Written by: Maia, BeWater Venture Studio

TL; DR

• In terms of the issuance and application of BTC-backed assets, centralized wrapped BTC still dominates with over 75% market share. However, in recent months, BTC LSTs represented by LBTC and SolvBTC.BBN have rapidly grown alongside the launch of Babylon, becoming another emerging force in the BTC-backed asset market, with the current market size of BTC LST reaching 25.6K BTC. Driven by the demand for yield from underlying assets, BTC liquid staking and points derivative markets are gradually becoming new growth points in the BTCFi space.
• @Coredao_Org is an L1 network driven by BTC, providing robust returns to users through a non-custodial staking solution and dual staking mechanism. Its TVL has grown by 4757.9% in six months, reaching $591.5M. Core's growth strategy includes: (1) focusing on the incremental market of BTC-backed assets to enhance ecosystem liquidity and attract rapidly growing BTC LST assets; (2) building supporting native protocols and quickly integrating with BTCFi projects to establish a complete ecosystem of applications; (3) leveraging the airdrop and market performance of the native token $CORE to support the incentive structure, further driving participation and asset retention.
• @use_corn is an emerging ETH L2 network, currently accumulating a TVL of $425.9M through the Corn Kernels activity, laying the foundation for its mainnet launch. Corn's rapid growth is attributed to its effective capital accumulation in the incremental market of BTC LST. By focusing on the yield attributes of liquid staking tokens and points derivative play, Corn has launched five pools in collaboration with Pendle, attracting a total TVL of $290.3M, accounting for 11.4% of the BTC LST market.
• @buildonbob is a hybrid L2 network combining BTC and ETH, attracting significant assets through extensive integration of BTCFi projects and one-click liquid staking services. Currently, BOB's TVL stands at $65.7M, primarily composed of the existing portion of BTC-backed assets, $WBTC. BOB's performance is mainly due to: (1) a trust-minimized bridging architecture that connects asset channels from most networks, addressing liquidity fragmentation; (2) a one-click liquid staking entry and a robust ecosystem that builds a convenient staking entry and comprehensive application scenarios.

This year, as the BTCFi narrative continues to evolve, the on-chain liquidity of BTC assets has gradually become the focus of major ecosystems and protocols. With the launch of BTC scaling solutions and the rise of BTC LSTs, BTC is transforming from a static store of value into an asset that can participate in more on-chain yield scenarios, enhancing its application potential within the entire DeFi ecosystem.

@CoredaoOrg, @buildonbob, and @usecorn are representative growth cases in the BTCFi space for the second half of the year: Core focuses on leveraging large BTC LST assets during the growth phase; Corn quickly captures the incremental market through its collaboration with Pendle to introduce points derivative play; BOB attracts liquidity through a rich ecosystem and liquid staking services; various ecosystems' series of actions around "yield" have greatly activated the liquidity of BTC assets. In the future, as BTC liquidity is gradually released, the on-chain accumulation scale of assets in the BTCFi ecosystem still has significant growth potential.

1 Background

1.1 On-chain Liquidity Pathways for BTC Assets

The flow direction of BTC and its backed assets on-chain can be divided into the following three layers:

• First Layer: Native BTC
• Second Layer: (1) Centralized custodial issued wrapped BTC (2) Mapped assets running on BTC L2 and SideChain (3) Liquid staking BTC
• Third Layer: Various BTC derivative assets in downstream DeFi scenarios

1.2 Current Status of the BTC Asset Market

Overview of BTC-backed Asset Issuance and Application

From the issuance of BTC-backed assets on the three major networks: Ethereum, Arbitrum, and BNB, it can be seen that centralized custodial issued wrapped BTC still occupies the vast majority of market share, with $WBTC (156.1K supply) and $BTCB (65.3K supply) together accounting for over 75% of the total circulation of BTC-backed assets. Additionally, BTC LSTs such as $LBTC (10.5K supply) and $SolvBTC.BBN (8K supply) have rapidly grown in recent months driven by the BTC (re)staking narrative, becoming another emerging force in the BTC-backed asset market.

As the most consensus-driven and largest market cap asset, the main application scenarios for BTC-backed assets are concentrated in lending protocols. For the largest $WBTC and $BTCB, their largest downstream applications are in Aave v3 and Venus protocols, respectively, with TVL accounting for over 20% of their total supply, reflecting the demand for relatively stable returns in the BTCFi space.

*https://dune.com/optimus/lombard*

Overview of BTC LST Issuance and Application

Currently, the total market size of BTC LST is approximately 25.1K BTC, with the two major protocols Lombard and Solv Protocol accounting for over 70% of the market share. The absorption and issuance of BTC LST directly impact the liquidity and accumulation of BTC assets across various chains. Notably, Solv has had a significant impact on the TVL of various chains, bringing in a net inflow of $309.7M and $177.8M to Core and Scroll, respectively, significantly enhancing the asset scale of these two chains.

Compared to wrapped BTC issued through centralized custodial models, BTC LSTs as yield-bearing assets have expanded into richer application scenarios. In addition to lending protocols, the points trading market has become another important downstream application for BTC LSTs. Avalon and Pendle are the protocols with the most capital accumulation in the "lending" and "points derivative market" segments, achieving win-win growth alongside the development of BTCFi and BTC staking narratives.

https://dune.com/optimus/lombard

2 Asset Accumulation Strategies in the BTCFi Ecosystem

2.1 Core: Focusing on Incremental Assets and Token Incentives to Drive Ecosystem Growth

Basic Information

Core is an L1 scaling solution driven by BTC, allowing users to earn passive income through non-custodial Bitcoin staking without the need to transfer or wrap BTC. Since its launch in April 2024, over 7,500 BTC have been staked on Core, with the network's security protected by BTC's inherent security. In July 2024, Core introduced a dual staking mechanism for BTC and CORE. Users can stake BTC to earn risk-free basic returns and stake the native token CORE for additional rewards, with the distribution of rewards linked to the amount and duration of CORE staked. The introduction of the dual staking mechanism has further driven the growth of Core's TVL.

Currently, Core's TVL has reached $591.5M, growing by 4757.9% in six months, ranking as the 16th largest blockchain by TVL. The growth of Core's TVL has shown several key milestones: In June, the launch of the native lending protocol @colendxyz and integration with @SolvProtocol derivative assets drove a TVL increase of $51.1M that month, a growth rate of 202.2%. In July, the introduction of the dual staking mechanism attracted new capital inflows, leading to a TVL increase of $92.6M that month, a growth rate of 121.3%. In August, the integration of the leading BTC Restaking protocol @PellNetwork further triggered larger-scale capital accumulation on Core.

https://defillama.com/chain/CORE?volume=true

Growth Strategy

The growth of Core's TVL is mainly driven by the following factors: (1) focusing on the incremental market of BTC-backed assets to enhance ecosystem liquidity and absorb rapidly growing Solv derivative assets; (2) building supporting native protocols like Colend and quickly integrating with projects like Pell Network to establish a complete ecosystem of applications; (3) leveraging the airdrop and market performance of the native token $CORE to support the incentive structure, creating a multi-dimensional ecosystem synergy effect.

• Deep Integration and Collaboration with Solv Derivative Assets

  SolvBTC.BBN and SolvBTC are currently the fifth and sixth largest BTC derivative assets in the market, with a total issuance of 15.6K BTC and still in a stable growth phase. Since June, SolvBTC has expanded into the Core ecosystem and deeply integrated with the two major protocols Colend and Pell Network, driving a TVL increase of $51.1M that month. Currently, Solv derivative assets account for 65% of Core's TVL, which is not only due to the stable yield scenarios provided by the DeFi module construction of the Core ecosystem for underlying assets but also includes high incentives provided by Core for SolvBTC applications and the airdrop expectations supported by the performance of the $CORE token. This indicates that Core's ecosystem development is not limited to its own BTC native staking mechanism but focuses more on introducing and incentivizing high-quality large BTC assets to enhance the overall network's activity and locked value. Through deep integration and collaboration with Solv Protocol, Core has not only increased its TVL but also provided diversified liquid asset support for on-chain DeFi scenarios.

• BTCFi Ecosystem Construction Led by Colend and Pell Network

  Colend is the native lending protocol on Core, responsible for a significant portion of asset accumulation in the ecosystem. Since introducing SolvBTC in June and providing maximum incentives, its TVL has grown significantly. Currently, 85% of Colend's TVL comes from the inflow of Solv Protocol derivative assets, demonstrating its strong synergy with Solv. Additionally, Colend is also the core application scenario for CORE token derivative assets, absorbing $17.4M of wCORE and $5.2M of stCORE. The yield scenarios provided by Colend for CORE LST have boosted users' willingness to stake CORE and supported its value maintenance.

  Furthermore, BTC Restaking has become a stable yield scenario for BTC derivative assets. In August, the leading BTC Restaking project Pell Network quickly drove ecosystem TVL growth after launching on Core, with inflow assets primarily coming from Solv Protocol, accumulating $108.3M in Solv derivative assets. In terms of project incentives, Pell Network provides the highest multiple of points rewards support for SolvBTC on Core, while Core also offers a 5X Ignition Drop reward for Pell Network, further enhancing the participation and application of BTC LST in the Pell Network protocol within the Core ecosystem. As of now, Pell Network's accumulated TVL has reached $271.7M, with nearly half of the contribution coming from the Core ecosystem.

*https://defillama.com/chain/CORE*

• Incentive Structure Supported by Airdrop and Market Performance of the Native Token $CORE

  In May 2024, Core launched the Sparks incentive program aimed at accelerating ecosystem adoption and expansion by rewarding on-chain contributors, currently in its second season. Unlike projects that rely on point incentives and have unclear token issuance expectations, Core launched its native token $CORE as early as 2023 and successfully completed its initial airdrop, laying a solid community foundation. $CORE, as the ecosystem's native token, is primarily used for paying transaction fees, network staking, earning rewards, and participating in on-chain governance. According to the Tokenomics design, user rewards account for 25.029% of the total supply of $CORE, totaling 525.6 million tokens. Previously, the airdrop activities conducted by Core through the Satoshi App distributed a large number of tokens to ecosystem participants, enhancing users' long-term attention and continuous contribution to its ecosystem. The second season airdrop plan will unlock 24.7 million $CORE, of which 17 million will be used to reward participants, continuously driving user enthusiasm for participation in the Core ecosystem.

  https://messari.io/report/state-of-core-q2-2024?utmsource=iterable\&utmmedium=email\&utmcampaign=q2quarterly\&utmcontent=stateofcoreq22024\&destination=protocolservicesresearch\&utmsource=Iterable\&utmmedium=email\&utmcampaign=campaignUO - Wednesday 9/18\&utmsource=iterable\&utm_medium=email

2.2 Corn: Efficiently Attracting BTC LST Market Liquidity through Points Derivative Play

Basic Information

Corn is a recently launched ETH L2 network that uses tokenized Bitcoin (BTCN) as a gas fee and economic incentive tool, aiming to unify the interests of users, developers, and liquidity providers. The core of Corn's incentive mechanism is the veCHAIN model, where stakers of the CORN token will determine the distribution of network rewards.

Currently, Corn has not launched its mainnet but has effectively accumulated $425.8M in funds through joint deposit activities, significantly surpassing already launched BTC scaling layers like Merlin and BSquared. These deposits are primarily concentrated in pools jointly launched with several BTC LSTs such as LBTC, SolvBTC.BBN, eBTC, PumpBTC, and uniBTC on Pendle, accounting for 85% of the current total TVL.

https://dune.com/mrblock_tw/corn

Growth Strategy

• Leading BTC LST Points Derivative Play in Collaboration with Pendle

The points derivative market is one of the key strategic scenarios for BTC LSTs as yield-bearing assets. As the leading protocol in this segment, Pendle began integrating various BTC LSTs in early September. Currently, the collaboration between Corn, Pendle, and BTC LST supports five major BTC LST assets: LBTC ($41.5M TVL, $1.1M 24h Volume), SolvBTC.BBN ($97.5M TVL, $300K 24h Volume), eBTC ($20.2M TVL, $658.4K 24h Volume), PumpBTC ($60.5M TVL, $437K 24h Volume), and uniBTC ($70.6M TVL, $20.8K 24h Volume), accounting for 11.4% of the total BTC LST market. This multi-party collaboration has generated a positive synergistic effect:

For BTC LST holders, the points leverage market provides diverse strategic plays, with Pendle becoming a major application scenario for 10%-30% of the total supply of BTC LSTs. Additionally, Corn provides the maximum multiplier of points incentives for these pools, further attracting more holders to participate. For Corn, BTC LSTs are the core contributing factor to driving TVL growth in its early stage. Currently, these pools are the only applications generating external benefits in Corn's points mining activities, laying the foundation for its future mainnet launch.

*https://app.pendle.finance/trade/points*

• TVL BootStrap Campaign

  In Corn's existing points mining design, users earn 1 Kernel point for every $1 equivalent of assets deposited every 210 minutes. These deposits can be withdrawn at any time without any penalties or fees, providing great flexibility. The goal of this activity is to attract initial liquidity through Kernel point incentives. However, currently, apart from the BTC LST pools in collaboration with Pendle generating actual benefits, other deposits have not brought more value to the network. The flexibility of withdrawing deposits at any time also poses risks for short-term mining, which may lead to the inflation of Corn points, thereby diluting the expected value allocated to individuals.

2.3 BOB: Secure Bridging and Strong Ecosystem to Consolidate Assets

Basic Information

BOB is an innovative hybrid Layer2 network that combines the advantages of Bitcoin and Ethereum. It utilizes Ethereum smart contracts and EVM features, employing rollup technology to enhance transaction processing capacity and scalability. Meanwhile, BOB's final transaction confirmation is completed on the Bitcoin blockchain, benefiting from the high security provided by the BTC PoW consensus mechanism. Currently, BOB's total TVL stands at $65.7M, primarily composed of $WBTC.

*https://defillama.com/chain/BOB?volume=true*

Growth Strategy

Based on the bridging architecture that addresses trust and liquidity fragmentation issues, BOB's growth performance over the past six months has also benefited from the timely launch of one-click liquid staking services and strong market power and ecosystem collaboration under the BTC (re)staking narrative, forming a collective force to drive ecosystem growth.

• Liquid Staking Services and Ecosystem Integration

  BOB Stake integrates multiple liquid staking service providers and DeFi platforms, enabling users to complete multi-protocol staking with a single Bitcoin transaction through BOB Gateway. Through BOB Stake, users can one-click stake BTC to multiple LST protocols, reducing time and costs. Additionally, BOB Stake deeply integrates the LSTs staked by users with DeFi protocols, making BOB a convenient entry point for BTC liquid staking and DeFi applications.

  In ecosystem construction, BOB Stake integrates various staking protocols centered around Babylon staking, supporting liquid staking tokens LST including SolvBTC.BBN, uniBTC, and PumpBTC. BOB has also become the preferred BTC staking platform for multiple aggregators and wallets, attracting over 3 million users on the Staking Rewards platform. Furthermore, BOB has integrated with dozens of DeFi protocols such as Avalon, Layerbank, and Segment, providing diverse yield application scenarios for BTC LSTs while continuously strengthening market influence. Currently, Avalon, as the main lending protocol within the BOB ecosystem, attracts 35.6% of on-chain asset accumulation, almost entirely composed of the supply of SolvBTC.BBN. However, the utilization rate is only 8.9%, indicating that the actual borrowing demand in the BOB ecosystem is low, and liquidity aggregation and ecosystem protocols need to be strengthened.

*https://defillama.com/chain/BOB*

• Incentive Program BOB Fusion

  BOB Fusion is the core incentive program within the BOB ecosystem, aimed at incentivizing users to earn points through cross-chain assets, locked participation, ecosystem project interaction, and referral mechanisms. Supported deposit assets include BTC-backed assets, stablecoins, and ETH LSTs. In the current third season of BOB Fusion's plan, behaviors such as holding, lending, and trading SolvBTC.BBN and other yield-bearing assets receive the highest multiple of incentives compared to other assets. This incentive program has significantly promoted the development of the BOB ecosystem, attracting over 147,000 users, more than 100 partners, and 60 ecosystem projects launched.

3 Conclusion

By observing the emerging forces of Core, BOB, and Corn in the BTC ecosystem, we can see the differentiated strategies in asset accumulation across different networks. Core successfully attracted a large inflow of assets by deeply integrating with the growth-phase Solv Protocol derivative assets and innovatively introducing a dual staking mechanism to provide stable returns. Corn successfully absorbed a large amount of BTC LST funds through the points derivative play launched in collaboration with Pendle, laying the foundation for its future mainnet launch. BOB attracted significant assets through extensive integration of BTCFi projects and one-click liquid staking services.

From the flow of BTC-backed assets on-chain, the key to effectively achieving ecosystem capital accumulation lies in connecting and incentivizing large incremental backed assets, forming combinable yield strategies through diversified DeFi applications, and providing multi-party incentive expectations. The synergistic effect will drive the activity and liquidity of BTC-backed assets across various chains. Currently, the TVL of BTC-backed assets in L2 and sidechain scaling networks is approximately $1.6 billion, accounting for only 0.14% of BTC's total market cap. As BTC liquidity is gradually released in the future, the accumulation scale of BTC assets across various chains and the application scenarios of the BTCFi ecosystem still have significant growth potential.