Host: Aquarius https://x.com/0xAquariusCap

Guests:

YouTube link: https://bit.ly/btcadoption

Mirror original text: https://mirror.xyz/0xa54017CA3461743Bf0A14d2C46931ECe151d6D2d/dS3GuY_MREiUczEVhBcIj2aumenjdNpdpdIypoWdVXc

Summarize

BTC-Fi (Bitcoin Staking Finance) is redefining the role of Bitcoin, giving new uses to this traditional "store of value" asset. By providing yield generation and decentralized finance (DeFi) capabilities, BTC-Fi attempts to expand the application areas of Bitcoin, although it still faces challenges in technology and user adoption. As the ancestor of cryptocurrency, Bitcoin has a unique appeal to retail and institutional investors due to its brand effect and unparalleled decentralization. This emerging field is expected to disrupt the DeFi landscape while opening up a new value proposition for Bitcoin.

One of the key innovations driving the development of BTC-Fi is Babylon, a protocol dedicated to enabling users to stake native BTC directly on the Bitcoin network for the first time. As a platform focused on "staking, security and liquidity", Babylon aims to leverage the security of the Bitcoin network to support a variety of applications by working with Liquid Staking Derivatives (LSD) issuers and DeFi developers. Its non-custodial staking model ensures that Bitcoin remains in the user's wallet, reducing custodial risk while balancing the trade-off between security and transaction fees.

Institutional investors are also gradually growing their interest in BTC-Fi. Validation nodes and infrastructure service providers like P2P.org believe that BTC-Fi is a potential area for institutional investment, but current obstacles include uncertainty in the regulatory framework and unproven security. P2P.org is leveraging its experience in supporting more than 40 proof-of-stake chains and is working with projects such as Babylon to provide institutions with standard-compliant solutions. At the same time, the role of custodians in promoting institutional adoption is crucial, and Solv Protocol and Babylon are working with custodians such as Ledger and Fireblocks to create a safe and accessible path for Bitcoin staking.

Although BTC-Fi has gained initial traction among retail users, institutional adoption remains slow. Many Bitcoin holders are accustomed to storing their assets in cold wallets rather than participating in staking. The BTC-Fi platform needs to build the trust of these users by clearly communicating its security and low-risk return potential. Similar to the evolution of Ethereum's early DeFi, BTC-Fi's adoption may take years to mature. However, a strong base of retail users may be a starting point for attracting institutions, as they are more inclined to try new technologies, thereby injecting growth momentum into the entire ecosystem.

BTC-Fi's growth comes with some important challenges. High transaction fees on the Bitcoin network are a major obstacle, but security is always the top priority for developers. Babylon plans to explore scalable solutions that reduce fees while maintaining high security. In addition, BTC-Fi's projects are expanding the use of Bitcoin beyond just yield generation. Projects like Babylon and Pell Network are building more complex financial markets, including lending and decentralized trading, while providing Bitcoin holders with additional sources of income through re-staking. These efforts may ultimately redefine Bitcoin's position in the crypto space.

Developer participation is considered key to BTC-Fi's success, as they can drive innovation and expand Bitcoin's use in other ecosystems. At the same time, compared with Ethereum and Solana's DeFi ecosystems, BTC-Fi's main advantage lies in Bitcoin's global branding and trust. If Bitcoin can successfully integrate secure and scalable DeFi solutions, its huge market value may make BTC-Fi a heavyweight player in this field.

Looking ahead, BTC-Fi's development path is full of potential. Babylon is working to establish a secure staking solution with multiple custody and wallet partners, and plans to achieve significant growth in the next 12 months. At the same time, projects such as Pell and Solv Protocol are expanding their retail user base, laying the foundation for further attracting institutional investors. Although BTC-Fi's growth may be gradual, with the improvement of infrastructure and the participation of more users, its prospects for becoming a mainstream financial product are widely optimistic.

introduction

Hazel: Hello everyone, welcome to the third episode of the Aquarius Podcast. I’m your host, Hazel, from Aquarius. Aquarius is a research-driven venture capital and liquidity fund with over $600 million in assets under management, focused on providing projects with targeted liquidity management solutions covering both short-term and long-term needs, including staking and re-staking.

Today we’re going to explore one of the most exciting and rapidly growing areas in crypto: BTCFi, or Bitcoin Staking Finance. Bitcoin has always been viewed as a store of value, and BTCFi is changing that role, enabling holders to generate yield and actively participate in decentralized finance. I’m excited to have several distinguished guests representing the top projects in the BTCFi space. These platforms are driving innovation from staking infrastructure to re-staking services. We’ll discuss their unique approaches, challenges they face, and their vision for Bitcoin’s role in DeFi.

Hazel: First, let’s get a better understanding of how each platform is positioned within BTCFi. BTCFi is growing rapidly, and protocols like Lido have set the standard on Ethereum. I’d like to hear how each of your platforms positions itself within BTCFi and differentiates itself within this ecosystem?

  • Clayton: I think it’s helpful to distinguish Babylon from the decentralized finance activities that may run on our layer. Babylon is essentially a staking, security, and liquidity protocol. For the first time, Bitcoin holders can stake Bitcoin directly on the Bitcoin network. Babylon, as a protocol, provides the security of this staking to other networks that want to leverage the security of the Bitcoin network. Our liquidity is achieved in part through our partners, whether it’s LSD (Liquid Staking Derivatives) issuers or other projects that want to build DeFi products on top of our staking layer. Ultimately, our network participants include those who seek the security that our staked Bitcoin can provide, as well as stakeholders and developers building financial products on top of staked Bitcoin.

  • Lester: P2P.org is more of an infrastructure provider. We have been running validators, launching different projects, and supporting chains like Cosmos. Our main focus is on providing yield, so projects like Babylon are a good fit for us. Together with other projects on Bitcoin, P2P aims to create yield for Bitcoin holders, which is a significant shift for Bitcoin, which traditionally does not provide native yield. Although some may argue that this is still not true native yield, it is a big leap from zero to one. P2P.org supports more than 40 PoS chains, maintaining a high online rate, API responsiveness, and effectiveness. Since 2018, we have focused on value-added verification operations for PoS chains.

  • Jing: First of all, thank you very much for inviting us to this podcast today. We work closely with teams like Babylon and Pell. Conceptually, we position ourselves as builders of staking infrastructure, providing a one-stop platform for users to access a variety of income opportunities on the platform. While Babylon is leading in many of these areas, we are also exploring higher-risk opportunities in the trading space and enabling users to continue lending and other activities through Liquid Staking Tokens (LST).

  • Makoto: Yes, it’s great to be here with Babylon, P2P, and Solv. Pell Network is focused on BTC re-staking. We work with partners like Babylon and Cell to provide Bitcoin economic security for different ecosystems and applications. Babylon excels in providing security at the consensus layer, and we extend Bitcoin’s security to various application layers by working with LSD providers like Cell. We recently announced our partnership with Babylon, which has been in the works for several months. We are also in discussions with P2P to invite them to join when we launch our public testnet. Our goal is to build a closed-loop ecosystem for Bitcoin holders and stakers.

Hazel: Thank you for sharing. BTCFi does have great potential, but as you mentioned, adoption has been slower than expected. Many individuals and institutions view Bitcoin as a long-term store of value, but few participate in BTC-Fi activities to maximize capital efficiency. This trend highlights the huge gap between Bitcoin's current role and its untapped potential in DeFi. While holding Bitcoin provides stability and protection against inflation, it lacks yield-generating features like other DeFi assets. I would like to hear your views on the main challenges to Bitcoin adoption and how your respective projects address these challenges. Jing, would you like to answer this question first? What do you think are the main challenges to BTCFi adoption?

  • Jing: I think this is a very good question, but it doesn’t have a single answer. Looking at the development of Bitcoin and Bitcoin DeFi over the past 9 to 18 months, we can see a lot of changes. In my opinion, this cycle is compressed compared to other chains and tokens. The process of adoption started with innovations like Ordinals, where users could finally use Bitcoin for other purposes outside of their wallets. This was the first step. Then, as teams began to build Bitcoin tools, Bitcoin Rollups, sidechains, and scaling solutions, we saw the next stage of this evolution. Now, the focus is on actual use cases - how to provide returns and why users would bring Bitcoin into this ecosystem and find ways to make them stay. I think all of us are working hard to create a better user experience and provide reasons for users and their Bitcoin to stay in this ecosystem.

  • Second, when it comes to Bitcoin adoption, many people have traditionally stored their Bitcoin in a few trusted places — exchanges, cold wallets, or Wrapped Bitcoin (WBTC) on Ethereum. As a result, the user journey and trust assumptions are very different from traditional DeFi users. We focus on creating a common process for building trust so that users feel comfortable with their journey.

  • For some of these changes, it will take more time, but I wouldn't necessarily say it's slow. It took Ethereum more than five years to get to where it is now, especially in the DeFi space, where it all started. With Bitcoin, we're approaching it in a different direction. If anything, I think we're making good progress.

Hazel: Got it, that's really insightful. I'd like to hear from Lester. With over $4 billion in assets under management, P2P.org has unique insights into institutional interest in BTC staking. BTC-Fi offers holders an attractive opportunity to unlock additional value through staking, lending, and other DeFi mechanisms. However, many institutions remain cautious, as Bitcoin has traditionally been viewed as a conservative, low-risk asset, coupled with concerns about security, regulatory clarity, and the operational complexity of BTC-Fi. How is P2P.org prepared to meet the needs of institutional Bitcoin holders? What specific challenges do institutions bring to BTC-Fi? And how are you addressing them?

  • Lester: Frankly speaking, for now, we haven't seen a lot of institutional participation, which actually means that there is still a lot of room for the market to develop. Bitcoin staking still has significant expansion potential. Currently, retail users dominate, while institutional investors and venture capitalists are still on the sidelines, trying to understand the market landscape. They are evaluating the sustainability and security of returns. The sentiment in the Western market is more cautious, while the Asian market is progressing relatively faster. Mining pools are one of the groups most open to BTC-Fi because they are looking for new ways to stake Bitcoin, not just through lending or using it as collateral. This is the current situation, and we expect the adoption of Bitcoin staking to gradually grow as the ecosystem matures.

Hazel: Thanks, that’s very helpful. I know Bitcoin is traditionally seen as a store of value, but BTC-Fi is expanding its role. I’m curious – how do you think Bitcoin can be used beyond yield? Does this broaden the appeal of BTC-Fi?

  • Clayton: Bitcoin’s advantage over other crypto assets is its simplicity. As long as the majority of network participants still view it as a store of value, I think that’s enough. Adding more complexity at the base level, especially by pushing for more complex or exotic products from the beginning, could undermine that, especially for people who aren’t already actively involved in the crypto space.

  • From an introduction perspective, it is much easier to explain buying Bitcoin and doing some simple operations, rather than pushing more complex or risky products from the beginning. So, honestly, I think the base layer should be kept simple. The core value proposition of holding Bitcoin should be clear. As for additional applications built on this foundation, we can talk about it later. We hope to build more advanced markets on the Babylon staking layer, but at the end of the day, simplicity remains our core value proposition.

  • Makoto: I agree with Clayton that from a re-staking perspective, many crypto participants have already tried staking other assets, such as Ethereum. However, when it comes to developer adoption, there is still a gap in the process of completing the value chain. Developers who need network security are often stuck in the process of integrating different cryptoeconomic security services.

  • At Pell, our goal is to simplify this process. We don’t want to make integration overly complex for developers. Our system is chain-agnostic, so developers in any ecosystem can easily integrate Pell’s technology. This approach extends Bitcoin’s utility from the context of native Bitcoin to a cross-chain level, where any ecosystem can leverage Bitcoin’s security. Our priority is to provide utility and let the benefits follow naturally. This strategy helps lower the threshold for developers to meet security requirements.

  • Over time, I believe that Bitcoin’s utility as a secure collateral will be widely accepted. From this security perspective, BTC-Fi will eventually gain consensus and users will recognize it as more than just a simple holding tool.

Hazel: Great insights. Another key challenge in staking is high transaction fees, which can be a barrier to adoption. How is your platform addressing this, especially as adoption scales? Clayton, I’d especially like to hear your thoughts on managing high fees.

  • Clayton: Fees on the Bitcoin network are uncontrollable and depend entirely on the demand on the network at any given time. To be honest, for us, the primary use of Bitcoin is as a store of value and ultimately to hold it in a secure manner. We obviously hope that transaction fees will come down from current levels, but our primary concern remains security. If I were a Bitcoin holder who planned to hold Bitcoin for five years, the rewards earned by staking Bitcoin on Babylon would provide me with additional Bitcoin earnings. So, would this initial staking fee be a hindrance? Most likely not, especially when holding larger amounts of Bitcoin. In this case, I am not overly concerned about fees on the Bitcoin network, at least for Babylon. In addition, Babylon runs on the Cosmos chain, so we expect its fees to remain relatively cheap compared to Ethereum for the foreseeable future.

  • Jing: I think this is a very relevant question. Is there a straightforward solution at this point in time? I think not, given the current structure of the Bitcoin Layer 1 network. There are many scaling solutions being developed, and we are actively involved and discussing them. But I believe they will take time. We only have one chance to get this right. That means we only have one chance to build a secure foundation, set the right rules, and establish trust. In my opinion, from an early adoption perspective, the focus should not be on transaction fees, but on ensuring that assets remain secure and are properly collateralized, both conceptually and technically. Many of us are working on implementing simple scaling solutions that will naturally reduce costs, but we currently do not have a ready-made solution to achieve this goal immediately.

Hazel: Got it, security is more important than transaction fees, and this is a trade-off we have to accept. The success of BTC-Fi may depend on cooperation between different protocols. Clayton, you mentioned the positioning of Babylon, and I am curious, how do you envision the ideal BTC-Fi ecosystem? Are there any projects that you think can add value to this ecosystem?

  • Clayton: Yes, primarily in what we currently call “Bitcoin Security Networks” which are the best places to build for long-term Bitcoin-denominated DeFi. These networks have chosen to integrate Bitcoin Security, creating a natural alignment and growth effect. We recently announced partnerships with Corn and Pell. Essentially, we are connecting with these networks where people can stake Bitcoin and then move into other ecosystems as we grow. Bitcoin Security Networks benefit from accepting Bitcoin-denominated liquidity while leveraging the security provided by Babylon.

  • For example, in your DeFi ecosystem, you might want to own sBTC because you’re already paying for security for those stakers, making it a more attractive option than wBTC or other assets that don’t necessarily generate yield for users or aren’t aligned with protocol incentives.

  • Lester: To me, this is more straightforward. The narrative of BTC-Fi is similar to what happened during the Ethereum DeFi summer, when people were using ETH everywhere, paying gas fees, and the entire ecosystem was built around it. I imagine Bitcoin can achieve more because of its unique positioning as a store of value. Looking at the new highs of Bitcoin, it still reflects its specialness compared to ETH.

  • I'm not saying ETH isn't important - it absolutely is, and its ecosystem is very strong. But Bitcoin's nature as a store of value, coupled with its vision of electronic cash, really makes it special. I work remotely around the world, and in our global banking system, payments often take 10 to 20 days to clear, especially during bonus distributions. While the traditional banking system is convenient in many ways, it is also cumbersome due to regulation and interbank rules.

  • It would be revolutionary if Bitcoin could truly expand its use case as a yield-generating payment method beyond just Web3. Of course, this is only an ambitious goal, but the amazing projects we’ve seen on the podcast give me confidence that together we can work towards this dream.

Hazel: Thank you. Clayton, you mentioned that Babylon is primarily focused on security. I understand that Babylon supports non-custodial Bitcoin staking, which is critical for institutional holders who are concerned about third-party risks. How do you design the protocol to maximize user security while reducing reliance on intermediaries?

  • Clayton: Our protocol is designed to be completely non-custodial. If you compare Bitcoin staking on Babylon to Ethereum staking on Ethereum, you'll see some key differences. On Ethereum, your ETH actually leaves your wallet, and the wallet becomes a withdrawal address, which is essentially a claim on your right to withdraw ETH in the future.

  • With Bitcoin staking on Babylon, since it runs on the Bitcoin network, you only need to sign a UTXO transaction in your wallet, which means that Bitcoin does not actually leave your wallet. It is just marked as an asset with specific parameters in the unspent transaction. There are rewards attached to this process, but also potential penalties, such as when you entrust your assets to a finality provider that is not in the interest of the protocol. Our protocol is designed to be non-custodial, allowing users to retain full control of their assets.

  • In addition, we can build other application scenarios on top of Babylon. For example, qualified custodians can manage pledged collateral off-chain, or Liquid Staking Token (LST) issuers can provide management services for users who do not want to operate on their own.

  • Our core value proposition is that Babylon offers multiple ways to participate, unlike other Bitcoin staking protocols that may move Bitcoin off the native network.

Hazel: Makoto, I have a specific question about Pell’s focus on the re-staking model. Can you explain how it differs from standard staking and the incentives it provides to Bitcoin holders? Also, how does Pell work with other projects in this ecosystem?

  • Makoto: Sure, let me elaborate on the process from a Bitcoin holder's perspective. If you hold one Bitcoin, Babylon allows you to stake it directly from your wallet without having to hand over control of your assets. However, many users may prefer to deposit their Bitcoin into Soft Protocol, which has partnered with Babylon. Bitcoin deposited through Soft is Soft staked on Babylon. Validators like P2P participate in validation to generate revenue. Users receive a soft BTC token in return, which accumulates Babylon's revenue.

  • Pell enhances this structure through our decentralized verification network, providing additional benefits, allowing Bitcoin holders to earn more returns with minimal risk. This "1+1>2" effect is perfect for users who want low-risk returns. If users stake their assets in index pools or act as liquidity providers (LPs), they may be exposed to impermanent loss or smart contract risks. By keeping the staking process simple, we minimize these risks.

  • In addition, Pell provides a full-chain infrastructure that allows users to stake their Bitcoin Liquid staking tokens on any chain without having to repeatedly wrap or bridge Bitcoin. This process maximizes the benefits of Bitcoin holders while minimizing risks.

  • I believe this approach will be an entry point for traditional, more conservative Bitcoin holders to explore DeFi. When Ethereum first introduced staking, adoption was very slow due to security issues. But now, Ethereum staking, liquid staking, and re-staking have grown significantly. We expect even more from BTC-Fi than Ethereum.

Hazel: Thanks for sharing. As we all know, bear markets test the resilience of an ecosystem. I'm curious, what steps have you taken to ensure that BTC-Fi remains attractive in bad market conditions? Lester, what do you think?

  • Lester: As an infrastructure provider, we naturally work closely with the BTC-Fi project. For example, with projects like Resolve (Jing can attest to this), we put a lot of effort into developing customized products for different needs. For our institutional partners, like exchanges, they may have some specific needs and requirements. And mining pools may have other preferences. So, we actively work on network security and perform the duties of a validator, but we also go a step further and customize solutions with a wide range of ecosystem partners and networks on the product side. This is the main direction of our efforts.

  • Of course, there are limits to what we can do. We are still very dependent on protocol layer efforts, such as promoting the ecosystem and attracting retail users' interest in BTC-Fi. Our main task is to ensure the security of the network, which I think is a core part of our work.

Hazel: You both mentioned retail users and Bitcoin holders. Many Bitcoin holders are more conservative, especially because of Bitcoin's core positioning as a store of value. How do you convince them to stake Bitcoin, especially when the returns are not very attractive at the moment?

  • Lester: Exactly, and I think that’s the message we’re helping Babylon deliver. Many traditional Bitcoin custodians don’t support staking on Babylon right now—not because they don’t support Babylon, but because it usually takes a long time for custodians to adapt. They need to see actual demand, benefits, and returns, and do a careful calculation before they support staking on a new network. That’s the traditional way it works.

  • We are also working with custodians like Solv to discuss how to make it easier for them to allow Bitcoin staking, such as creating clear income streams. Adoption takes time, especially for traditional institutional Bitcoin holders. It’s often not that they don’t want to stake, but that staking may be too complicated for them.

  • For example, during the last staking window, which happened at 3am in the morning, we had an institutional representative come in with his Ledger private key. He had the Ledger, but he couldn't complete the stake on the Ledger because the withdrawal window wasn't open yet. He didn't want to stake directly, so we suggested he open a Cobo account, which took some time. Unfortunately, he was in a remote area and didn't have a MacBook or iPad to set up Cobo, but he eventually completed the stake by sending it to the project founder. This is just one example of one of the challenges we face.

  • We are actively working with Babylon and other protocols to streamline these processes, help custodians and traditional institutions integrate BTC-Fi, and open more doors for institutional finance.

Hazel: For BTC-Fi to be truly successful, protocols must focus on building trust through secure, transparent, and non-custodial solutions, which is consistent with Bitcoin's concept of self-sovereignty. At the same time, it is also critical to simplify the user experience in order to make BTC-Fi more accessible. While effectively balancing security and yield potential, BTC-Fi has the opportunity to transform Bitcoin from a passive store of value asset to an active yield-generating asset, attracting retail investors and institutions looking to improve capital efficiency. Clayton, I understand that Babylon is working on integrating staking capabilities in different custodians and wallets. Can you share the future growth roadmap?

  • Clayton: As Lester mentioned, many custodians and wallets are still reluctant to support certain transaction types on Bitcoin, which is understandable. After all, on the native Bitcoin network, there wasn't much functionality in the past. If you are a custodian or wallet provider, losing your users' Bitcoin could be the worst outcome for your business.

  • So, our focus over this quarter and the next is on establishing Babylon as a very secure staking solution, ensuring that integration partners and their customers can trust us, and embed staking functionality into Bitcoin holdings.

  • We are working with Western custodians like Ledger, Fireblocks, Anchorage, and early adopters like Cobo, Fortify, and Texos to drive progress. For the third staking window (Cap 3), we plan to open more staking opportunities, while considering longer time windows and avoiding opening at inconvenient times (such as 3 am) like the second staking window (Cap 2) to make the staking process more convenient and fair.

Hazel: Jing, regarding Solv’s development roadmap, what is your current focus?

  • Jing: For us, and for many teams here, the core goals of the development roadmap are similar. At the end of the day, Bitcoin's adoption and usage in the entire ecosystem is still relatively small. We are working together to expand this pie.

  • Our goals are mainly focused on two aspects. First, how do we attract new users, especially those who are new to this ecosystem? Bitcoin's recent all-time high has indeed helped increase user interest, but in the long run, educating users, building trust with investors, and strengthening partnerships remain key.

  • The second focus is to ensure that once users enter this ecosystem, they have access to real-world use cases and solutions. This means making it easy for users to get scalable solutions and diverse functionality. So these two areas are the main focus at the moment in terms of our development roadmap.

Hazel: For a new user who is new to Bitcoin staking, where should they start? What advice would you give them to help them evaluate the BTC-Fi opportunity?

  • Jing: Evaluating investment opportunities in Bitcoin or any crypto asset is not fundamentally different from evaluating a traditional investment portfolio. It requires understanding your risk appetite, risk tolerance, expected returns, and the amount of capital you are willing to invest.

  • For Bitcoin staking, especially in the context of BTC-Fi, it is almost like evaluating an insurance or fixed income product. So, first evaluate your risk tolerance and investment preferences. Second, I always advise partners and users to focus on operational security - that is, how to manage your team and processes. On the negative side, it is not only about technical or protocol issues, but also about the security of personal operational processes. It is critical to optimize and secure each step of the process.

Hazel: In the generation of yield from BTC staking, how do you strike a balance between token rewards, network security, and avoiding the risk of over-inflation of token supply? Makoto, what do you think about this?

  • Makoto: I would like to respond to some of the points mentioned earlier and share our views. Institutional users' interest in BTC-Fi is just beginning to sprout. If we look back at the history of Bitcoin's development as an asset, institutional players are usually the last to enter this field.

  • Our focus is to start with the early adopters, the retail user community. These users are more willing to try new technologies and are more willing to experiment. Currently, we have more than 400,000 stakers on our platform, and our goal is to continue to grow this number. Only by building strong community participation will institutional players pay more attention and take this space seriously.

  • If we look at the history of Bitcoin, it has been around for more than 15 years, but it was only this year that a Bitcoin ETF was approved, opening the door for institutional participation. We expect a similar roadmap for BTC-Fi, with institutional players initially sitting on the sidelines or testing the waters by investing a very small portion of their portfolio.

  • As our ecosystem strengthens, more institutional interest will follow. In the past, the primary way to generate Bitcoin yield was through mining, but due to the recent halving event, Bitcoin mining has become more institutional, competitive, and less profitable. Many institutions hold large amounts of Bitcoin reserves that are currently underutilized, and we believe this will prompt them to explore new yield generation options.

  • As Jing, Clayton, and Lester mentioned, we are all working towards the common goal of expanding the BTC-Fi ecosystem. Our strategy is to focus on retail user adoption first. With patience and continued building, we believe institutions will eventually follow.

Hazel: In terms of timing, when do you think it will be appropriate for institutional users to start adopting BTC-Fi?

  • Makoto: If we take the development of the Ethereum ecosystem as a reference, it took several years for institutions to adopt DeFi. The advantage of Bitcoin is that there are already some pioneers paving the way. I don’t think it will take several years for institutional users to start adopting BTC-Fi, but it won’t happen in just a few days. Lester should be very clear about this.

  • From a P2P perspective, we still need a lot of infrastructure, integration development, and comprehensive security audits to ensure that the entire process is robust enough. We are building some additional components to support and extend the native Bitcoin network.

  • I think it will take several months. I am optimistic about significant progress in the next 12 months. Another key point is the role of custodians. Many custodians play an important role as intermediaries for institutions to hold Bitcoin assets. Projects like Soft, Babylon and Pell work directly with these custodians. According to our communication with custodians, more than half of them are open to participating in BTC-Fi or co-developing solutions that meet customer needs, and are willing to integrate the BTC-Fi protocol. Maybe I am a little biased, but I am very optimistic about the development of BTC-Fi in the next 12 months.

Hazel: You all mentioned Ethereum as a reference. I'd like to hear your thoughts on what is the unique value proposition of BTC-Fi in other ecosystems like Ethereum or Solana? How does it differentiate itself from these ecosystems? Clayton, maybe you could share your thoughts first.

  • Clayton: The answer is actually quite simple. Bitcoin is the oldest and most widely distributed asset and network in the crypto space. Its widely accepted value proposition is as a store of value. When people compare Bitcoin to Ethereum or Solana, the first thing that comes to mind is Bitcoin’s role as a store of value, not as an asset used to pay network fees.

  • For example, Ethereum’s primary use case is paying for transactions on the network, and only then is its “moneyness” discussed. This simplicity and clarity is what makes Bitcoin unique.

  • A Bitcoin ETF is also a significant milestone from an institutional adoption perspective. I believe that by the end of this year, approximately 5% of all circulating Bitcoin will be held by ETF issuers. This is unlike Ethereum and Solana, which currently do not match Bitcoin in this form of institutional adoption. This may change in 2025 or 2026, but for now, Bitcoin is way ahead in terms of narrative and institutional participation.

  • Lester: For us P2P, although we focus more on the infrastructure part, we hope to be at the forefront of the BTC-Fi field. To do this, we need to establish strong partnerships with ecosystem players such as Pell and Babylon. We are very willing to collaborate with them, share resources, and work towards common goals.

  • The main hurdle we face is accessibility. Many customers have limited ability to engage with BTC-Fi through traditional means, and the way they typically interact with blockchain does not support easy integration with Babylon or other Bitcoin-based ecosystems. Our first step is to help these partners gain access and expand adoption.

  • As for widespread adoption and continued use of BTC-Fi, we’ll leave that to the experts on this call, but we promise to do our part to share resources and promote interest. This is where we stand.

Hazel: Jing and Makoto, how do you see Bitcoin’s value proposition differing from Ethereum and Solana? These ecosystems are also growing rapidly.

  • Jing: Yes, the key lies in the application scenarios. Whether it is Bitcoin, Ethereum or Solana, the key is to find ways to use these assets in financial products or infrastructure. However, what is special about Bitcoin is that it is widely recognized outside the crypto space and is a symbol of the entire industry.

  • I’m not saying other assets aren’t important, but from an outsider’s perspective, Bitcoin is the entry point and the most recognizable symbol of the industry. This natural ability to attract users is a huge advantage.

  • Makoto: We get asked this question many times. There are a few key differences that make BTC-Fi unique. First, Bitcoin is the first cryptocurrency and has the most widespread adoption and value. It is also probably the most decentralized network. This fundamental advantage supports Bitcoin’s position as the premier crypto asset.

  • However, historically, the Bitcoin network has not supported advanced features like Ethereum or Solana. These blockchains were built with more functionality from the ground up. To take BTC-Fi to the next level, we are closing this technology gap by building infrastructure.

  • Technical challenges have always been the biggest obstacle to expanding Bitcoin's use. But we are solving these problems. Take Ethereum as an example, it has a total DeFi lock-in of more than $80 billion, accounting for about 20% of its market value. Even if BTC-Fi reaches a similar level of adoption, considering Bitcoin's market value of more than $300 billion, it is still a huge market that cannot be ignored.

  • From Pell’s perspective, we hope to extend Bitcoin’s inherent network security to the entire crypto space. If Bitcoin becomes the underlying collateral, projects can turn their attention to user features and core services without having to build their own security infrastructure. This shift could usher in a new phase of innovation and utility for Bitcoin.

Hazel: Thank you so much for sharing. It’s been exciting to hear about your work in expanding BTC-Fi. BTC-Fi is still a relatively new space, and it’s very encouraging to see each of you contributing to its growth. Ultimately, widespread adoption of BTC-Fi could make Bitcoin more than just a store of value, but also a foundational asset for the DeFi ecosystem, redefining its use and influence in the crypto space. Thanks again, Jing, Clayton, Makoto, and Lester.