Currently, the Ethereum restaking field is booming, with Eigenlayer cleverly packaging “Ethereum secure consensus” as a commodity for external output, forming a POS chain’s restaking revenue loop. But how can the POW-based BTC achieve a restaking loop?

Yesterday, @bounce_bit completed a $6M financing led by Blockchain Capital, attracting attention. How does it achieve BTC native asset restaking? Next, let me express my opinions.

Originally, BTC assets, as mainstream assets with absolute consensus status, would be wrapped and cross-chain to mainstream public chains such as Ethereum, appearing in the optional collateral lists of lending platforms such as MakerDAO and AAVE. Typically, users stake BTC to trusted centralized custodians to generate WBTC ERC20 tokens, which are then used in the Ethereum DeFi ecosystem. This is also a form of liquidity sharing solution, but there are two problems: 1) Trusted centralized entities have excessive rights, and the security of asset cross-chain depends on centralized platforms, limiting the weight of wrapped assets in the Ethereum system, and users naturally prefer Ethereum native assets like DAI, ETH, etc., and are cautious about external assets; 2) Native BTC assets have no original revenue in the original POW environment, and cross-chain them to other ecosystems is equivalent to seizing ecological overflow revenue from other chains, making it difficult to derive rich revenue models. It generates small returns and high trust costs, limiting the enthusiasm of users to cross-chain assets. Based on this, we can infer that for a native BTC POW chain to derive a reliable and diversified revenue closed-loop model, it needs to meet two conditions: 1) The POW chain must transition to a POS chain or have a dedicated POS chain, where node validators stake native assets to transform them into voting rights and thereby consolidate the security of the POS chain, which will bring basic “mining” revenue to native assets; 2) Staking LSD certificates can circulate within its own extensive DeFi ecosystem to obtain various additional revenue, and if it can break through the limitations of the native chain and obtain liquidity overflow to the entire chain or even off-chain environment, it would be better to obtain revenue. Understanding this level, let’s take a closer look at the restaking solution offered by BounceBit. In short, BounceBit has built a layer1 POS chain parallel to BTC, focusing more on the circulation and revenue issues of assets. It is unaffected by current BTC mainnet technical limitations and BTC layer2 development bottlenecks, aiming to bring rich and diversified revenue models to BTC native assets, possibly providing BTC holders with an optional asset management.

How it works？

1) BounceBit does not conceal the “centralization” issue in cross-chain of BTC native assets. It directly acknowledges centralization but chooses compliant CeFi platforms. Users can entrust assets to compliant platforms like Mainnet Digital and Ceffu to receive WBTC or BTCB wrapped assets at a 1:1 ratio. These compliant custody institutions have better designs in asset transparency and financial auditing, providing trust guarantees for asset entry into the subsequent POS chain. In theory, BTC holders can also directly cross-chain assets to the BounceBit POS chain through technologies such as MPC cross-chain bridges. However, these cross-chain methods are essentially limited by the centralization of multisignature entities, similar to the centralization issue of compliant custody institutions.

2) Users can stake wrapped assets and BounceBit tokens into the POS validator verification system of the BounceBit chain, effectively providing network security for the POS chain with a dual-token staking model. This earns stable annualized mining rewards, while LSD certificates can obtain additional mining rewards in various DeFi protocols derived from the POS chain. Staking annual returns are relatively fixed, but the potential income imagination space for subsequent chain ecological development will be large. For example, other DeFi protocols, oracles, cross-chain bridges, etc., can all be restaked with LSD to obtain new income, meaning native tokens will benefit from the growth of the entire POS chain ecosystem. To quickly build the ecosystem, BounceBit supports interoperability with other EVM chains, making it easy and low-threshold to migrate applications. Of course, with this layer of chain abstraction, it also provides technical possibilities for LSD overflow to other ecosystems to obtain income.

3) Eigenlayer innovatively proposed a very attractive narrative on the Ethereum chain, where active nodes (AVS) on the chain can participate in the network governance of other chains, output Ethereum secure consensus to other chains, and obtain off-chain restaking income. This is the core reason for the current frenzy of Ethereum restaking and why people are not afraid of consensus overload. Eigenlayer has seized the trend of modularization, with more and more emerging chains attempting to quickly implement “secure consensus”. It directly packages Ethereum’s overflow validator verification capabilities as Ethereum secure consensus commodities for external output. BounceBit, on the other hand, seizes the stable holding demand of BTC asset holders, while BTC is currently akin to a solitary chain with no effective liquidity penetration into other entire chain environments. In response to this, BounceBit has created a fresh narrative of DeFi+CeFi, where LSD certificates staked on custody platforms can earn incremental income on original CeFi custody service platforms. Behind this is the potential for substantial off-chain financial market income, which, in the context of BTC ETF approval, is quite an attractive and imaginative narrative. It is worth noting that compliant CeFi custody platforms can also generate a large amount of off-chain income, such as staking mining, lending services, investment products, etc. Typically, to avoid systemic security risks, this portion of assets will be equipped with mechanisms for transparent public disclosure and necessary thresholds for asset usage authorization.

In my opinion, this constitutes the core innovation brought by BounceBit as a POS chain for restaking BTC native assets. BTC holders need a channel to earn diverse income, and BounceBit, with compliant CeFi platforms as its core, has introduced POS chain staking mining mechanisms while expanding the LSD through Restaking to an imaginary infinite CeFi market providing original income.

A restaking closed-loop system is established as a predictable revenue model for BTC assets.

Looking at it from a different perspective, isn’t a BTC ETF itself a vast off-chain revenue Restaking solution? This approach, which combines the native revenue environment of Web3 chains (POS staking) with off-chain incremental revenue from Web2 platforms (custodial earnings), is particularly well-suited to the current BTC ecosystem. It wouldn’t be an exaggeration to call it the first innovative protocol in the BTC Restaking space.

From a macro perspective, it can align with the potential growth opportunities of ETFs; technically, it can bridge the subsequent growth opportunities of the BTC Restaking market; and economically, it can indeed provide triple income for BTC holders. This offers the possibility of advancing the implementation of POS revenue models for POW chains like BTC.

Disclaimer：

1. This article is reprinted from [Chain View]. Forward the Original Title‘解析BounceBit：如何为BTC原生资产打造Restaking收益闭环？’. All copyrights belong to the original author [*Hao Tian]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.