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With the approval of BTC spot ETFs, major institutions and individuals worldwide are continually increasing their holdings of BTC, leading to a rise in BTC prices, which have now climbed to become one of the top ten assets globally by market capitalization.
In this market cycle, BTC scripting and BTC expansion are two highly focused-on sub-tracks. The exploration of diversified income from BTC ecosystem assets is attracting attention in the crypto market. So, which solution will emerge as the optimal one to address issues such as earning interest on Bitcoin assets, network confirmation delays, lack of smart contracts, and high gas fees?
Currently, in terms of promoting the prosperity of the Bitcoin ecosystem, there are primarily two main solutions: Layer 2 and sidechains.
As one of the investors in BounceBit's $6 million financing, HTX Ventures considers BounceBits and its CeFi+DeFi product model as a potential innovative solution to open up the Bitcoin ecosystem for more applications. This research report delves into BounceBit, outlining its product design philosophy and HTX Ventures' investment principles.
What is BounceBit?
BounceBit is a BTC re-staking chain designed specifically for Bitcoin. Its constructed BTC re-staking infrastructure provides a foundational layer for various re-staking products, secured by Mainnet Digital and Ceffu's regulated custodial services. It utilizes a BTC+BounceBit hybrid PoS mechanism for validation.
BounceBit addresses the trust issue of underlying BTC assets through multi-party custody, creating BBTC for DeFi interactions on the Bounce mainnet. Native BTC assets are used for low-risk arbitrage strategies on various centralized exchanges. Furthermore, under the hybrid token staking mechanism, staking with BBTC+BB (BounceBit's native token) generates LSD tokens, further earning node staking rewards and re-staking profits.
By combining centralized custody and sidechains, BounceBit aims to address the long-standing trust issues of sidechains while revitalizing the BTC ecosystem. This will reduce transaction costs and unleash the financial potential of BTC, enabling its application in more scenarios such as DeFi, gaming, and social platforms.
How does BounceBit work?
Users can deposit various types of on-chain Bitcoin assets into the BounceBit protocol, which is actually supervised by an MPC wallet jointly managed by BounceBit, CEFFU, and Mainnet Digital to address trust mechanism issues and ensure the safety of user assets.
Through CEFFU's Over-the-Counter Exchange Settlement (OES) solution like MirrorX, users can securely access exchange depth liquidity and earn profits through diversified trading strategies, while keeping funds safely retained in an on-chain MPC wallet. This wallet technology significantly reduces the risk of single point of failure (SPOF) by splitting private keys into multiple parts. Additionally, since user funds are mirrored through CEFFU rather than stored on any centralized exchange, counterparty risks are reduced.
BounceBit collaborates with a series of asset managers with long-term positive income records for trading through MirrorX. All of these asset managers primarily employ fund rate arbitrage as their main trading strategy. Fund rate arbitrage is a risk-free strategy that exploits differences in fund rates between different markets to generate profits.
On the other hand, after users transfer native assets to BounceBit, new B-Token assets are minted. Taking BTC as an example, users receive BBTC assets operating on the BounceBit mainnet after depositing BTC. Currently, these assets can be used for two main on-chain activities: participating in node staking under BounceBit's hybrid staking model using BBTC+BB, while the generated LST tokens can be used for further staking activities to amplify staking returns; and BBTC can be used for various DeFi interactions on-chain. BounceBit also introduces BounceClub, a platform for developers and users to increase the income potential of BTC assets by participating in diversified DeFi activities and revenue generation activities on the BounceBit mainnet.
In terms of income sources, users can generate asset income from multiple channels by participating in BounceBit's staking and on-chain financial interactions: CeFi income obtained from native assets in sub-accounts of centralized exchanges. DeFi income obtained through on-chain interactions with BounceBit. Staking income from staking with BBTC+BB and re-staking income generated by staking LST tokens.
In summary, while ensuring asset security through multi-party custody, BounceBit provides diversified income generation methods.
Why did HTX Ventures invest in BounceBit?
As one of the main investors in BounceBit, HTX Ventures believes that BounceBit can effectively meet the actual needs of the market through its centralized custody model built on standard sidechains. The core goal of BounceBit is to address issues such as earning interest on Bitcoin assets, inefficient utilization of idle BTC, lack of innovation, and high gas fees. Its fundamental purpose is to provide diversified income channels to alleviate the challenge of Bitcoin's lack of smart contract functionality. Currently, solutions to enhance the BTC ecosystem primarily include Layer-2 and sidechain technologies.
Layer 2 solutions primarily involve executing Bitcoin transactions off-chain to improve transaction speed. Currently, Layer 2 solutions mainly consist of two types: state channels and Rollups. Typical projects of state channels include the Lightning Network, but their scalable functionalities are very limited. At present, the Lightning Network mainly improves the speed of peer-to-peer transactions, making it difficult to deploy Ethereum-level smart contracts. In terms of Rollups as Layer 2 solutions, due to issues with underlying code and signature verification, Bitcoin Layer 2 solutions cannot be verified by the mainnet when returning the ledger. Therefore, it is difficult to achieve sufficient trust guarantees. Currently, the most promising method for implementation might be to upgrade the Bitcoin layer based on the new Taproot protocol, miners updating the underlying code to support OP/ZKP verification and Bitcoin miner computation execution, but currently, there may be a long way to go before the implementation of Rollups.
Sidechains are essentially fully independent chains. Typically, by mapping Bitcoin from the mainnet to sidechains and issuing new assets, the mapping and application of native assets are achieved. Generally, sidechains have better processing speeds, but from the perspective of trust verification, they are completely independent chains from the Bitcoin mainnet, thus, they face trust and consensus issues. At the same time, it is relatively easy for projects to act maliciously, thus affecting the security of mapped assets. This is also the TVL dilemma that sidechains commonly face.
BounceBit seeks to address some challenges in the Bitcoin ecosystem by establishing an independent PoS layer chain using a unique approach. In this framework, nodes ensure chain security by staking BTC and BounceBit tokens, and the connection between BounceBit and BTC is established at the asset level rather than the protocol level.
By combining centralized custody and sidechain technology, BounceBit attempts to overcome the consensus and trust issues of sidechains. In the current environment, this hybrid model of centralization and decentralization may provide a compromise solution to technical and trust issues. The design philosophy of BounceBit and the background of its development team give it an advantage in competition and open up space for exploring new opportunities.
Future Outlook
With the approval of BTC spot ETFs, major institutions and individuals worldwide are continually increasing their holdings of BTC, leading to a rise in BTC prices, which have now climbed to become one of the top ten assets globally by market capitalization. At the same time, in this market cycle, BTC scripting and BTC expansion are two |
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Post time 10-4-2024 10:11:38