Analysis of BTCFi Ecological Asset Accumulation Strategy

With the evolution of the BTCFi narrative, the on-chain liquidity of BTC assets has become the focus of attention for major ecosystems and protocols. BTC is shifting from a static store of value to an asset that can participate in more on-chain yield scenarios, enhancing its application potential within the entire DeFi ecosystem.

Core, BOB, and Corn are representative growth cases in the BTCFi field in the second half of the year: Core focuses on leveraging large-scale BTC LST assets during the growth period; Corn collaborates with Pendle to introduce a points derivative gameplay to rapidly capture incremental market share; BOB attracts liquidity through enriched ecology and liquid staking services. The series of actions around "yield generation" in each ecosystem has greatly activated the liquidity of BTC assets. In the future, as BTC liquidity is gradually released, there is still tremendous growth potential for the on-chain accumulation scale of assets in the BTCFi ecosystem.

1. Background

1.1 BTC asset flow path on the chain

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

• Layer 1: Native BTC
• Layer Two:
  1. Encapsulated BTC issued based on centralized custody
  2. mapped assets running on BTC L2 and SideChain
  3. Liquidity Staking BTC
• Layer 3: BTC derivative assets in various downstream DeFi scenarios

The current state of the 1.2 BTC asset market

From the issuance situation of BTC-backed assets on the three major networks of Ethereum, Arbitrum, and BNB, it can be seen that centralized custody issued wrapped BTC still occupies the vast majority of the market share, with WBTC and BTCB combined accounting for over 75% of the total circulation of BTC-backed assets. In addition, LBTC and SolvBTC.BBN and other BTC LSTs 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 highest consensus and largest market capitalization asset, BTC's anchored asset mainly applies to lending protocols. In terms of the largest volumes, WBTC and BTCB, their biggest downstream applications are in Aave v3 and the Venus protocol, respectively, with TVL accounting for over 20% of their total supply, reflecting the demand for relatively stable returns in the BTCFi sector by large funds.

The current market total 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. Among them, Solv's influence on the TVL of each chain is particularly significant, bringing 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 the wrapped BTC issued under a centralized custody model, BTC LST as an interest-bearing asset has expanded into richer application scenarios. In addition to lending protocols, the points trading market has become another important downstream application for BTC LST. Avalon and Pendle are the protocols with the highest capital accumulation of BTC LST in the "lending" and "points derivative market" sectors, achieving win-win growth alongside the development of BTCFi and BTC staking narratives.

2 BTCFi Ecosystem Asset Accumulation Strategy

2.1 Core: Focus on dual-driven ecological growth of incremental assets and token incentives

Core is an L1 scaling solution powered by BTC, allowing users to earn passive income through non-custodial Bitcoin staking without transferring or wrapping BTC. Since its launch in April 2023, over 7,500 BTC have been staked on Core, and the network's security is protected by the security of BTC. In July 2023, Core introduced a dual staking mechanism for BTC and CORE. Users can not only stake BTC to earn risk-free basic returns but also stake the native token CORE for additional rewards. The distribution of rewards will be linked to the amount of CORE staked and the duration of the staking. The dual staking mechanism has further driven the growth of Core's TVL since its introduction.

As of now, Core's TVL has reached $591.5M, a growth of 4757.9% over six months, ranking it as the 16th blockchain in terms of TVL. The growth of Core's TVL has shown several key milestones: In June, the launch of the native lending protocol Colend and the integration with Solv Protocol's derivative assets drove a TVL increase of $51.1M for that month, with a growth rate of 202.2%. In July, the introduction of the dual staking mechanism led to new capital inflows, pushing the TVL growth to $92.6M for that month, with a growth rate of 121.3%. In August, the integration of the leading BTC Restaking protocol Pell Network into Core further triggered a larger scale of capital accumulation.

The growth of Core TVL is mainly driven by the following factors:

1. Focus on the incremental market of BTC pegged assets to enhance ecological liquidity, absorbing the rapidly growing Solv derivative assets.
2. Build supporting native protocols such as Colend and quickly integrate with projects like Pell Network to establish a complete ecosystem application.
3. The incentive structure is supported by the airdrop and market performance of the native token $CORE, creating a multi-dimensional ecological synergy.

Deep integration and cooperation 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 are still in a stable growth phase. Since June, SolvBTC has expanded to the Core ecosystem and has deeply integrated with two major protocols, Colend and Pell Network, driving a TVL growth of $51.1M in that month. Currently, Solv derivative assets account for 65% of Core's TVL, which is not only due to the stable income scenarios provided by the DeFi module construction of the Core ecosystem for underlying assets, but also includes the high incentives provided by Core for the application of SolvBTC and the airdrop expectations supported by the performance of the $CORE token. This shows that the development of Core's ecosystem 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 amount. Through deep integration and cooperation with the Solv Protocol, Core has not only increased its TVL but also provided diversified liquidity asset support for on-chain DeFi scenarios.

The BTCFi ecosystem construction led by Colend and Pell Network

Colend is the native lending protocol on Core, which has absorbed most of the asset deposits in the ecosystem. Since the introduction of SolvBTC in June and the provision of maximum incentives, its TVL has grown significantly. Currently, 85% of the TVL in the Colend protocol comes from the inflow of derivative assets from the Solv Protocol, demonstrating a strong synergy with Solv. Furthermore, Colend is also the core application scenario for CORE token derivative assets, attracting $17.4M in wCORE and $5.2M in stCORE. The yield-generating scenario provided by Colend for CORE LST has boosted users' willingness to stake CORE, while also supporting its value.

In addition, BTC Restaking has become a stable staking income scenario for BTC derivative assets. In August, Pell Network, the leading project of BTC Restaking, quickly promoted the growth of ecosystem TVL after launching on Core, with the inflow of assets mainly coming from Solv Protocol, which has accumulated Solv derivative assets worth $108.3M. In terms of project incentives, Pell Network provides the highest multiplier of points reward 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, the cumulative TVL of Pell Network has reached $271.7M, with nearly half of the contribution coming from the Core ecosystem.

The incentive structure supported by the airdrop and market performance of the native token $CORE.

In May 2023, Core launched the Sparks incentive program, aimed at accelerating the adoption and expansion of the ecosystem by rewarding on-chain contributors. The second season is currently underway. Unlike projects that rely on point-based incentives and have unclear token distribution expectations, Core launched its native token $CORE as early as 2023 and successfully completed its initial airdrop, laying a solid foundation for a large community. $CORE, as the ecosystem's native token, is primarily used for paying transaction fees, network staking, obtaining 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 activity conducted by Core through the Satoshi App distributed a large number of tokens to ecosystem participants, increasing users' long-term attention and continuous contributions 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 participating in the Core ecosystem.

2.2 Corn: The points derivative gameplay effectively attracts BTC LST market liquidity

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

Currently, Corn has not yet launched its mainnet, but it has effectively absorbed $425.8M in funds through a deposit activity launched by multiple parties, significantly exceeding the BTC scaling layers already online, such as Merlin and BSquared. These deposits are mainly concentrated in the pools jointly launched on Pendle with several BTC LSTs including LBTC, SolvBTC.BBN, eBTC, PumpBTC, and uniBTC, accounting for 85% of the current total TVL.

Leading BTC LST points derivative gameplay in collaboration with Pendle

The derivative market of points is one of the key strategy scenarios for BTC LST as interest-bearing assets. As the leading protocol in this sector, Pendle began integrating various BTC LSTs at the beginning of 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 ), which has absorbed 11.4% of the total BTC LST market volume, and the collaboration has generated a good synergistic effect.

For BTC LST holders, the points leverage market provides a variety of strategic gameplay options, and Pendle has become a major application scenario accounting for 10%-30% of the total supply of BTC LST. In addition, Corn offers the maximum multiplier for point incentives for these pools, further attracting more holders to participate. For Corn, BTC LST is a core contributing factor to the growth of TVL in its early stages. Currently, these pools are the only applications generating external benefits within Corn's point mining activities, laying the foundation for the future launch of its mainnet.

TVL BootStrap Campaign

In the existing points mining design of Corn, users can earn 1 Kernel point for every $1 equivalent of assets deposited every 210 minutes. These deposits can be withdrawn at any time without incurring any penalties or fees, providing great flexibility. The goal of this activity is to attract initial liquidity through Kernel point incentives. However, currently, in addition to the collaboration with Pendle,