Pendle of the Bitcoin ecosystem? Understand Master Protocol in one article
The time window for the Master Protocol is limited, and it needs to build its own moat before Pendle expands into the Bitcoin ecosystem.Author: NingNing
Master Protocol is an emerging interest rate swap market and points Farm accelerator in the Bitcoin ecosystem. To some extent, we can view it as the Pendle of the Bitcoin ecosystem, but it should not be regarded as a simple fork of Pendle. To truly understand the value of Master Protocol, one needs to observe it from the perspective of the BTC-FI value chain.
The narrative of Bitcoin programmability is spreading from the East to the West. With Bitcoin Magazine and top crypto venture capital firm Polychain engaging in debates to set standards for Bitcoin L2, Bitcoin programmability has finally become a serious new investment track in the West. Top VCs and investment DAOs like Pentera, Coinbase Ventures, Polychain, and Bankless are actively investing in and incubating projects in this space, with a number of Bitcoin ecosystem projects claiming to have Western blue blood, such as Babylon, Botanix, BOB, and Mezo, announcing substantial funding rounds.
However, we are still in the first phase of the new era of Bitcoin programmability, and there are significant technical primitives and application scenario issues that need to be addressed. These issues include how to use BitVm to run fraud proofs/validity proofs, and how to resolve the compatibility issue between Copy from Ethereum and the market demands of Bitcoin ecosystem players.
The core of the technical primitives issue is to find a solution that can simply and elegantly inherit the security of Bitcoin L1. The application scenario issue is about how to discover a blue ocean market where a Bitcoin programmability solution has a comparative advantage over EVM-compatible + smart contract solutions.
Two Major Application Scenarios of Bitcoin Programmability
The issues of technical primitives and application scenarios are not isolated; they are interconnected.
Given that the programmability capabilities of Bitcoin scripts and OPCode are constrained by community consensus, achieving Turing completeness in the short term is difficult. The development direction of Bitcoin programmability can only be through off-chain expansion solutions like Rollup and state channels (Lightning Network).
However, in the traditional market of general Rollup + smart contract Dapps, Ethereum has already gained a monopolistic position and built a wide moat in terms of developers, users, and market awareness.
Therefore, for Bitcoin programmability projects, their breakthrough direction lies in the emerging Dapp Rollup/AppChain paradigm, providing block space security/economic security for these Dapp Rollup/AppChain.
Currently, almost all well-known application layer projects, including Uniswap and AAVE, are redoing the Dapp Rollup/AppChain paradigm. The Bitcoin mainnet, with a $1 trillion value locked, the highest degree of decentralization, and the strongest block space security, has a significant comparative advantage over Ethereum.
Moreover, Bitcoin Restaking endows BTC with yield-generating capabilities. Compared to financial yield (DeFi/CeFi lending) models, the native yield-generating ability of BTC has stronger positive externalities, providing a more robust security infrastructure for the prosperity of Dapp Rollup/AppChain.
Compared to Ethereum's Restaking protocols like Eigenlayer, Karak, and Symbiotic, the Bitcoin Restaking protocol Babylon needs to additionally address the self-custody and Staking-Slash issues of BTC on the Bitcoin mainnet. In fact, these two issues are also the core problems that Bitcoin programmability PoS chain expansion solutions like Botanix and Mezo need to solve.
Whether it is the cryptographic solution of Babylon or the decentralized multi-signature network (SpiderChain) solution of Botanix, both need to introduce Staking-Slash mechanisms and generate Wrapped yield-bearing assets.
To mitigate Slash risks and obtain immediate liquidity for Wrapped yield-bearing assets, there has emerged a market demand for Lquidity Staking (LST). Furthermore, to enable Dapp Rollup/AppChain to utilize Bitcoin's block security space/economic security, the infrastructure construction of Restaking protocols is also imperative.
As the LST and Restaking protocols in the Bitcoin ecosystem grow explosively, a market for interest rate swaps that can price Wrapped yield-bearing assets in the Bitcoin ecosystem becomes crucial, and Master Protocol occupies this ecological niche.
Master Protocol is currently in the testnet phase, supporting Bitcoin yield-bearing assets such as Botanix's mpBTC and Bouncebit's stBBTC (in grayscale testing), with future plans to support yield-bearing assets from Babylon and BitLayer. Users can apply for testnet mpBTC through a faucet. Similar to Pendle's implementation mechanism, Master Protocol's Token consists of three types: the yield-bearing asset standardized Wrapped Token MSY, the principal Token MPT, and the interest Token MYT.
After users wrap yield-bearing assets into MSY standardized Tokens, they can obtain MPT tokens with a lock-up period and MYT Tokens that can be sold immediately on AMM DEX, thus achieving early access to the interest of yield-bearing assets. Of course, users can also directly purchase MYT Tokens on AMM DEX to gain basic floating yield rates and points, participating in the value discovery process of the native tokens of yield-bearing asset protocols for potentially higher returns.
Screenshots of Master Protocol Testnet Products
In terms of market strategy, Master Protocol stimulates community referrers and interest rate swap market traders through equity Pass card NFTs and trading point rewards, enhancing the protocol's adoption in the Bitcoin ecosystem.
In conclusion, for the current Bitcoin ecosystem, the market scale of new asset issuance like Ordinals and Runes is limited (~$10B), and facing the strong network effects of the Ethereum ecosystem, there is not much room for imagination. In contrast, the BTC yield market, with a ceiling of $1 trillion, represents a vast blue ocean. Moreover, in the BTC yield market, Restaking protocols have stronger positive externalities, providing a more robust security infrastructure for the prosperity of Dapp Rollup/AppChain. Master Protocol is responsible for pricing these Wrapped yield-bearing assets of Restaking protocols, securing a critical ecological position. However, the time window for Master Protocol is limited; it needs to build its own moat before Pendle expands into the Bitcoin ecosystem. Therefore, the Master Protocol team is actively negotiating partnerships with Babylon and Bouncebit, planning to launch the mainnet version in June.
