Unified "Measurement and Weights"? The BTCFi "Standardization" New Interpretation Given by Solv Staking Abstraction Layer

Written by: Tyler

From a certain perspective, the $1.75 trillion Bitcoin market (latest CoinGecko data as of November 12, 2024) is the largest "sleeping pool of funds" in the crypto world.

Unfortunately, for most of the time, it has neither brought returns to holders nor injected vitality into the on-chain financial ecosystem. Although there have been many attempts to release the liquidity of Bitcoin assets since the DeFi Summer began in 2020, most of them are merely reinventing the wheel, with overall BTC capital inflow being quite limited, and failing to truly leverage the BTCFi market.

So what is the main battlefield of BTCFi? Or, what problems must Bitcoin staking solve first? This is an answer worth at least hundreds of billions of dollars and is a must-answer question for the Bitcoin ecosystem, especially for Bitcoin staking projects.

As the current number one seed in the Bitcoin Staking field, Solv provides a forward-looking solution, and the core of the answer lies in the concept of SAL (Staking Abstraction Layer) "standardization."

Bitcoin Trapped in "Liquidity Fragmentation"

Let's first take a look at the development history of the Ethereum Staking ecosystem.

As of November 12, 2024, the total amount of staked Ethereum exceeds 34.55 million ETH. Meanwhile, CryptoQuant statistics show that the proportion of staked ETH to the total ETH supply has significantly increased from 15% in April 2023 to about 29%, nearly doubling, with a total scale surpassing $100 billion.

ETH Staking Amount / Source: Ethereum

However, during the same period, the Bitcoin ecosystem, which began to rise with the Ordinal wave, has a staking penetration rate far lower than that of Ethereum. Even though BTC's market capitalization and price increase far exceed that of ETH, it has never been able to catch up with the expansion speed of the Ethereum Staking ecosystem.

It is important to note that if even 10% of BTC liquidity is released, it would create a market as high as $175 billion. If it can reach a staking rate similar to ETH, it would release about $500 billion in liquidity, pushing BTCFi to become a super on-chain ecosystem that surpasses the general EVM networks.

To some extent, the excellent performance of the Ethereum Staking ecosystem is due to the advantages of programmability and the Ethereum Foundation's leadership in establishing a clear and complete set of standards for ETH staking at the protocol level, including a clear staking threshold of 32 ETH, a slashing penalty mechanism, and comprehensive considerations of hardware and network costs, ensuring thorough design from the funding requirements of ordinary users to the economic security of node operation.

Validators need to stake at least 32 ETH, and the slashing penalty mechanism, hardware, and network thresholds have comprehensively considered the funding thresholds, hardware, and network costs required for ordinary users to run nodes, as well as economic security.

This unified standardized framework design not only enhances the decentralization and security of the network but also lowers the development and participation thresholds, facilitating the rapid rise of projects like Lido Finance, Rocket Pool, and Frax Finance, and enabling the Ethereum Staking ecosystem to achieve rapid scaling and diversification in a short time.

Official ETH Staking Process / Source: Ethereum

In contrast, the Bitcoin ecosystem's "no founder" and "no centralized promoting organization" has created its uniquely extreme decentralization, which is both a unique advantage of the Bitcoin ecosystem and, to some extent, a "development curse":

This completely decentralized structure means that key technical standards like staking mechanisms cannot have a leading role like the "Ethereum Foundation," and must be implemented under broad consensus among global developers and node operators, a process that is often long and complex.

Therefore, the entire set of clear standardized frameworks in the Ethereum ecosystem has laid a solid foundation for the rapid growth of its staking and liquidity ecosystem. For BTCFi to achieve similar progress, it must introduce similar standardized mechanisms in the staking field to solve various liquidity and asset management challenges.

Especially in the current context of accelerating fragmentation of Bitcoin asset liquidity, the need for "unification" has become particularly urgent:

• On one hand, when BTC is bridged to Ethereum and other EVM-compatible networks in various wrapped forms like WBTC and cbBTC, although it provides users with the opportunity to use Bitcoin assets to participate in DeFi for returns, it also leads to further dispersion of BTC liquidity across different chains, forming "liquidity islands" that are difficult to circulate and utilize freely, greatly limiting the development potential of BTCFi (including the recent community concerns about WBTC due to custody risks, making decentralization and standardization imperative);
• On the other hand, with the launch of Bitcoin ETFs and the further strengthening of global asset consensus, Bitcoin is accelerating its expansion into CeFi and CeDeFi, with more and more BTC flowing into institutional custody services, forming large pools of dormant funds;

BTC Liquidity Statistics / Source: DeFiLlama

According to DeFiLlama, the current yield-generating Bitcoin has been dispersed across 95 chains, 448 protocols, and 766 liquidity pools. However, due to the lack of a unified staking standard and cross-chain liquidity mechanisms, cross-chain, cross-platform, and cross-institutional BTC assets not only have high friction costs but also cannot be efficiently integrated and utilized.

In this context, if BTCFi and the Bitcoin staking ecosystem are to continue to scale, there is an urgent need to establish a universal, standardized industry safety standard and framework to efficiently integrate the dispersed Bitcoin liquidity resources across multiple chains and platforms.

So objectively speaking, the BTCFi and Bitcoin ecosystem currently calls for a leading role that can dominate these standardization processes, allowing for the integration of cross-chain Bitcoin liquidity to form consensus and establish a unified technical framework and norms, thereby bringing broader applicability, liquidity, and scalability to the Bitcoin staking market, further promoting the financialization process of staking assets and pushing the BTCFi ecosystem towards maturity.

Solv: The "Elephant in the Room" of Bitcoin Staking

As the largest Bitcoin staking platform in the current market, Solv has rapidly seized the opportunity in the Bitcoin staking field over the past six months. Since April of this year, it has attracted over 25,000 Bitcoins (including BTCB, FBTC, WBTC, etc.), accumulating over $2 billion in asset management scale.

More than 70% of SolvBTC has been put into various staking scenarios, making Solv the protocol with the highest TVL and capital utilization efficiency in the current Bitcoin field.

Holding the strongest liquidity and market penetration, Solv has taken the lead in proposing a new narrative for the Staking Abstraction Layer (SAL), aiming to aggregate the dispersed BTC liquidity across the entire chain and provide a scalable and transparent unified solution.

To achieve this goal, Solv first systematically sorted the Bitcoin staking ecosystem and divided its core participants into four key roles, from bottom to top:

• Staking Protocols: Protocols that allow users to deposit Bitcoin assets and generate returns through staking activities, such as Babylon, CoreDao, Botanix, etc.;
• Staking Validators: Entities responsible for verifying the integrity of the staking and transaction processes, ensuring that LST issuers genuinely execute staking and preventing errors or fraudulent activities, such as Ceffu, Cobo, Fireblocks, and Solv Guard;
• Yield Distributors: Entities managing the distribution of staking rewards, responsible for efficiently and fairly distributing rewards, such as Pendle, Gauntlet, Antalpha, and most LST issuers also play the role of yield distributors;
• LST Issuers: Protocols that convert users' staked Bitcoin assets into liquidity tokens (LST), allowing stakers to earn returns while maintaining control over the liquidity of their assets, such as Solv, BedRock, etc.;

These four roles complement each other, forming the core structure of the Bitcoin staking ecosystem—staking protocols serve as the underlying foundation of the entire system, managing and supporting all other roles; staking validators operate above the protocols, maintaining on-chain security; yield distributors allocate rewards according to protocol rules, ensuring the incentive mechanisms of the system operate; and LST issuers provide liquidity to staked assets through tokenization.

Thus, the design of SAL closely revolves around these roles, launching key modules that cover the entire process, including LST generation services, staking verification services, transaction generation services, and yield distribution services, efficiently integrating them using smart contract technology and Bitcoin mainnet technology:

Specifically, SAL includes the following five core modules:

• Staking Parameter Matrix (SPM): The core parameters required for abstracting the staking process, including Bitcoin script configuration, staking transaction parameters, LST contract parameters, and yield distribution rules. These parameters are not only shared among SAL's various modules but also support cross-role collaboration in the staking process;
• Staking Verification Service: Based on Bitcoin mainnet algorithms, it ensures the correctness and completeness of each staking transaction while verifying that the issuance of LST matches the underlying BTC quantity to avoid malicious behavior;
• LST Generation Service: Responsible for the issuance and redemption of BTC LST, while supporting interactions between the Bitcoin mainnet and EVM chains;
• Transaction Generation Service: Automatically generates staking transactions, estimates optimal transaction fees, and broadcasts transactions to the Bitcoin mainnet;
• Yield Distribution Service: Transparently calculates staking yields and proportionally distributes them to users through oracle mechanisms or yield exchange services;

Through these modules, SAL not only effectively integrates the technical differences of different protocols in the Bitcoin ecosystem but also provides a clear operational framework for different roles, building a new system for efficient collaboration:

• For Staking Users: SAL provides a convenient and secure staking process, reducing asset risks caused by operational errors and protocol opacity;
• For Staking Protocols: SAL's standardized interfaces allow protocols to quickly access the Bitcoin staking market, shortening development cycles and achieving ecological cold starts;
• For LST Issuers: SAL provides comprehensive yield calculation and verification tools, enhancing user trust while simplifying the issuance process, allowing them to focus on product innovation;
• For Custodians: SAL opens up new business models for participating in the Bitcoin staking ecosystem, bringing additional revenue opportunities to custodians.

This greatly simplifies the participation threshold of the Bitcoin staking ecosystem, providing a unified solution that effectively meets the needs of multiple parties for co-construction and sharing.

So far, multiple protocols and service providers have joined the SAL protocol ecosystem, including BNB Chain, Babylon, ChainLink, Ethena, CoreDAO, etc., which not only proves the wide applicability of SAL but also brings richer application scenarios to Bitcoin staking, accelerating the sustainable development of business models in this field.

Revitalizing the Diversified Yield Ecosystem of Bitcoin Staking

DefiLlama data shows that in the Ethereum LSD track, Lido Finance holds the first place with a market share of 68.53% (9.81 million ETH). Although its centralization concerns have long been questioned, it is undeniable that Lido, through the innovative design of LST, has promoted the deep integration of staking assets with the DeFi yield ecosystem, significantly enhancing the utilization efficiency of staking assets.

Bitcoin staking also needs a foundational framework that can promote the efficient utilization of assets, and SAL (Staking Abstraction Layer) was launched for this purpose: it not only lowers the participation threshold for all parties, providing a consistent user experience for the Bitcoin staking ecosystem, but also significantly enhances capital utilization efficiency through a unified liquidity management mechanism, allowing Bitcoin assets to flow freely between different chains and laying the foundation for various financial innovations in the DeFi ecosystem.

Therefore, a more promising imaginative space is that SAL can essentially derive a diversified yield solution based on full-chain BTC, enabling Bitcoin holders to obtain diverse and dynamic income streams without affecting liquidity, opening up new development space for BTCFi (Bitcoin Financialization).

This mainly relies on SAL's cross-chain functionality, supporting users to unlock various yield-generating opportunities, transforming Bitcoin from a passive store of value into an income-generating & productive asset that can participate in DeFi and other on-chain use cases, creating new value:

1. Users can stake Bitcoin on platforms benefiting from Bitcoin's economic security (such as Babylon) to earn local token rewards through Restaking;
2. Users can participate in the security maintenance of Bitcoin L2 networks based on their held BTC by running validator nodes or delegating Bitcoin to earn validator rewards;
3. SAL enables Bitcoin holders to obtain relatively stable yields in DeFi through trading yield strategies such as "Delta Neutral";
4. Users can also utilize liquid staking tokens (LST) for further operations in DeFi, combining staking and liquidity opportunities to maximize overall yield potential;

1. Achieving Bitcoin Staking Yields through Restaking

Firstly, based on SAL, Bitcoin holders can stake Bitcoin on platforms benefiting from Bitcoin's economic security to earn local token rewards, such as Babylon, EigenLayer, and Symbiotic.

In addition, these platforms rely on Bitcoin's economic security to provide users with Restaking-based yield opportunities, transforming Bitcoin's security attributes into financial returns, allowing users to benefit from Bitcoin's economic security and achieve further appreciation of BTC assets.

2. Earning Rewards through Validator Nodes

Secondly, users can also participate in the security maintenance of Layer 2 networks by running validator nodes or delegating Bitcoin to earn validator rewards.

By staking BTC, users can earn rewards while ensuring network security. Currently, this includes:

• CoreDAO and Stacks: Allowing users to stake BTC to maintain L2 security and receive the platform's local tokens as rewards;
• Botanix: Users can run validator nodes in the Botanix network, contributing computing resources and Bitcoin support to earn validator rewards.

These validator node rewards not only help users earn continuous BTC returns but also provide security guarantees for the BTCFi ecosystem, enabling BTC holders to directly participate in ecological construction and enjoy returns.

3. Trading Yield Strategies like "Delta Neutral"

SAL also provides Bitcoin holders with trading yield strategies such as "Delta Neutral," allowing them to obtain relatively stable yields in DeFi.

Taking the "Delta Neutral Strategy" as an example, Bitcoin holders can hedge market volatility to obtain stable returns on cooperative platforms like GMX, Pendle, and Ethena—assuming the BTC price is $80,000, users can deposit 1 BTC while selling 1 BTC futures, forming a "Delta Neutral" investment portfolio:

• If BTC initially is $80,000, the total value of the portfolio is 80+0=80,000, so the total position value remains $80,000;
• If BTC drops to $40,000, the total value of the portfolio is still 40+40=80,000, so the total position value remains $80,000 (the same applies if it rises);

At the same time, since 1 BTC of perpetual futures is shorted, users can earn funding fee income from long positions (historically, the funding rate for Bitcoin has been positive for most of the time, which also means that the overall returns of short positions will be positive, and this situation is even more pronounced in a bullish market with strong long sentiment).

These trading strategies help Bitcoin holders earn stable returns without directly bearing market risks, making BTC a multifunctional financial tool and further enhancing Bitcoin's utilization efficiency in the DeFi ecosystem.

4. DeFi Yields in Various Scenario Use Cases

Finally, based on SAL linking to smart contract public chains like Ethereum, it provides various scenario use cases such as DEX, lending, LSD, etc., enabling it to couple with multi-chain ecosystems like Ethereum to obtain farming yields in DeFi and other diversified scenarios.

This immediately builds a fourfold yield for Bitcoin holders who were originally in a zero-yield income situation, and combined, SAL essentially introduces Bitcoin into a wider range of application scenarios, revitalizing Bitcoin as the most premium native crypto asset that has been dormant, while bringing diversified income sources to BTC holders and improving capital efficiency, which can be considered a win-win situation.

Conclusion

For any industry or track, unified measurement standards are a key move to liberate productivity.

From the current development status of the Bitcoin staking ecosystem, it is indeed appropriate for Solv to take the lead—based on the influence of the industry leader and its wide network, SAL can bring significant collaborative effects by providing a clear standardized framework and co-constructed shared solutions:

From ordinary staking users to staking protocols, validators, LST issuers, and even custodians, SAL's universal standardized framework brings tangible benefits to all participants, greatly enhancing the collaborative efficiency of the ecosystem and enabling Bitcoin assets to play a more diverse role in the DeFi ecosystem, which is expected to trigger a series of chain reactions in the Bitcoin market, paving the way for the large-scale application of BTC staking business.

The $1.75 trillion of dormant assets leads to the core issues of yield opportunities and capital efficiency throughout the Bitcoin ecosystem, especially in BTCFi. The Solv SAL solution can, in some respects, be likened to the "infrastructure project" of the Bitcoin ecosystem:

It is expected to activate the optimal native crypto asset of over a trillion dollars based on providing a unified framework for the Bitcoin staking ecosystem, which is highly imaginative but also quite challenging.