Host: Aquariushttps://x.com/0xAquariusCap

Guests:

• Clayton Menzel, Head of Business Development at Babylonhttps://x.com/babylonlabs_io

• Lester Chui, Head of Institutional Partnerships at P2P.orghttps://x.com/P2Pvalidator

• Makoto, Co-founder of Pell Network https://x.com/Pell_Network

• Jing Xiong, Chief Business Officer at Solv Protocolhttps://x.com/SolvProtocol

YouTube link: https://bit.ly/btcadoption

Mirror original: https://mirror.xyz/0xa54017CA3461743Bf0A14d2C46931ECe151d6D2d/dS3GuY_MREiUczEVhBcIj2aumenjdNpdpdIypoWdVXc

Summary

BTC-Fi (Bitcoin Staking Finance) is redefining the role of Bitcoin, giving this traditional "store of value" asset new uses. By providing yield generation and decentralized finance (DeFi) functionalities, BTC-Fi aims to expand the application of Bitcoin, although it still faces challenges in technology and user adoption. As the pioneer of cryptocurrency, Bitcoin has a unique appeal to retail and institutional investors due to its brand effect and unmatched decentralization. This emerging field is expected to disrupt the DeFi landscape while opening up a new value proposition for Bitcoin.

One of the key innovations driving BTC-Fi is Babylon, a protocol dedicated to enabling users to stake native BTC directly on the Bitcoin network for the first time. As a platform focused on "staking, security, and liquidity," Babylon aims to leverage the security of the Bitcoin network to support diverse applications by collaborating with liquid staking derivative (LSD) issuers and DeFi developers. Its non-custodial staking model ensures that Bitcoin remains in users' wallets, reducing custodial risks while balancing the trade-offs between security and transaction fees.

Institutional interest in BTC-Fi is also gradually increasing. Validation nodes and infrastructure service providers like P2P.org see BTC-Fi as a potential area for institutional investment, but current barriers include regulatory uncertainty and unverified security. P2P.org is leveraging its experience supporting over 40 proof-of-stake chains to collaborate with projects like Babylon to provide compliant solutions for institutions. Meanwhile, custodians play a crucial role in driving institutional adoption, with Solv Protocol and Babylon working with custodians like Ledger and Fireblocks to create secure and accessible pathways for Bitcoin staking.

While BTC-Fi has gained initial attention among retail users, institutional adoption remains slow. Many Bitcoin holders are accustomed to storing their assets in cold wallets rather than participating in staking. BTC-Fi platforms need to build trust with these users by clearly communicating their security and low-risk yield potential. Similar to the evolution of early DeFi on Ethereum, the adoption of BTC-Fi may take years to mature. However, a strong base of retail users could serve as a starting point for attracting institutions, as they are more likely to experiment with new technologies, injecting growth into the entire ecosystem.

The growth of BTC-Fi also comes with significant challenges. High transaction fees on the Bitcoin network are a major barrier, but security remains the top priority for developers. Babylon plans to explore scalable solutions that reduce fees while maintaining high security. Additionally, BTC-Fi projects are expanding the use cases of Bitcoin beyond just yield generation. Projects like Babylon and Pell Network are building more complex financial markets, including lending and decentralized trading, while providing additional income streams for Bitcoin holders through re-staking. These efforts could ultimately redefine Bitcoin's positioning in the crypto space.

Developer participation is seen as key to the success of BTC-Fi, as they can drive innovation and expand Bitcoin's applications in other ecosystems. At the same time, BTC-Fi's main advantage compared to DeFi ecosystems on Ethereum and Solana lies in Bitcoin's global brand effect and trust. If Bitcoin can successfully integrate secure and scalable DeFi solutions, its massive market capitalization could make BTC-Fi a heavyweight player in this field.

Looking ahead, the development path of BTC-Fi is full of potential. Babylon is working to establish secure staking solutions with multiple custodial and wallet partners, aiming for significant growth in the next 12 months. Meanwhile, projects like Pell and Solv Protocol are expanding their retail user bases to lay the groundwork for further attracting institutional investors. Although the growth of BTC-Fi may be gradual, its prospects of becoming a mainstream financial product are widely optimistic as infrastructure improves and more users participate.

Introduction

Hazel: Hello everyone, welcome to the third episode of the Aquarius podcast. I am your host Hazel from Aquarius. Aquarius is a research-driven venture capital and liquidity fund company managing over $600 million in assets, focusing on providing targeted liquidity management solutions for projects, covering both short-term and long-term needs, including staking and re-staking.

Today we will explore one of the most exciting and rapidly developing areas in the crypto space: BTC-Fi, or Bitcoin Staking Finance. Bitcoin has long been viewed as a store of value, and BTC-Fi is changing that role, enabling holders to generate yields and actively participate in decentralized finance. I am thrilled to invite several distinguished guests who represent top projects in the BTC-Fi space. These platforms are driving innovation from staking infrastructure to re-staking services. We will discuss their unique approaches, the challenges they face, and their visions for Bitcoin's role in DeFi.

Hazel: First, let’s better understand how each platform positions itself in BTC-Fi. BTC-Fi is evolving rapidly, and protocols like Lido have already set standards in Ethereum. I would like to hear how each of you positions your platform in BTC-Fi and how you differentiate yourselves within this ecosystem?

• Clayton: I think it’s helpful to distinguish Babylon from the decentralized finance activities that may run on our layer. Babylon is essentially a staking, security, and liquidity protocol. For the first time, Bitcoin holders can stake Bitcoin directly on the Bitcoin network. Babylon, as a protocol, provides this staking security to other networks that wish to leverage the security of the Bitcoin network. Our liquidity component is realized through our partners, whether they are LSD issuers or other projects looking to develop DeFi products on our staking layer. Ultimately, our network participants include those seeking the security that our staking of Bitcoin provides, as well as stakeholders and developers building financial products on top of staked Bitcoin.

• Lester: P2P.org tends to take on the role of an infrastructure provider. We have been running validators, launching different projects, and supporting chains like Cosmos. Our main focus is on providing yield, so projects like Babylon fit well for us. Coupled with other projects on Bitcoin, P2P's goal is to create yield for Bitcoin holders, which is a significant shift for Bitcoin, as it traditionally does not offer native yield. While some may argue that this is still not true native yield, going from zero to one is already a big leap. P2P.org supports over 40 PoS chains, maintaining high uptime, API responsiveness, and effectiveness. Since 2018, we have focused on value-added validation operations for PoS chains.

• Jing: First of all, thank you very much for inviting us to participate in this podcast today. We work closely with teams like Babylon and Pell. Conceptually, we position ourselves as builders of staking infrastructure, providing users with a one-stop platform to access various income opportunities. While Babylon is leading in many of these areas, we are also exploring higher-risk opportunities in the trading space and enabling users to continue lending and other activities through liquid staking tokens (LST).

• Makoto: Yes, it's great to be here with Babylon, P2P, and Solv. Pell Network focuses on Bitcoin re-staking. We collaborate with partners like Babylon and Cell to provide economic security for various ecosystems and applications. Babylon excels in providing security at the consensus layer, while we extend Bitcoin's security to various application layers by working with LSD providers like Cell. We recently announced our partnership with Babylon, which has been in the works for several months. We are also discussing with P2P about inviting them to join us when we launch our public testnet. Our goal is to establish a closed-loop ecosystem for Bitcoin holders and stakers.

Hazel: Thank you for sharing. BTC-Fi indeed has tremendous potential, but as you mentioned, the adoption pace is slower than expected. Many individuals and institutions view Bitcoin as a long-term store of value, but few are participating in BTC-Fi activities to maximize capital efficiency. This trend highlights the significant gap between Bitcoin's current role and its untapped potential in DeFi. While holding Bitcoin provides stability and protection against inflation, it lacks yield-generating functionalities like other DeFi assets. I would like to hear your thoughts on the main challenges to Bitcoin adoption and how your respective projects are addressing these challenges. Jing, would you like to start with this question? What do you see as the main challenges to BTC-Fi adoption?

• Jing: I think this is a very good question, but it doesn't have a single answer. Observing the developments of Bitcoin and Bitcoin DeFi over the past 9 to 18 months, we can see a lot of changes. In my view, this cycle is compressed compared to other chains and tokens. The adoption process began with innovations like Ordinals, where users could finally use Bitcoin for purposes beyond wallets. This is the first step. Subsequently, as teams began building tools for Bitcoin, Bitcoin Rollups, sidechains, and scaling solutions, we saw the next stage of this evolution. Now, the focus is on actual use cases—how to provide returns and why users would bring Bitcoin into this ecosystem and find reasons to stay. I think we are all working hard to create better user experiences and provide reasons for users and their Bitcoin to remain in this ecosystem.

• Secondly, when it comes to Bitcoin adoption, many people traditionally store Bitcoin in a few trusted places—exchanges, cold wallets, or wrapped Bitcoin (WBTC) on Ethereum. Therefore, the user journey and trust assumptions are very different from traditional DeFi users. We focus on creating a universal process that builds trust, making users comfortable with their journey.

• For some of these changes, it will take more time, but I wouldn't necessarily say the progress is slow. Ethereum took over five years to reach its current state, especially in the DeFi space where it all began. And with Bitcoin, we are approaching it from a different direction. If I had to say, I think we are making good progress.

Hazel: Understood, that is indeed insightful. I would like to hear Lester's perspective. P2P.org manages over $4 billion in assets, and you have unique insights into institutional interest in BTC staking. BTC-Fi offers enticing opportunities for holders to unlock additional value through staking, lending, and other DeFi mechanisms. However, as Bitcoin is traditionally viewed as a conservative low-risk asset, coupled with concerns about security, regulatory clarity, and the complexity of BTC-Fi operations, many institutions remain cautious. How is P2P.org preparing to meet the needs of institutional Bitcoin holders? What specific challenges do institutions bring to BTC-Fi, and how are you addressing them?

• Lester: Frankly, we haven't seen much participation from institutional users at this point, which actually means there is a lot of room for market development. Bitcoin staking still has significant expansion potential. Currently, retail users dominate, while institutional investors and venture capitalists are still on the sidelines, trying to understand the market landscape. They are assessing the sustainability and security of yields. The sentiment in Western markets is more cautious, while progress in Asian markets is relatively faster. Mining pools are one of the most open groups to BTC-Fi, as they are looking for new ways to stake Bitcoin, not just through lending or using it as collateral. This is the current state, and we expect that as the ecosystem matures, the adoption of Bitcoin staking will gradually increase.

Hazel: Thank you, that is very helpful. I know Bitcoin is traditionally viewed as a store of value, but BTC-Fi is expanding its role. I'm curious—how do you see Bitcoin's role extending beyond yield? Would this broaden BTC-Fi's appeal?

• Clayton: Compared to other crypto assets, Bitcoin's advantage lies in its simplicity. As long as most network participants still view it as a store of value, I think that is sufficient. Adding more complexity at the foundational level, especially pushing for more complex or exotic products from the start, could undermine this, particularly for those who have not actively engaged in the crypto space.

• From an onboarding perspective, explaining the purchase of Bitcoin and performing some simple operations is much easier than pushing for more complex or riskier products from the outset. So, to be honest, I think the foundational layer should remain simple. The core value proposition of holding Bitcoin should be clear. As for additional applications built on this foundation, that can be discussed later. We hope to build more advanced markets on Babylon's staking layer, but ultimately, simplicity remains our core value proposition.

• Makoto: I agree with Clayton's perspective. From a re-staking angle, many crypto participants have already tried staking other assets like Ethereum. However, when it comes to developer adoption, there is still a gap in completing the value chain. Developers who need network security often get stuck in the process of integrating different crypto economic security services.

• At Pell, our goal is to simplify this process. We don't want the integration for developers to become overly complex. Our system is chain-agnostic, so developers in any ecosystem can easily integrate Pell's technology. This approach extends the utility of Bitcoin from the context of native Bitcoin to cross-chain levels, allowing any ecosystem to leverage Bitcoin's security. Our priority is to provide utility, allowing yields to follow naturally. This strategy helps lower the barrier to security requirements for developers.

• Over time, I believe the utility of Bitcoin as secure collateral will be widely accepted. From this security perspective, BTC-Fi will ultimately gain consensus, and users will recognize it as more than just a simple holding tool.

Hazel: Great insights. Another key challenge in staking is the high transaction fees, which can be a barrier to adoption. How are your platforms addressing this issue, especially as adoption scales? Clayton, I would particularly like to hear your thoughts on managing high fees.

• Clayton: The fees on the Bitcoin network are uncontrollable; they depend entirely on the demand on the network at any given time. To be honest, for us, Bitcoin's primary use is as a store of value, and ultimately holding it securely. We certainly hope that transaction fees can decrease from current levels, but our primary focus remains on security. If I am a holder planning to hold Bitcoin for five years, the returns I gain from staking Bitcoin on Babylon would provide me with additional Bitcoin gains. So, would this initial staking fee become a barrier? Probably not, especially when the amount of Bitcoin held is substantial. In that case, I wouldn't be overly concerned about the fees on the Bitcoin network, at least not for Babylon. Additionally, Babylon operates on the Cosmos chain, so we expect that, compared to Ethereum, its fees will remain relatively cheap in the foreseeable future.

• Jing: I think this is a very relevant question. Is there a direct solution currently? I don't think so, considering the current structure of the Bitcoin Layer 1 network. Many scaling solutions are being developed, and we are actively participating in discussions around these solutions. But I believe these solutions will take time. We only have one chance to get this right. This means we only have one opportunity to build a secure foundation, set the right rules, and establish trust. From an early adoption perspective, I believe the focus should not be on transaction fees but on ensuring that assets remain secure and are correctly staked, both conceptually and technically. Many of us are working hard to achieve simple scaling solutions that will naturally lower costs, but we currently do not have ready-made solutions to implement this immediately.

Hazel: Understood, security is more important than transaction fees, and that is a trade-off we must accept. The success of BTC-Fi may depend on collaboration between different protocols. Clayton, you mentioned Babylon's positioning, and I'm curious, how do you envision the ideal BTC-Fi ecosystem? Are there projects you believe could add value to this ecosystem?

• Clayton: Yes, primarily in the area we currently refer to as the "Bitcoin Security Network," which are the best places for long-term Bitcoin-priced DeFi. These networks choose to integrate Bitcoin security, creating natural alignment and growth effects. We recently announced partnerships with Corn and Pell. Essentially, we are connecting with these networks where people can stake Bitcoin, and then as we grow, we can enter other ecosystems. The Bitcoin Security Network benefits from liquidity that accepts Bitcoin pricing while leveraging the security provided by Babylon.

• For example, in your DeFi ecosystem, you might want to have sBTC, as you are already paying security fees for these stakers, making it a more attractive option than wBTC or other assets that do not necessarily yield returns for users or align with protocol incentives.

• Lester: For me, this is more straightforward. The narrative of BTC-Fi is similar to that of Ethereum's DeFi summer, when people were using ETH everywhere, paying gas fees, and the entire ecosystem revolved around it. I imagine Bitcoin can achieve greater accomplishments because of its unique positioning as a store of value. Look at Bitcoin's new highs; it still reflects its uniqueness compared to ETH.

• I'm not saying ETH isn't important—it absolutely is, and its ecosystem is very strong. But the essence of Bitcoin as a store of value, combined with its vision as electronic cash, truly sets it apart. I work remotely globally, and in our global banking system, payments often take 10 to 20 days to clear, especially during bonus periods. While traditional banking systems are convenient in many ways, they also feel cumbersome due to regulations and interbank rules.

• If Bitcoin can truly expand its use case as a yield-generating payment method, not just limited to the Web3 space, that would be revolutionary. Of course, this is an ambitious goal, but the outstanding projects we have on this podcast give me confidence that we can work together to achieve this dream.

Hazel: Thank you. Clayton, you mentioned that Babylon primarily focuses on security, and I understand that Babylon supports non-custodial Bitcoin staking, which is crucial for institutional holders concerned about third-party risks. How have you designed the protocol to maximize user security while minimizing reliance on intermediaries?

• Clayton: Our protocol design is entirely non-custodial. If you compare Bitcoin staking on Babylon with Ethereum staking, you will find some key differences. On Ethereum, your ETH actually leaves your wallet, and the wallet becomes a withdrawal address, essentially a claim to your future withdrawal of ETH.

• In contrast, with Bitcoin staking on Babylon, since it operates on the Bitcoin network, you only need to sign a UTXO transaction in your wallet, which means the Bitcoin does not actually leave your wallet. It is simply marked as an asset with specific parameters in an unspent transaction. This process will attach rewards while also attaching potential penalty conditions, such as when you delegate assets to a finality provider that does not align with the protocol's interests. Our protocol is designed for a non-custodial model, allowing users to retain full control of their assets.

• Additionally, we can build other application scenarios on top of Babylon. For example, qualified custodians can manage staking collateral off-chain, or liquid staking token (LST) issuers can provide management services for users who do not wish to operate themselves.

• Our core value proposition is that Babylon offers multiple participation methods, unlike other Bitcoin staking protocols that may move Bitcoin out of the native network.

Hazel: Makoto, I have a specific question about Pell's focus on the re-staking model. Can you explain how it differs from standard staking and what incentives it provides for Bitcoin holders? Additionally, how does Pell collaborate with other projects in this ecosystem?

• Makoto: Sure, let me elaborate on the process from the perspective of Bitcoin holders. If you hold one Bitcoin, Babylon allows you to stake it directly from your wallet without giving up asset control. However, many users may prefer to deposit their Bitcoin into the Soft Protocol, which has already partnered with Babylon. The Bitcoin deposited through Soft will be staked to Babylon. Validators like P2P participate in verification to generate yields. Users will receive a soft BTC token as a reward, which will accumulate Babylon's yields.

• Pell enhances this structure through our decentralized validation network, providing additional yields for Bitcoin holders to earn more with minimal risk. This "1+1>2" effect is perfect for users looking for low-risk returns. If users stake assets in index pools or as liquidity providers (LP), they may face impermanent loss or smart contract risks. By keeping the staking process simple, we minimize these risks.

• Additionally, Pell provides cross-chain infrastructure, allowing users to stake their Bitcoin liquid staking tokens on any chain without repeatedly wrapping or bridging Bitcoin. This process maximizes Bitcoin holders' yields while minimizing risks as much as possible.

• I believe this approach will serve as an entry point for traditionally more conservative Bitcoin holders to explore DeFi. When Ethereum first introduced staking, adoption was very slow due to security concerns. But now, Ethereum's staking, liquid staking, and re-staking have seen significant growth. We have even higher expectations for BTC-Fi than for Ethereum.

Hazel: Thank you for sharing. It is well-known that bear markets test the resilience of an ecosystem. I am curious about what measures you are taking to ensure that BTC-Fi remains attractive even in unfavorable market conditions. Lester, what are your thoughts?

• Lester: As an infrastructure provider, we naturally work closely with BTC-Fi projects. For example, collaborating with projects like Resolve (Jing can attest to this), we have put in a lot of effort to develop customized products for different needs. For our institutional partners, like exchanges, they may have specific demands and requirements. Mining pools may have other preferences. Therefore, we actively commit to network security and fulfill our validator responsibilities, but we also go further by customizing solutions in product aspects with a wide range of ecosystem partners and networks. This is our main direction of effort.

• Of course, there are limits to what we can do. We still rely heavily on protocol layer efforts, such as promoting the ecosystem and attracting retail users' interest in BTC-Fi. Our primary task is to ensure the security of the network, and I believe that is the core part of our work.

Hazel: You all mentioned retail users and Bitcoin holders. Many Bitcoin holders are more conservative, especially given Bitcoin's core positioning as a store of value. How do you persuade them to stake Bitcoin, especially when the current yield attractiveness is not very high?

• Lester: Indeed, I think this is also the message we are helping Babylon convey. Many traditional Bitcoin custodians currently do not support staking on Babylon—not because they do not support Babylon, but because custodians typically need a long time to adapt. They need to see actual demand, yields, and returns, and after careful calculations, they will support staking on a new network. This is the traditional way of operating.

• We are also collaborating with custodians like Solv to discuss how to make it easier for them to allow Bitcoin staking, such as creating clear income streams. Adoption takes time, especially for traditional institutional Bitcoin holders. It is often not that they do not want to stake, but that staking may be too complex for them.

• For example, during the last staking window, which occurred at 3 AM, we had an institutional representative rush in with his Ledger private key. He had the Ledger, but since the withdrawal window was not open yet, he could not complete the staking on the Ledger. He did not want to stake directly, so we suggested he open a Cobo account, which took some time. Unfortunately, he was in a remote area without a MacBook or iPad to set up Cobo, but he ultimately completed the staking by sending it to the project founder. This is just one example of the challenges we face.

• We are actively working with Babylon and other protocols to simplify these processes and help custodians and traditional institutions integrate BTC-Fi, opening more doors for institutional finance.

Hazel: For BTC-Fi to truly succeed, protocols must focus on building trust through secure, transparent, and non-custodial solutions, which aligns with Bitcoin's self-sovereignty philosophy. At the same time, simplifying the user experience is crucial to making BTC-Fi more accessible. By effectively balancing security and yield potential, BTC-Fi has the opportunity to transform Bitcoin from a passive store of value asset into an active yield-generating asset, attracting both retail investors and institutions looking to enhance capital efficiency. Clayton, I understand that Babylon is committed to integrating staking functionalities across different custodians and wallets. Can you share your growth roadmap for the future?

• Clayton: As Lester mentioned, many custodians and wallets are still reluctant to support certain transaction types on Bitcoin, which is understandable. After all, there haven't been many functionalities on the native Bitcoin network in the past. If you are a custodian or wallet provider, losing users' Bitcoin could be the worst outcome for your business.

• Therefore, in this quarter and the next, our focus is on establishing Babylon as a very secure staking solution, ensuring that integrated partners and their clients can trust us and embed staking functionalities in Bitcoin holdings.

• We are collaborating with custodians in the West like Ledger, Fireblocks, and Anchorage, as well as early adopters like Cobo, Fortify, and Texos who are driving progress. For the third staking window (Cap 3), we plan to open more staking opportunities while considering longer time windows to avoid opening at inconvenient times (like 3 AM) to make the staking process more convenient and fair.

Hazel: Jing, regarding Solv's development roadmap, where are your current priorities?

• Jing: For us, and for many teams present, the core goal of the development roadmap is similar. Ultimately, the adoption and usage of Bitcoin in the entire ecosystem are still relatively low. We are working together to expand this pie.

• Our goals focus primarily on two areas. First, how do we attract new users, especially those who are new to this ecosystem? The recent all-time high of Bitcoin has indeed helped increase user interest, but in the long run, educating users, building trust with investors, and strengthening partnerships remain key.

• The second focus is ensuring that once users enter this ecosystem, they can access practical and usable application scenarios and solutions. This means enabling users to easily obtain scalable solutions and diverse functionalities. Therefore, in terms of our development roadmap, these two areas are the current main focus.

Hazel: For a new user just getting into Bitcoin staking, where should they start? What advice would you give them to help evaluate the opportunities in BTC-Fi?

• Jing: Evaluating investment opportunities in Bitcoin or any crypto asset is not fundamentally different from assessing traditional portfolios. It requires understanding your risk preferences, risk tolerance, expected returns, and the amount of capital you are willing to invest.

• For Bitcoin staking, especially in the context of BTC-Fi, this is almost akin to evaluating an insurance or fixed-income product. So, first assess your risk tolerance and investment preferences. Secondly, I always advise partners and users to focus on operational security—that is, how to manage your team and processes. From a negative perspective, this is not just about technical or protocol issues, but also about the security of individual operational processes. Optimizing and securing every step of the process is crucial.

Hazel: In generating yields from Bitcoin staking, how do you find a balance between token rewards, network security, and avoiding the risk of token supply over-expansion? Makoto, what are your thoughts on this?

• Makoto: I want to respond to some of the points mentioned earlier and share our perspective. Institutional interest in BTC-Fi is just beginning to sprout. If we look back at the history of Bitcoin as an asset, institutional players are usually the last to enter this space.

• Our focus is on starting with early adopters—the retail user community. These users are more willing to try new technologies and are more inclined to experiment. Currently, we have over 400,000 stakers on our platform, and our goal is to continue expanding this number. Only by building strong community engagement will institutional players take this field more seriously.

• If we look at Bitcoin's history, it has been around for over 15 years, but it was only this year that Bitcoin ETFs were approved, opening the door for institutional participation. We expect BTC-Fi to have a similar roadmap, where institutional players will initially observe or dip their toes by investing a small portion of their portfolios.

• As our ecosystem strengthens, more institutional interest will follow. In the past, the primary way to generate Bitcoin yields was through mining, but due to recent halving events, Bitcoin mining has become more institutionalized, competitive, and less profitable. Many institutions hold large reserves of Bitcoin that are currently underutilized, and we believe this will prompt them to explore new yield-generating options.

• As Jing, Clayton, and Lester have mentioned, we are all working towards the common goal of expanding the BTC-Fi ecosystem. Our strategy is to prioritize retail user adoption. With patience and continuous building, we believe institutions will eventually follow.

Hazel: Timing-wise, when do you think institutional users will be ready to start adopting BTC-Fi?

• Makoto: If we take the development of the Ethereum ecosystem as a reference, institutional adoption of DeFi also took several years. The advantage of Bitcoin is that there are already some pioneers paving the way. I don't think institutional users need years to start adopting BTC-Fi, but it won't happen overnight either. Lester should be well aware of this.

• From P2P's perspective, we still need a lot of infrastructure, integrated development, and comprehensive security audits to ensure that the entire process is robust enough. We are building some additional components to support and expand the native Bitcoin network.

• I think this will take a few months. I am optimistic about significant progress in the next 12 months. Another key point is the role of custodians. Many custodians act as intermediaries holding Bitcoin assets for institutions and play an important role. Projects like Soft, Babylon, and Pell are working directly with these custodians. From our discussions with custodians, over half are open to participating in BTC-Fi or co-developing solutions to meet client needs, while also willing to integrate BTC-Fi protocols. Perhaps I am a bit biased, but I am very optimistic about the development of BTC-Fi in the next 12 months.

Hazel: You all mentioned Ethereum as a reference. I would like to hear your thoughts on what unique value propositions BTC-Fi has compared to other ecosystems like Ethereum or Solana? What sets it apart from these ecosystems? Clayton, perhaps you can share your thoughts first.

• Clayton: The answer is actually quite simple. Bitcoin is the oldest and most widely distributed asset and network in the crypto space. Its widely accepted value proposition is as a store of value. When people compare Bitcoin to Ethereum or Solana, the first thing that comes to mind is Bitcoin's role as a store of value, rather than as an asset for paying network fees.

• For example, Ethereum's primary use is to pay transaction fees on the network, and only then do we discuss its "monetary" aspect. This simplicity and clarity make Bitcoin unique.

• From the perspective of institutional adoption, Bitcoin ETFs are also an important milestone. I believe that by the end of this year, about 5% of circulating Bitcoin will be held by ETF issuers. This is different from Ethereum and Solana, which currently do not have comparable institutional adoption in this form. This situation may change in 2025 or 2026, but for now, Bitcoin is far ahead in narrative and institutional participation.

• Lester: For us at P2P, although we focus more on the infrastructure part, we want to be at the forefront of the BTC-Fi space. To do this, we need to build strong partnerships with ecosystem players like Pell and Babylon. We are very willing to collaborate with them, share resources, and work towards common goals.

• The main barrier we face is accessibility. Many customers have limited ability to access BTC-Fi through traditional means, and the way they typically interact with blockchains does not support easy integration of Babylon or other Bitcoin-based ecosystems. Our first step is to help these partners gain access and expand adoption.

• As for the widespread adoption and sustained use of BTC-Fi, we will leave that task to the experts in this call, but we are committed to doing our part to share resources and foster interest. That is our stance.

Hazel: Jing and Makoto, how do you view the differences in Bitcoin's value proposition compared to Ethereum and Solana? These ecosystems are also growing rapidly.

• Jing: Yes, the key lies in the use cases. Whether it is Bitcoin, Ethereum, or Solana, the key is to find ways to use these assets in financial products or infrastructure. However, Bitcoin's uniqueness lies in its broad recognition outside the crypto space, symbolizing the entire industry.

• I am not saying other assets are not important, but from an outsider's perspective, Bitcoin is the entry point and the most recognizable symbol of this industry. This innate ability to attract users is a huge advantage.

• Makoto: This question has been asked of us many times. There are several key differences that make BTC-Fi unique. First, Bitcoin is the first cryptocurrency and has the widest recognition and value. It may also be the most decentralized network. This foundational advantage supports Bitcoin's position as the primary crypto asset.

• However, historically, the Bitcoin network has not supported advanced functionalities like Ethereum or Solana. These blockchains were built with more functionality from the start. To elevate BTC-Fi to a new level, we are working to bridge this technological gap.

• Technical challenges have always been the biggest obstacle to expanding Bitcoin's use cases. But we are addressing these issues. Taking Ethereum as an example, it has over $80 billion in total locked value in DeFi, accounting for about 20% of its market cap. Even if BTC-Fi reaches a similar level of adoption, considering Bitcoin's market cap of over $300 billion, this still represents a significant market that cannot be ignored.

• From Pell's perspective, we hope to extend Bitcoin's inherent network security to the entire crypto space. If Bitcoin becomes the underlying collateral, projects can focus on user functionalities and core services without having to build their own security infrastructure. This shift could usher in a new phase of innovation and utility for Bitcoin.

Hazel: Thank you all for your insights. It is exciting to hear about your work in expanding BTC-Fi. BTC-Fi is still a relatively new field, and it is encouraging to see each of you contributing to its growth. Ultimately, the widespread adoption of BTC-Fi could position Bitcoin not just as a store of value but as a foundational asset in the DeFi ecosystem, redefining its utility and influence in the crypto space. Thank you again, Jing, Clayton, Makoto, and Lester.