Bitcoin re-staking chain, unlocking trillion-dollar asset liquidity.

Ritu13

With the approval of BTC spot ETFs, major institutions and individuals worldwide are continuously increasing their holdings of BTC, leading to a rise in BTC prices, which have now surged to become one of the top ten assets globally by market capitalization. In this market cycle, BTC script and BTC expansion are two highly observed sub-tracks. The exploration of diversified income from BTC ecosystem assets is attracting the attention of the crypto market.

So, which solution will become the optimal solution to address issues such as interest-bearing BTC assets, network confirmation delays, lack of smart contracts, and excessive gas fees? Currently, in terms of enhancing the prosperity of the Bitcoin ecosystem, the main solutions include Layer2 and sidechains.

As one of the investors in the $6 million financing of BounceBit, HTX Ventures considers BounceBits and its CeFi+DeFi product model as a potential innovative solution to open up the Bitcoin ecosystem and gain more applications. This research report delves into BounceBit, outlining its product design philosophy and HTX Ventures' investment philosophy.

What is BounceBit?
BounceBit is a BTC re-staking chain designed specifically for Bitcoin. Its constructed BTC re-staking infrastructure provides a foundation for various re-staking products, safeguarded by regulated custody from Mainnet Digital and Ceffu. It utilizes a hybrid PoS mechanism of BTC+BounceBit for verification.

BounceBit addresses the trust issues of underlying BTC assets through multi-party custody, creating BBTC for DeFi interactions on the Bounce mainnet. Native BTC assets are used for various low-risk arbitrage strategies on centralized exchanges. Additionally, under the hybrid token staking mechanism, staking with BBTC+BB (BounceBit's native token) can generate LSD tokens, further earning node staking rewards and re-staking income.

By combining centralized custody and sidechains, BounceBit aims to address the long-standing trust issues of sidechains while revitalizing the BTC ecosystem. This will lower transaction costs and unleash the financial potential of BTC, enabling its application in more scenarios such as DeFi, gaming, and social interactions.

How does BounceBit work?
BounceBit's product design is cleverly crafted as shown below:

Users can deposit various types of on-chain Bitcoin assets into the BounceBit protocol, which is managed by an MPC wallet jointly operated by BounceBit, CEFFU, and Mainnet Digital, solving trust mechanism issues and ensuring user asset security.

Through Ceffu's off-exchange settlement (OES) solution like MirrorX, users can securely access exchange depth liquidity and earn profits through diversified trading strategies, while funds are safely held in on-chain MPC wallets. This wallet technology significantly reduces the risk of single point of failure (SPOF) by splitting private keys into multiple parts. Moreover, since user funds are not stored on any centralized exchange but mirrored through Ceffu, counterparty risks are reduced.

BounceBit collaborates with a series of asset managers with long-term positive income records for trading through MirrorX. All these asset managers adopt fund rate arbitrage as their primary trading strategy. Fund rate arbitrage is a risk-free strategy that exploits differences in fund rates between different markets.

On the other hand, after users transfer native assets to BounceBit, new B-Token assets will be minted. For example, for BTC, users will receive BBTC assets operating on the BounceBit mainnet. Currently, these assets can be used for two main on-chain activities: first, participating in node staking under BounceBit's hybrid staking mode using BBTC+BB, while the generated LST tokens can be used for further re-staking activities to amplify staking rewards; second, 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 through diverse DeFi activities and revenue generation activities on the BounceBit mainnet.

In terms of income sources, by participating in staking and on-chain financial interactions on BounceBit, users can obtain asset income from multiple channels:
CeFi income obtained from native assets in centralized exchange sub-accounts.
DeFi income obtained from on-chain interactions on BounceBit.
Re-staking income from staking with BBTC+BB and generated LST after staking.
In summary, while ensuring asset security through multi-party custody, BounceBit provides diversified income generation methods.

Why does HTX Ventures invest in BounceBit?
As one of the main investors in BounceBit, HTX Ventures believes that BounceBit can effectively meet the actual market demand through its centralized custody model established on standard sidechains.

The core goal of BounceBit is to address issues such as interest-bearing BTC 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, the main solutions to enhance the BTC ecosystem include Layer-2 and sidechain technologies.

Layer2 solutions primarily involve executing Bitcoin transactions off-chain to improve transaction speed. Current Layer2 solutions mainly consist of two types: state channels and Rollups. Typical projects for state channels include the Lightning Network, but their scalability is very limited. Currently, the Lightning Network mainly improves point-to-point transaction speed and is difficult to deploy Ethereum-level smart contracts. As for Rollups, due to issues with underlying code and signature verification, Bitcoin Layer2 solutions cannot be verified by the mainnet when returning the ledger, making it difficult to achieve sufficient trust guarantees. Currently, the most hopeful method that could be realized is based on the new Taproot protocol, upgrading the Bitcoin BIP layer, miners updating underlying code to support OP/ZKP verification and Bitcoin miner computation execution, but there is still a long way to go before Rollups are implemented.

Sidechains are essentially fully independent chains. Typically, by mapping Bitcoin from the mainnet to the sidechain and issuing new assets, mapping and application of native assets are achieved. Generally, sidechains have better processing speed, but from the perspective of trust verification, they are completely independent chains from the Bitcoin mainnet, so they face trust and consensus issues. At the same time, it is relatively easy for the project party to behave maliciously, thereby affecting the security of mapped assets. This is also the TVL dilemma that sidechains generally face.

BounceBit addresses some challenges in the Bitcoin ecosystem by establishing an independent PoS layer and adopting a unique approach. In this framework, nodes ensure the security of the chain by staking BTC and BounceBit tokens. The connection between BounceBit and BTC is established at the asset level rather than the protocol level.

By combining centralized custody and sidechain technologies, BounceBit attempts to overcome the consensus and trust issues of sidechains. In the current environment, this hybrid mode of centralization and decentralization may provide a compromise solution to address technical and trust issues. BounceBit's design philosophy and the background of its development team give it an advantage in competition, opening up space for exploring new opportunities.

Future Outlook
With the approval of BTC spot ETFs, major institutions and individuals worldwide are continuously increasing their holdings of BTC, leading to a rise in BTC prices, which have now surged to become one of the top ten assets globally by market capitalization. Meanwhile, in this market cycle, BTC script and BTC expansion are two sub-tracks that market is highly focused on. Some progress in BTC has excited the market, attracting more attention to the BTC ecosystem,

Yamini003

Liquidity is also crucial.

Samiksha

I really don't understand this wallet yet.

Sona59

Safety must always come first.

Jayne94133

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