In this episode, we discuss with Solv co-founder Ryan about the market concerns arising from the transfer of WBTC control, alternatives to WBTC, and the potential of BTCFi. Ryan believes that while WBTC will continue to exist, it may lose recognition in certain DeFi protocols in the future. The three major alternatives are exchange-issued Bitcoin, trusted custodial Bitcoin reserves, and decentralized reserve solutions. SolvBTC stands out by establishing a standardized approach that reduces friction for users, enhancing their experience within the BTCFi ecosystem. Ryan also emphasized that the challenges of BTCFi lie in trust and yield scenarios, and WBTC’s early success was driven by its usage scenarios and yields. Solv is actively collaborating with leading protocols like Babylon and Ethena to open up more yield opportunities for Bitcoin users, driving the robust growth of the BTCFi ecosystem.

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This article is sponsored by Solv. The content of the article does not represent the views of WuBlockchain.

About Ryan and Solv

Ryan: I am the founder of Solv, a project that has been working in this industry since 2020. I personally entered this field in 2018, starting as a financial analyst before moving into entrepreneurship, and I founded Solv in 2020. As a DeFi protocol, Solv has accumulated significant experience and seized some market opportunities over four years. Today, we have taken a leading role in the explosive growth of the BTCFi sector.

Our main product currently is SolvBTC, which has grown to a scale of over $1 billion, with nearly 20,000 Bitcoin staked in our protocol. We believe that the entire BTCFi sector has tremendous explosive potential in the near future, and we hope to position SolvBTC as a key player in driving the development of BTCFi. Thank you.

WBTC Likely to Lose Recognition in Some DeFi Protocols

Ryan: Regarding the recent WBTC product control transfer event, I believe, first of all, that most people in the market, myself included, are unclear about the specific division of underlying custody rights between BitGo and Justin. According to the latest statements, they may establish an entity in Singapore, which, together with other entities in Hong Kong and the United States, will jointly hold control. The specific details of each company’s authority remain unclear, including to me. This uncertainty naturally raises market concerns, with the main issue being whether the transparency and security of the Bitcoin reserves in this company remain reliable, leading to market anxiety and debate.

In my view, WBTC is likely to lose recognition in some DeFi protocols, such as MakerDAO, which has already adjusted its value to zero. However, in other protocols, WBTC may still receive support. I am more inclined to think that WBTC will continue to exist, but its development will face significant challenges. If previous issues related to reserve standards and security are not thoroughly resolved, people will be hesitant to invest more funds. This is the current situation.

What alternatives to WBTC are available in the market now? First, we see exchanges entering the scene, with Binance’s BTCB and Coinbase’s CBBTC being two tokens with billion-dollar potential and very promising reserve models. Since these exchanges already have hundreds of billions of dollars in reserves, the Bitcoin derivative tokens they issue (whether BTCB or CBBTC) have significant scalability potential.

Second, there are trusted custodial BTC solutions similar to BitGo’s, such as FBTC. Lastly, there are decentralized reserve solutions like TBTC and DLC.Link BTC. Although these decentralized solutions have been discussed online recently, data shows that their actual growth has not been significant. This reflects the market’s concern about decentralized management of Bitcoin, which is even greater than the current concerns about BitGo. While BitGo has scale and trust, decentralized technology requires long-term validation before people can truly invest significant amounts of money with confidence.

Additionally, there is an interesting position for SolvBTC. Unlike other BTC reserve solutions, SolvBTC’s uniqueness lies in establishing a standard that filters different Bitcoin reserve solutions (such as Binance’s BTCB, Coinbase, or Fidelity’s reserve solutions) to form a 1:1 on-chain Bitcoin reserve solution. We mainly accept Binance’s BTCB and native Bitcoin to create SolvBTC, while others like MBTC, FBTC, and WBTC are currently in the observation zone. There is a structure and mechanism to differentiate between BTC in the observation zone and core reserves.

By applying multiple reserve solutions, especially traditional complex reserves, SolvBTC creates a more universal, low-barrier, and trustworthy Bitcoin reserve solution. SolvBTC has taken a unique path, being somewhat compatible with other BTC reserve solutions but more focused on setting reserve standards, reducing user friction, and enhancing the user experience in the BTCFi field. Overall, there are four types of BTC reserve solutions in the market.

WBTC’s Success is Due to the Usage Scenarios and Yields Driven by the 2020 DeFi Summer Boom

Ryan: Overall, the adoption rate of WBTC and other XBTC products has stagnated for some time, mainly due to two key factors. First, from the perspective of reserve methods, decentralized XBTC products like DLC.Link and TBTC face the biggest challenge in gaining market recognition for their consensus and security. These solutions require long-term validation in terms of time and scale before they can be widely accepted by the market. When evaluating these solutions, we find that they still need to prove themselves, so we remain cautious.

As for WBTC, although its growth potential was originally significant, recent market fluctuations have objectively affected it. WBTC’s success cannot be separated from the usage scenarios and yield opportunities behind it. During the 2020 DeFi Summer, WBTC’s main driver was its widespread application in the DeFi ecosystem. At that time, many Bitcoin holders converted their Bitcoin to WBTC to participate in collateralized lending, mining, and other operations on DeFi platforms to earn yields. It was this scenario that drove WBTC’s rapid growth.

Over the past four years, the entire DeFi market has grown to a scale of $80 billion to $100 billion, with WBTC occupying about $10 billion of that, which is already a considerable number. However, the reason WBTC hasn’t further grown to $20 billion is due to the overall limitation of the DeFi market scale. Only when the DeFi market expands to a larger scale can WBTC possibly experience new growth.

In the past year, especially in recent months, the BTCFi field has fully exploded, bringing new growth opportunities for WBTC. Currently, the BTCFi market space has expanded from $10 billion to a potential $100 billion, so WBTC theoretically has the potential to grow further. However, this still depends on whether it can effectively address the current challenges.

Another key factor is the yield issue, specifically how to provide attractive yields to Bitcoin holders. Different XBTC products have their own solutions in this regard, and Solv has better met user needs by offering comprehensive yield opportunities, including BTCFi, quantitative yields, options yields, staking, and more. Therefore, from these two perspectives, although current XBTC products all face challenges, SolvBTC has already found a relatively complete solution in this area.

FBTC Has Potential but Has Not Yet Entered SolvBTC’s Core Reserve Zone

Ryan: FBTC is one of the Bitcoin reserve solutions that we believe has great potential and growth opportunities. Its uniqueness lies in being jointly launched and backed by companies like Cobo, end Alpha, and mental. Therefore, we believe FBTC has strong potential and has undergone multiple technical confirmations in terms of security, making it a good choice.

However, despite FBTC’s advantages, it is still in the observation zone and has not yet been included in SolvBTC’s core reserve zone. SolvBTC’s design allows for interoperability and free redemption between different types of Bitcoin reserve solutions, but this mainly applies to those BTC reserve solutions that have high consensus and have been validated. FBTC has not yet reached this standard, with about 1,000 Bitcoins currently in reserve. If FBTC can further grow to a scale of 50,000 to 100,000 Bitcoins, it will naturally be included in the core reserve zone.

FBTC’s model is somewhat similar to downward compatibility, meaning that if you hold a high-consensus BTC, you can convert it into other types of BTC. However, BTC reserve solutions in the observation zone, such as FBTC, cannot be upward compatible, and their use cases are somewhat limited. Therefore, FBTC has not yet achieved core reserve status in SolvBTC, but its potential is worth continued attention.

Bitcoin Ecosystem Will Advance to Hundreds of Billions, Trillions, or Even Multi-Trillions in This Cycle

Ryan: BTCFi is one of the most promising sectors in this cycle, driven by multiple factors. First, Bitcoin itself has shown excellent asset characteristics in this cycle, with not only minimal drawdown but also comprehensive upside and stability. This is all due to the launch of Bitcoin ETFs and the further strengthening of global consensus on Bitcoin as an asset. When traditional funds enter the crypto space, their first choice is almost always Bitcoin, cementing its position as the best-performing asset.

Secondly, the interest structure within the Bitcoin ecosystem is undergoing significant changes. In the past, miners and mining-related industries were the primary beneficiaries. However, with this year’s halving and other factors, the major participants within the Bitcoin ecosystem are increasingly demanding to drive ecosystem development. This increased demand directly promotes the activity of the Bitcoin network, thereby maintaining better mining yields.

Moreover, the emergence of Ordinals and Runes, innovations that have sparked significant retail investor enthusiasm, is noteworthy. The combination of traditional funds, institutional support, and retail enthusiasm lays the foundational conditions for the BTCFi sector to become a trillion-dollar market. We’ve already seen many Bitcoin holders recognize opportunities within the Bitcoin ecosystem, similar to the dividends Ethereum enjoyed over the past four years. They are beginning to use their Bitcoin holdings to participate in various emerging ecosystem activities, creating additional yields.

This year, as the BTCFi field fully explodes, the maturity of various infrastructures and financial services is also continuously improving, complementing each other and jointly driving the rapid development of the Bitcoin ecosystem. Overall, in this cycle, the Bitcoin ecosystem is likely to advance from a scale of hundreds of billions to trillions or even higher. Just as WBTC surpassed $10 billion in the previous cycle, the potential of BTCFi in this cycle is even greater, with a ceiling far beyond a trillion dollars.

Regarding the role of Ordinals and Runes in the BTCFi narrative, although they are not directly related to Bitcoin’s financial services system, they play an important role in the broader development of the Bitcoin ecosystem. These innovations provide new investment and consumption scenarios for Bitcoin holders, further activating capital flows within the Bitcoin ecosystem. The profits earned by users from speculating on Ordinals and Runes are often reinvested in Bitcoin-related activities, thereby forming a complementary ecosystem. Therefore, Ordinals and Runes are entirely part of the BTCFi sector, driving the overall development of the Bitcoin ecosystem.

Babylon is the Most Imaginative Project in Bitcoin Yield Scenarios

Ryan: The mainnet launch of Babylon is a significant event in the Bitcoin ecosystem, bringing many new opportunities to the entire ecosystem. The Bitcoin ecosystem can currently be divided into three major parts: The first part is the usage scenarios of Bitcoin, especially in financial services, such as Bitcoin trading, collateralized lending, leveraged trading, and providing liquidity. This part is mainly supported by BTC L2, and although BTC L2 has many competitors like Base and BNB Chain, they are all part of Bitcoin’s usage scenarios.

The second part is the yield scenarios of Bitcoin, and in this area, Babylon is currently one of the most imaginative projects. Babylon creates a new asset class, Bitcoin staking assets, by staking Bitcoin to provide security services to the network. This innovation provides additional yield opportunities for Bitcoin holders, which we consider very important. Staking and restaking yield models have the potential to support hundreds of billions of dollars in asset yields, and Babylon’s innovation in this area has undoubtedly brought enormous market expectations. Besides Babylon, other projects like Core and Botanix are also trying to launch Bitcoin staking solutions, showing that all parties are striving to create more yield opportunities for Bitcoin.

The third part is the speculation on Ordinals and Runes, which will continue to develop and further promote the prosperity of the Bitcoin ecosystem. Babylon plays an important role in the entire BTCFi ecosystem, with significant capacity potential, providing users with stable, sustainable, and transparent yields. This is of profound significance to the entire industry.

As for the cooperation between Solv and Babylon, SolvBTC is currently the largest on-chain Bitcoin reserve solution, with nearly 20,000 Bitcoins and continuing to expand. We believe that Babylon has enormous potential in terms of yields, so we have launched a bot on our platform called SolvBTC.BBN. This bot allows users to convert SolvBTC into SolvBTC.BBN with one click, earning underlying staking yields from Babylon. The launch of Babylon not only brings new yield opportunities to ordinary users but also injects new vitality into the entire Bitcoin ecosystem.

Future Plans to Introduce Bitcoin ETFs to Create SolvBTC

Ryan: We have a clear goal for Solv’s future development roadmap, mainly focused on several key areas. First, we aim to ignite the BTCFi ecosystem in this cycle, making it a stable and sustainable sector. Currently, the momentum of the BTCFi ecosystem is building, and with more projects entering this field, the future development potential is enormous. Solv aims to become the largest platform for on-chain Bitcoin reserves and the main gateway for BTCFi. Our current reserve scale has reached $1 billion, but we hope to further expand to $5 billion, $10 billion, or even more to meet market demand.

Next, our first major milestone is the yield product SolvBTC.BBN from Babylon. This product has undergone several months of iteration, and we expect to expand its Bitcoin reserve scale to 20,000 to 30,000 Bitcoins within the next three months, which is our current primary goal.

The second focus is on expanding the Bitcoin reserve scale of SolvBTC. We have already reserved 11,000 BTC on BNB and are working with exchanges like Coinbase to bring more Bitcoin into Solv’s reserve system. We plan to expand our reserve scale to 50,000 to 100,000 Bitcoins this year while deploying more entry points in various places to allow users to easily participate in the BTCFi ecosystem and earn yields.

The third major plan is to introduce traditional funds into BTCFi, for which we will introduce Bitcoin ETFs as part of our reserves. This will allow us to access a large amount of traditional funds and expand SolvBTC’s market scale through this approach.

Fourth, we will launch a series of underlying technological infrastructures to achieve full-chain interoperability for SolvBTC and ensure 1:1 Bitcoin redemption. These technologies will ensure fund security through the Liquidity Consensus Network (LCN) and smart contracts, providing a challenge period during redemption to prevent fraud and attacks.

Finally, we plan to offer diversified yield opportunities. In addition to Babylon, we will introduce other yield models, allowing users to easily switch between different yield options on the platform. These initiatives will further broaden the user base of the BTCFi sector, achieving true large-scale adoption.

Overall, we will drive the development of the BTCFi ecosystem through these measures and create more opportunities for users.

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