BTCFi is dead? Three major perspectives to analyze the value reconstruction of its infrastructure era

I didn't expect the topic of "BTCFi is dead" to come so quickly. Indeed, since @babylonlabs_io was launched, the market has expected Babylon to bring a lot of ecology to the BTCFi track, but it was obviously backfired. As for whether BTCFi is dead, I think it is too early to judge now, and there is a misunderstanding of the evolution logic of the BTCFi track. Following the following, I will share a few observations:

1. Its point is obviously different from the prospects of Babylon after its launch.

Because Babylon can lock users' BTC assets on the Bitcoin main network in the form of script contracts, it can output "security consensus services" on many BTC layer2 and then obtain rich benefits provided by other extension chains. From the supply side, Babylon's technological innovation services are indeed very useful, but from the demand side, who will purchase such security consensus services and who will provide continuous benefits?

Obviously, from the perspective of the B-side demand for "security consensus" by some large, medium and small new chains, the prospects of BTCFi are obviously not as expected, but from the perspective of the C-side user demand, every BTC Holder has the need to continue to generate interest for the BTC it holds. The goal of the BTCFi technology solution is to access trillions of dollars of traditional financial capital. How to integrate Bitcoin's unique decentralized consensus with global financial liquidity is the ultimate goal of this BTCFi narrative.

Following this logic, in the post-ETF era, the narrative of BTCFi has just begun. Where does the theory of death come from?

2. In fact, the technical solutions around BTCFi have been maturing. From the original EVM- Compatible to the UTXO Stack architecture, to the zkVM protocol framework, RGB client verification framework, Optimistic Challenge Proof (OCP) architecture, etc., BTC's technical solutions once showed chaos, but on the surface, they seemed to be scattered and chaotic, but in fact they were also following the natural evolution of the market and the direction of choice.

The following focuses on comparing the two technical paths of OP_CAT_ and BitVM2, and believes that BitVM2 has more potential because it does not need to change existing BTC scripts:

1. OP_CAT path - logically reasonable but requires changing BTC OpCodes, which is more difficult to be accepted by core developers.

2. BitVM2+OCP mechanism - Off-chain computing and interaction are realized through the OCP challenger mechanism. When a "challenge" appears, the on-chain protocol will be executed on the Bitcoin main network. Bitcoin layer1 will act as an arbiter to ensure security.

Immature solutions will be eliminated or corrected under market pressure. For example, early Bitcoin cross-chain solutions generally adopted a centralized custody model, and now the combination of BitVM2 and OCP can provide a native secure cross-chain mechanism without trust.

When technical solutions like BitVM2 that do not require changing the core code of BTC are mature, Bitcoin will usher in its "OP moment", just as Ethereum's value in Optimistic Rollups has been recognized, which directly gave birth to a wave of market ecology explosion.

3. Let the technical solutions continue to be inverted and evolved, because there is another layer of logic: the biggest challenge facing BTCFi is not technical feasibility, but a sustainable Tokenomics economic model.

Many solutions currently rely on token issuance and incentives, which are obviously unsustainable. The truly sustainable BTCFi economic model should be based on its network usage value. When the second layer network processes transactions and charges fees, and some of the income is fed back to the BTC stakeholder, a value cycle based on actual needs is formed.

This model does not rely on external chain procurement, but obtains profits by serving its own ecosystem, which is significantly better in the sustainability of the economic model.

above.

In short, from another perspective, the prospects of BTCFi will suddenly become clear. However, the track is now in the early stages of infrastructure construction, technical solutions are converging, the Tokenomics economic model is improving, and the door to global financial liquidity access for ETFs has just been opened.