DeFi
analyzes of SolvBTC, Master Yield Market and MetaID
In this article, we discuss an analysis of the current limitations that DeFi on Bitcoin faces in order to grow significantly and compete with Ethereum and other established networks in the industry.
Despite the recent implementations of Ordinals, Runes and BRC-20 tokens, Bitcoin remains a decentralized environment that is not very fluid and not very efficient for users who intend to seek native yield.
Different protocols, including SolvBTC, Master Yield Market, and MetaID, aim to solve these problems with their own advanced analytics and approaches.
Let’s see everything in detail below.
Factors limiting the growth of DeFi on Bitcoin: the latest analyzes
According to reports of the analyzes of some experts in the field of cryptography, the development of DeFi on Bitcoin could be hampered by certain fundamental factors which makes the channel less attractive to users.
Last year, native implementations of Ordinals, Runesand BRC-20 have systematically changed the way Bitcoin is perceived by the world of decentralized finance, thanks to the introduction of features considered until recently technically impossible.
Regardless, this is still not enough to achieve the same popularity and on-chain metrics as other networks more experienced in DeFi like EthereumArbitrum, Solana, etc.
From the analyzes of Ryan Chow, founder of SolvBTC, it appears that the biggest current limitation is represented by the absence of an effective native return that can justify the transition from a non-custodial portfolio or CeFi to DeFi protocols.
Indeed, users prefer to give up a lower return and avoid the risks of piracy and exploits, or rather they still prefer to benefit from lower returns but on more user-friendly platforms like centralized platforms.
The result is that Much of Bitcoin’s supply remains unusedsetting aside essential economic resources so that a thriving ecosystem can be created.
Below is Chow’s comment on this topic in a recent interview:
“Currently, there are two key factors limiting the development of BTCFi: lack of core yield and liquidity fragmentation. These factors have led to a significant amount of inactive Bitcoin, unable to actively participate in the ecosystem. »
Source: https://dune.com/cryptokoryo/runes
The reduction of cryptographic activities on Runes, Ordinals and BRC-20 with low usage of the currency used in the Bitcoin Defi is highlighted by the recent reduction in active wallets in the network.
From September 2023, smart investors preferred to buy satoshi before the price rise at the start of the year, then wait for better times to move their reserve again.
The lack of secure decentralized places to obtain a return on one’s BTC positions and the excessive price liquidity fragmentationled to a situation where the active portfolio metric reached its lowest value since 2015 with just over 5 million active entities per month.
The approach of SolVBTC, Master Yield Market and MetaID: analysis based on yield efficiency and scalability
To resolve these issues plaguing the growth of DeFi on Bitcoin, some industry experts, as well as owners of innovative cryptographic protocols, are sharing their analyzes and the approaches considered to resolve them.
Ryan Chow, founder of the SolvBTC platform, explains how under his protocol depositors can obtain significant income by committing their stake by making liquid staking on the Ethereum blockchain.
In this way, the problem of liquidity fragmentation is solved by being able to rely on liquidity environments such as EVMin addition to offering a return commensurate with the risk taken.
➤ Why SolvBTC?
Fragmented liquidity poses a major obstacle to the growth of BTCFi.
And it is more important in the BTC ecosystem.
SolvBTC solves this problem by serving as a gateway to BTCFi on various chains. pic.twitter.com/SKMtLLp9pB
– Eli5DeFi (@eli5_defi) June 14, 2024
The recent partnership between SolvBTC and Ethena Vault has allowed the protocol to reach a 15% Net APY.
How this integration works is as follows: users deposit native BTC within SolvBTC which are used as collateral to take out stablecoins, which are then in turn used for minting. USDe of Ethena and capture the yield from interest rate arbitrage in futures markets.
Here is what emerges from Chow’s analyses:
“I would like to take SolvBTC Ethena Vault as an example to explain how Solv brings stable base yield and rich income opportunities to Bitcoin users. Both Solv and Ethena offer bonus token incentives for this vault, potentially increasing the overall yield even more.
SolvProtocol has seen significant growth since the start of the year, reaching a total TVL of 1.3 billion dollars from 292,000 users. The SolvBTC section alone captures $874 million.
Another protocol that is helping DeFi over Bitcoin emerge is Main Yield Marketwhere users can purchase directly and Bitcoin sources generate resources from native blockchain DeFi protocols using Tether, Ethereum, and Wrapped Bitcoin (WBTC).
This approach simplifies the experience of finding yield within the chain, providing a simple, low-effort solution.
Meanwhile, other developers are focusing on increasing the underlying capacity of the Bitcoin blockchain to improve DeFi performance.
Developer Sunny Fung of MetaID believes that Bitcoin needs to improve in terms of scalability and network congestion.with a view to potential future growth of the DeFi sector.
From his analysis, it appears that it is possible to mitigate the problem by grouping the individual transactions into one. layer-2 application to save time and effort.
“MetaID introduces the concepts of unified UTXO chain and unified Bitcoin address, which effectively solve the Bitcoin congestion problem and fully unlock the potential of homogeneous Tier 2 networks with Bitcoin. As long as it’s a Bitcoin sidechain, layer 2, or even a homogeneous BCH with Bitcoin, MetaID can theoretically support it seamlessly.
Fung claims that although Bitcoin was designed as a layer for simple money exchange, it could soon become the “best medium for Web3 applications” thanks to some key on-chain features such as high consensus, securityefficient on-chain data storage (satoshi registration) and decentralization.
We remind you that all of these approaches mentioned in the article involve operational risks which must not be excluded in the evaluations, particularly regarding exposure to Ethena’s USDe Vaults (use of algorithmic stablecoin) and the use of second layer networks that are less secure than the main Bitcoin network.