By leveraging smart contracts, Solv has established a trustless process standard that prioritizes the security of assets and provides users with a high-quality source of income.

Solv Guard is a custom-designed system with unique operating mechanisms and specialized scopes of authority based on the trading strategies of each Vault . It defines rules regarding transfer destinations and DeFi protocol operations.

Only secure wallet multi-signature operations are allowed within specified scopes.

Smart contract upgrades need to be jointly controlled by reputable partners using multi-signature addresses and time lock mechanisms (TimeLock). In addition, if the strategy involves operating on a centralized exchange, Solv will work with on-chain custodians such as Ceffu and Copper to ensure the security of off-exchange fund settlement.

By granting governance rights based on the right to use the secure wallet multi-signature, the separation of governance rights and user rights is achieved. This separation enables the configuration of parameters and upgrade of contracts by changing the governance structure in the future.

Trading Strategy Vault: Stores funds and provides liquidity, and performs fund allocation. Its core design concept is to eliminate counterparty risk while ensuring the efficiency of fund operation (counterparty risk refers to the risk that the other party fails to fulfill its financial obligations during the transaction. Here, transactions are automatically executed through smart contracts without relying on a single intermediary or the other partys performance, thereby reducing counterparty risk).

  • In this Vault, investment and repayment operations are achieved by maintaining Delta-Netural Strategies in the portfolio.

  • Vault uses Solv Guard maintenance and real-time price oracles to ensure operational security and decisions that rely on current market data.

In summary, Solv has launched SolvBTC, an innovative full-chain yield Bitcoin asset designed to provide new opportunities and possibilities for Bitcoin holders while creating an efficient BTCFi ecosystem. SolvBTC integrates various liquidity resources and investment opportunities into one platform through a unified liquidity portal, enabling users to easily find and manage investments on Solv Protocol. The Solv architecture includes decentralized asset management mechanisms such as Solv Guard and Oracle, and works with multiple infrastructure providers to ensure asset security and efficient system operation. In addition to SolvBTC, the official also provides a variety of assets and investment strategies . Although Solv uses security measures such as multi-signature and other mechanisms, the risk of vulnerabilities or attacks on the smart contract itself still exists, which may result in asset loss or theft. To this end, Solv actively cooperates with well-known auditing companies to minimize this risk.

project progress:

SolvBTC already supports BNB Chain, Merlin, Arbitrum and Bitcoin mainnets Bitcoin assets, and will soon support Ethereum mainnet. The official announced that it will work with the Ethena team to integrate sUSDes robust strategy returns into SolvBTC.ena, and will also work with Babylon and BotanixLabs . On June 6, Binance Web3 launched the Solv staking rewards event, where users can earn rewards by staking BTCB to exchange for SolvBTC.

As of the time of writing, Solv has achieved over $1.2 billion in TVL, providing high-quality returns to over 100,000 users; 17,490 BTC has been staked on Sovl.

Investment Information:

Solv has received investments from Binance Labs, Blockchain Capital, and Mirana .

The rise of Bitcoin: new opportunities to increase liquidity

Figure 8: Investment institutions supporting Solv Source: Official Document

Lorenzo: Bitcoin Liquidity Financial Layer

Technical realization:

Lorenzo provides an efficient marketplace for Bitcoin holders to easily find the best investment opportunities.

Lorenzo incentivizes users to participate in staking and provides returns by tokenizing staked Bitcoin into Liquid Principal Tokens (LPTs) and Yield Accruing Tokens (YATs). In addition, Lorenzo also provides trading infrastructure for LPT and YAT, ensuring that users can easily manage and exchange their tokens to maximize their investment returns.

  • Liquidity Principal Tokens (LPTs): LPTs are tokens that represent the staked Bitcoin principal. Take Babylon in Figure 9 as an example. For example, Babylon-Lorenzo-01 is a Bitcoin Liquidity Re-Pledge Program (BLRP). When users stake Bitcoin to Babylon-Lorenzo-01, they will receive 1:1 exchanged stBTC as LPT. Users can buy, sell or manage these LPTs on the Lorenzo platform, making the staked Bitcoin more liquid and operable.

  • Yield Accumulation Token (YATs): YATs are tokens that represent the accumulated income from re-staking transactions. Taking Babylon-Lorenzo-01 as an example, YAT will receive income from Babylon and Lorenzo when it expires. YATs can also be bought, sold or managed on the Lorenzo platform, allowing users to cash in or reinvest their income.

Before the emergence of Babylon, BTC assets were distributed on various public chains. The emergence of Babylon has concentrated these BTC assets for staking, and released stBTC as a liquidity staking token to enter various ecosystems. The support of various ecosystems for stBTC will affect the new BTC distribution pattern. Lorenzo will become the flow distribution entrance of BTC, with the principal stBTC as the liquidity layer, and YAT will take on the financial part to build an interest rate market similar to Pendle to provide users with investment returns.

BLRP is a program for obtaining Bitcoin liquidity on the Lorenzo platform. Through BLRP, projects can utilize the liquidity of staked Bitcoin, and stakers will then receive yield rewards. The creator of each BLRP needs to clearly state how the staked Bitcoin liquidity will be used, the issuance rules of Bitcoin re-staking tokens, and how stakers will be rewarded.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 9: Lorenzo protocol architecture Source: Official documentation

According to Figure 9, we can see that the Lorenzo protocol architecture mainly has the following settings:

  • User staking and withdrawing Bitcoin

    • Staking BTC: Users stake Bitcoin to Lorenzo鈥檚 multi-signature cold wallet.

    • Withdraw BTC: Users can withdraw their Bitcoin through the Lorenzo multi-signature hot wallet.

  • Lorenzo Relayers

    • Obtaining Transaction Proof: Lorenzo Relayers Obtain transaction proof (tx_proof) in the Bitcoin network.

    • Fork Detection: The relayer is also responsible for detecting forks in the Bitcoin blockchain to ensure data consistency and reliability.

  • stBTC Control Module

    • Responsible for the minting and destruction of stBTC, and performing proof verification (Proof Verify).

  • Core Modules

    • Staking Agent Module : Manage Staking Plan and Check Agent.

    • stBTC control module: responsible for the minting and destruction of stBTC, and performs proof verification.

    • SPT YAT Control Module: Manages and controls the issuance and trading of LPTs and YATs.

    • Staking Module: Obtain and manage staking plans and coordinate staking operations.

When a user pledges Bitcoin to an asset on the Lorenzo platform (such as a specific investment plan or project), the staking agent needs to complete the following process:

  1. Complete re-staking: The staking agent needs to pledge the users Bitcoin to the designated project in a timely manner.

  2. Upload proof of re-pledge: The staking agent needs to upload proof of the re-pledge operation to the Lorenzo platform to ensure the transparency and credibility of the transaction.

  3. Issuing tokens: The staking agent issues LPTs and YATs on the Lorenzo platform for each re-staking transaction according to the rules defined by the underlying.

  4. Transferring tokens: The staking agent transfers the generated LPTs and YATs to the addresses of staking users, enabling users to manage and trade these tokens.

Lorenzo can not only handle the users Bitcoin pledge as a staking agent, but also supervise the behavior of other staking agents. If there is any violation of the staking agent, Lorenzo will intervene and take measures to ensure that the staking agents behavior complies with regulations.

From the above, we can see that Lorenzo has designed some functions as a modular architecture to achieve scalability. According to official information, Lorenzo supports Babylon . Through the IBC bridge and proof verification mechanism, Lorenzo brings Bitcoin liquidity to multiple blockchain ecosystems (and other chains will be connected in the future), enhancing the flexibility and application scenarios of Bitcoin staking. Lorenzo is also compatible with EVM, enabling it to run Ethereum smart contracts, provide LPT and YAT trading infrastructure (such as providing trading pairs, lending agreements, and Bitcoin income products of different structures), and promote the development of diversified DeFi applications. As an innovative Bitcoin LPT and YAT market, if Lorenzo encounters insufficient liquidity or excessive market volatility, it must try its best to increase platform user participation and trading volume to enhance overall market liquidity.

project progress:

The Lorenzo test version mainnet was launched on May 26, and users can try to use Lorenzo to bridge stBTC to the Bitlayer ecosystem.

According to official information, the cooperation and integration projects announced in the first quarter include: Babylon , Cosmos Hub , BounceBit , Flash Protocol , Nubit ; recently, cooperation has also been reached with Bitlayer , Portal Finance , enzo , BitSmiley , etc.

Yala: A Bitcoin-native DeFi protocol for multi-chain stablecoins

Technical realization:

Yala s innovation is to bring Bitcoins liquidity to various ecosystems, allowing BTC users to earn income through stablecoins. The protocol is designed to take advantage of Bitcoins inherent security and liquidity. The Yala modular infrastructure is used to provide a loan agreement, enabling users to borrow over-collateralized stablecoins ($YU) by depositing BTC or UTXO assets . Users can use the $YU stablecoin to generate income through various DeFi protocols in the ecosystem. The Yala Finance system has basic components such as Vaults, liquidation algorithms, automatic stabilizers, and insurance modules to provide a comprehensive DeFi ecosystem for BTC assets.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 10: $YU across different ecosystems Source: Yala Medium

As shown in Figure 10, Yala makes investing more flexible and active by mixing different DeFi protocols and multiple blockchains (Solana, Arbitrum, and BTC L2, such as Botanix). Users can choose to diversify their investments into different activities, such as staking, liquidity mining, and lending, across various ecosystems. This user-oriented approach allows the unique advantages of each activity and blockchain to be leveraged, helping users build a diversified and strong portfolio.

The Yala architecture includes the application layer, consensus and data availability (DA) layer, execution layer, and settlement layer. Based on this design, developers can use Yalas SDK to implement customized modules to develop BTC ecosystem applications.

The rise of Bitcoin: new opportunities to increase liquidity

Figure 11: Yalas modular architecture Source: Official documentation

Application layer: The application layer is where applications run, and the modules on it define the logic of state changes. The module can be a smart contract on the destination blockchain virtual machine, such as a smart contract in EVM, or a Tapscript in Inscrption Assets. Through this module, Yalas stablecoin native ecology can generate additional income across various DeFi protocols and blockchains in multiple ecosystems. Yalas application layer includes loan modules, re-pledge modules, insurance modules, stablecoin modules, and custom modules.

The stablecoin module forms the foundation of the Yala financial system. Stablecoins are multi-chain and native on each target chain. For example, since BRC-20 tokens cannot be minted directly, the system maintains a stablecoin reserve pool, namely the stablecoin module . Users simulate the minting/destruction process of traditional stablecoins by transferring and extracting inscriptions to the stablecoin issuance module (in the initial stage, the Yala Foundation, as a central entity supervised by the community, is responsible for ensuring the stability of $YU; the governance foundation will be transformed into a decentralized autonomous organization (DAO) to ensure sustainable development and broader community participation).

Consensus and data availability layer: In the Yala system, DeFi transactions are conducted on the target chain, and data is updated and consensus is achieved through the Indexer node. The final state changes will be reflected on the Bitcoin main chain through UTXO transactions to ensure data security and consistency.

Data availability refers to the ability of data stored in a blockchain network to be effectively accessed and used by all participating nodes. Unlike data availability in other blockchains, BTC assets use the UTXO format, which contains two state changes (input and output), and BTC has a longer block interval of about 10 minutes.

The implementation of data availability in Yala only requires off-chain state changes in the format of witness scripts , which are maintained by the indexer. The indexer captures the global state and balance in the form of a witness script, which is an extended script introduced in Segregated Witness (SegWit) (SegWit separates signature data from transaction data to improve the efficiency and security of Bitcoin transactions). Changes in off-chain state will eventually be reflected in the on-chain UTXO transfer transactions. BTCs consensus mechanism and security verify these on-chain UTXO transactions, thereby indirectly ensuring the reliability and consistency of off-chain state changes. In addition, Yala cooperates with DA provider Nubit, which provides status verification for bitcoin indexer. Based on the above design, Yalas challenge is to achieve the credibility of the Indexer and secure real-time updates of off-chain states. In this regard, Yala proposes some future development directions and solutions :

Implementing Indexer credibility:

  • Data sampling: In the DA layer, data availability sampling (DAS) is used directly to reduce verification costs; the verifier only needs to randomly download some data blocks to verify the availability of all data. Erasure coding and KZG polynomial commitments will also be used to implement DAS in the Yala DA layer.

  • Content Verification: The content that Yalas DA layer needs to verify includes transaction data, Merkle trees of transaction data, and commitments. Transaction data will be directly verified by Indexer, and Indexer will also generate Merkle trees. Currently, commitments can also be generated by Indexer, and the official said that it may consider adding dedicated verifiers in the future. The verification content will be stored in a distributed manner and will be made public for a period of time (refer to the blob storage time on ETH, set to one month), during which anyone can verify the verification content.

  • Using Nubit鈥檚 DA layer solution: Nubit is a Bitcoin-native data availability layer with instant finality. Yala is working with Nubit, the data availability (DA) layer, to build the Indexer. With Nubit鈥檚 data availability layer, Yala鈥檚 Indexer is able to perform deeper and more reliable validation of Inscription Assets events.

Execution layer:

The execution layer includes BTC Vaults and Oracle modules.

  • Oracle Module : The lending protocol needs to obtain the market price of the collateral asset in real time to determine when to trigger the execution of the condition. The Yala Foundation is responsible for maintaining the Oracle module and the Oracle Security Module (OSM). The Oracle module obtains price inputs from off-chain sources. The off-chain Oracle node retrieves the required data through the off-chain data API, formats it and returns it to the Oracle module. To prevent attackers from trying to control the majority of Oracles, the Yala protocol uses OSM to receive price inputs instead of directly from Oracle. OSM acts as a defense layer between Oracle and the protocol, and there is a 30-minute delay when publishing prices to allow emergency defense when Oracle is compromised. The Yala Foundation is responsible for deciding the duration of emergency Oracles and price delays.

  • BTC Defi module : All DeFi transaction operations in Yala pass through Indexer (consensus layer) – guiding the state changes of the Defi module based on the price information of Oracle.

Yala innovatively designed a modular architecture to implement Bitcoins native DeFi protocol. Yalas stablecoin supports multiple chains and is native to the target chain, allowing users to earn additional benefits on various DeFi protocols in multiple ecosystems through $YU. In addition, the consensus layers Indexer is used to maintain the status of off-chain transactions and reflect them to the UTXO on the chain, while Bitcoins consensus mechanism is used to verify transactions. However, Yalas Indexer credibility and the secure real-time update of off-chain data are still facing challenges, and Yala is actively exploring specific promotion plans. At present, the information verification of Polyhedra s zkbridge helps Yala to do multi-chain verification functions in the bitcoin and EVM ecosystems to ensure the security of DeFi. In addition, Nubit DA is used to help the inscription information verification of the Bitcoin ecosystem. For this innovative project from zero to one, to one million and ten thousand, the Yala team actively explored and built this defi project with a passionate pursuit of security technology. In the future, we are expected to witness the further improvement and optimization of this system.

project progress:

Yala officially announced partnerships with Alchemy Pay , Avail , Babylon , Botanix , Map protocol , Nubit , Polyhedra and Stacks .

According to official information , the development team is still continuing to improve Yalas infrastructure.

3. Project Comparison

This article sorts out several Bitcoin liquidity-related projects, including Babylon, BounceBit, Solv, Lorenzo, and Yala, to help you better understand these projects. Next, we will conduct a comparative analysis of these projects to provide you with a more objective perspective.

The rise of Bitcoin: new opportunities to increase liquidity

As can be seen from the table, although each project focuses on different aspects, they are all committed to promoting the liquidity of Bitcoin. Through their own unique technical solutions, users can maximize the economic value of their Bitcoin. This not only helps users to obtain benefits through different methods, but also greatly improves the liquidity and application breadth of Bitcoin as a digital asset.

IV. Summary and Outlook

More and more projects are emerging to improve the liquidity efficiency of Bitcoin, which not only improves the liquidity of Bitcoin, but also broadens its application in the field of decentralized financial technology. These projects have greatly promoted the development of the Bitcoin ecosystem by providing innovative solutions and convenient transaction functions.

The approval of the Bitcoin ETF this year is also an important milestone in the cryptocurrency field. The approval of the ETF not only demonstrates the potential of Bitcoin to investors outside the crypto circle, but also enables compliant funds to enter this market more conveniently and safely. This has far-reaching significance for Bitcoin and the entire cryptocurrency market.

Since Bitcoin liquidity-related products are directly linked to funds, each project needs to ensure the security of its protocols or smart contracts, especially when dealing with cross-chain operations and complex financial products, any small loopholes may lead to significant financial losses. Due to the differences between different blockchains, especially the lack of a complete smart contract system on Bitcoin, integration and interoperability have become a major challenge. Developers need to have extensive knowledge and adaptability to combine the characteristics of different blockchains to achieve more efficient data and asset exchanges. Although there are many challenges, with the advancement of technology and the adaptation of the market, GeekCartel believes that the future of the Bitcoin ecosystem is still optimistic, and it is expected to bring more abundant and secure decentralized financial products and services.

More research reports:





There is still a lot of research and work to be done in this emerging infrastructure paradigm, and there are many areas not covered in this article. If you are interested in any related research topics, please contact Chloe .

Many thanks to Severus and Jiayi for their insightful comments and feedback on this article.

This article is sourced from the internet: The rise of Bitcoin: new opportunities to increase liquidity

Related: Coin theft incidents occur frequently. What do we need to know about the protection of crypto assets?

  How to identify fake wallet addresses? Why are cold wallets still at risk of being hacked? How do these attacks happen? What kind of people become targets of hackers? How to avoid such problems? Recently, Web3 has frequently experienced theft of coins, especially the much-watched 1,155 WBTC theft incident, which has attracted widespread public attention. The protection of encrypted assets has also become the focus of everyones attention. In response to this incident, PoPP and OneKey jointly held a Space to share with the community issues about on-chain security, which was full of practical information and provided a popular science lesson for newcomers who lack awareness of prevention. Guests: PoPP CTO: Neo OneKey Eco head: Cavin Host: JY This Space mainly discusses the following issues: 1. How to identify…

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