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BTCFi: Financial Innovation and Challenges in the Bitcoin Ecosystem
BTCFi: The Financial Innovation Path of the Bitcoin Ecosystem
Overview
Background of BTCFi's rise: The narrative of public chains like Ethereum is weakening, infrastructure is becoming saturated, and the industry lacks fresh narratives; the Bitcoin ecosystem has not yet formed a comprehensive resource monopoly, and opportunities still exist.
The main scaling solutions for BTC include state channels, sidechains, Rollups, UTXO + client verification, and large blocks. Each solution faces technical challenges to comply with "orthodox" requirements.
Key conditions for the development of BTCFi: cross-chain interoperability, layer two scaling solutions, smart contract functionality, and完善的开发工具和基础设施
The main challenges faced by BTCFi: limitations of the Bitcoin protocol, insufficient liquidity, security of cross-chain bridges, accuracy of oracles, and how to form a unique development path.
1. Overview of BTCFi
Definition of 1.1 BTCFi
BTCFi aims to build a decentralized financial market within the Bitcoin ecosystem, allowing BTC holders to directly use Bitcoin-related staking, lending, market-making, and other financial derivative tools to generate profits, thereby activating the financial value of Bitcoin.
1.2 Background of the Rise
The year 2023 is an important year for the development of the Bitcoin ecosystem, with tokens like BRC20 causing a significant wealth effect. The reasons for the rise of BTCFi include:
As of October 1st, Bitcoin ecosystem has publicly raised funds 14 times, totaling over 71.1 million USD. In addition to financing, various protocol assets such as BRC20, ORC20, and ARC20 have also emerged.
1.3 Index Asset Protocol
Indexed assets are mainly divided into:
2. BTCFi's Expansion Plan
The development of BTCFi requires blockchain scalability, but there is still controversy over the current scalability paths. The main expansion plans include:
2.1 State Channel
Like the Lightning Network, it allows users to conduct multiple transactions off the mainnet, only submitting to the mainnet when opening and closing channels.
2.2 Sidechains and Rollup
Sidechains and Rollups are more suitable for the development of the Bitcoin ecosystem, enabling fast transactions, Turing completeness, and interoperability.
2.3 UTXO+ client verification
The RGB protocol, based on the Bitcoin UTXO model, shifts transaction validation off-chain to improve efficiency and privacy.
2.4 Large Block
Like BCH, it increases throughput by increasing block size, but it requires changing the original consensus and faces many challenges.
3. The Development Conditions and Challenges of BTCFi
3.1 Prerequisites for Development
3.2 The main challenges faced
BTCFi may focus more on financial products related to payments and value storage in the future, and the PayFi concept may be more suitable for the Bitcoin ecosystem. During its development, how to provide innovative features while ensuring security will be a long-term challenge for BTCFi.