Author: Lao Bai

Original Link: https://x.com/Wuhuoqiu/status/1826149606876705007

Using the launch of Babylon and the opening of Lorenzo staking as a starting point, let’s discuss the recent developments in the BTC ecosystem. Since Ordi sparked interest in the BTC ecosystem, BTC has quickly followed the path that Ethereum (ETH) once took — starting with on-chain assets (like ERC20), moving to scaling solutions (such as Rollups), and now entering the realm of Staking/Restaking. However, unlike Ethereum, which has the steady guidance of the Ethereum Foundation and Vitalik Buterin, the BTC ecosystem is in a state of wild, often chaotic experimentation.

The Rise of On-Chain Assets

The asset side first saw the rise of Ordinals, followed by a proliferation of various “XX20” standards like BRC20, ARC20, SRC20, and ORC20, with new ones appearing at a rapid pace. Many people were optimistic last year, thinking that BTC’s security model might finally be solved — hoping that in 20–30 years, after several more halving events, block rewards would become negligible, and there would be enough transactions (TX) on-chain to pay miners sufficient fees. During last year’s frenzy over new Ordinal inscriptions, transaction fees even surpassed block rewards at times, as this chart shows, with fee revenue reaching as high as 300 BTC in a single day.

However, by August, daily fee revenue had dwindled to less than a single BTC, and the Rune hype that flared up briefly in April and May quickly faded.

Exploring Scaling Solutions

After completing BTC’s version of Ethereum’s 2017 ICO craze, the focus has shifted to scaling solutions, with Merlin leading the way. Initially, the approach was to take Ethereum’s existing EVM (Ethereum Virtual Machine) technology stack and run it on a multi-signature sidechain (similar to how Polygon, which was then called Matic, started).

When it comes to scaling solutions, Ethereum has the officially endorsed Rollup model. In contrast, the BTC ecosystem is exploring a wide variety of approaches.

I sketched a simple diagram to illustrate the current landscape, which broadly encompasses these scaling solutions and on-chain assets as one branch of the technical evolution.

Taproot Assets and BTC Ecosystem Development

Currently, Taproot Assets can only facilitate transfers, but the most BTC-native solution (in the sense that it fully leverages UTXO characteristics) is undoubtedly RGB. The community is eagerly awaiting the RGB mainnet launch, hoping it won’t be delayed again in September. In addition to RGB, there’s also RGB++ & UTXO Stack, as well as Unisat’s Fractal, which has been gaining a lot of attention lately.

The diagram I mentioned earlier missed another route: the 1.5-layer contract virtual machine extension. The standout here is Arch Network, with recent discussions also mentioning OP_NET. However, Arch utilizes ZKVM, while OP_NET uses WASM.

The Messy Landscape of BTC Scaling Solutions

The path to scaling is cluttered with a highly diverse technical stack, making it even more chaotic than the asset side. As a result, predicting which approach will ultimately succeed is difficult; each has its strengths and weaknesses. Time and market forces will determine the outcome. A more pessimistic view suggests that all of these efforts might eventually be disproven. After all, the primary narrative of BTC as “digital gold” doesn’t necessarily require scaling. Scaling is more about supporting “on-chain assets,” and if that route doesn’t take off, the need for scaling could disappear altogether.

The Third Stage: Staking/Restaking

The third stage, Staking/Restaking, is arguably more solid than the previous two paths because it complements rather than conflicts with the “digital gold” narrative. It could be seen as a perfect addition — unlocking the liquidity of gold and turning it into a yield-generating asset!

In this stage, the most crucial project is undoubtedly Babylon. Unlike ETH, which naturally offers POS yields, where EigenLayer’s Restaking narrative serves as more of a booster or an enhancement, Babylon is a lifeline for BTC. It introduces the possibility of Trustless Restaking, generating yield, and transforming BTC from a non-yielding “gold” into an interest-bearing asset.

Two other projects worth mentioning in this context are Solv and DLC.Link. Solv provides BTC with interest through a Cefi+Defi approach (one of Babylon’s entry points) and adds liquidity via SolvBTC. DLC.Link, on the other hand, addresses the current trust issues with WBTC by using DLC technology to mint dlcBTC, creating a “Trustless Bridge” for BTC to participate in the DeFi ecosystems on ETH, Solana, and other chains. In simpler terms, it can be seen as a decentralized and secure version of WBTC.

Getting Back to Babylon and Lorenzo

Babylon is undoubtedly positioned to occupy the same ecological niche as EigenLayer, which naturally means that asset entry points — specifically the roles of LSTs (Liquid Staking Tokens) and LRTs (Liquid Restaking Tokens) — are extremely important. On the EigenLayer side, you have projects like Etherfi, Renzo, and Puffer. Similarly, on the Babylon side, there are competitors like Solv, Lombard, and Lorenzo, all vying for the crucial entry point.

Differentiation Among Competitors

The differentiation among these projects is even more pronounced compared to the leading LRT projects on the EigenLayer side. For instance, Solv not only offers returns through Babylon but also provides yields in Cefi and Defi. Solv collaborates with various BTC/ETH-related projects and Layer 2 solutions like Ethena, Merlin, and Arbitrum, offering a diverse range of returns.

Lombard, on the other hand, holds a strong advantage in capital and industry resources. It has also made significant strides in security with its LBTC token, which is backed by CubeSigner (a professional non-custodial key management platform) and Consortium (a semi-consortium blockchain network composed of industry leader nodes). This combination represents one of the most balanced solutions in terms of security and flexibility.

Lorenzo integrates Pendle’s principal-yield separation functionality. It issues a principal-based liquid staking token for BTC, stBTC (the same across all staking projects), and an interest-based liquid staking token, YAT (unique to each staking project). Lorenzo is currently the only LST project on the market that offers users dual incentives with both YAT and points. The total limit is set at 250 BTC (to ensure user returns), with only a few dozen BTC remaining, so it’s expected to fill up quickly — first come, first served.

The Strategic Importance of Yield and Liquidity in BTC

Compared to the issuance of on-chain assets and scaling solutions on BTC, the direction of yield generation and liquidity release is much more tangible and actionable. Binance’s strategic investments in this area, particularly in asset entry points, highlight its significance. Among the projects mentioned — Renzo, Puffer, Babylon, Solv, and Lorenzo — Binance has invested in all of them. So, take note: this is a sector that demands serious attention!

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