Welcome to Slate Sunday, our weekly feature at CryptoSlate that delves into enlightening interviews, expert insights, and engaging op-eds, going beyond just headlines to highlight the ideas and voices shaping the cryptocurrency landscape.
I’m perched on a box with an unreliable WiFi connection and a malfunctioning computer. Relocating disrupts every facet of life, yet I’m resolved to keep my workflow uninterrupted.
This chaos aligns well with the crypto scene. My tally of meetings taken from airports, amusement parks, or other unexpected venues is growing.
In the spirit of “building the airplane as we fly,” I anticipate that Alexei Zamyatin, the creative force behind the BTCFi initiative Build on Bitcoin (BOB), has similarly navigated these challenges. He seems unperturbed as I’m disconnected mid-chat and swiftly reconnect.
A quick tether from my phone, and we’re back at it. I’m eager to delve into one of the most misconstrued topics in crypto: Bitcoin DeFi. What is it, how does it fall short, and does it hold any significance for Bitcoin holders still clutching their keys with steadfast belief?
‘Blockchain, not Bitcoin’, and back again
Alexei entered the Bitcoin world through an unconventional route, “like many did.” With a background in computer science, he began his career at an IT research center in Austria, where his peers were “passionate about privacy and resistance to censorship.” This enthusiasm naturally drew him to Bitcoin.
Captivated by blockchain technology, he soon shifted his focus from Bitcoin to various altcoins and their functionalities. Beyond merely holding Bitcoin, Alexei envisioned numerous possibilities:
“I became genuinely excited about the myriad uses of the technology. So initially, I was more aligned with the blockchain, not Bitcoin perspective.”
He acknowledges that his viewpoint swiftly evolved once he grasped BTC’s true value as an asset, prompting him to explore ways to merge the smart contract capabilities of platforms like Ethereum with Bitcoin as the underlying asset.
He then delved into the realms of merge mining and cross-chain bridges, co-authoring foundational work on Ethereum rollups, eventually leading to the inception of BOB:
“Our mission was to build a platform that serves as an entry point to Bitcoin DeFi, enabling Bitcoin holders to deploy their BTC securely and transparently into the DeFi landscape with just a click.”
Identifying the challenges
However, the world of BTCFi is still developing, and it appears to be lagging behind the flashy realms of Ethereum L2s and dApps. Why is this the case? Alexei candidly states:
“To utilize Bitcoin in DeFi today, you need to wrap it to other chains and choose from over 50 fragmented and often unclear providers.”
Wrapping, bridging, and inherent risks are tough realities, compounded by the users themselves. A recent survey from GoMining reveals that 77% of Bitcoin holders have never engaged with Bitcoin DeFi, and 65% can’t identify a single BTCFi initiative.
Mark Zalan, CEO of GoMining (who embodies old-school banking, having overseen IT for large commercial banks), affirms that it’s not solely Bitcoin users who are navigating these complexities. He remarked:
“Crypto, especially Bitcoin, remains highly complex regarding usability. It still has a long way to go in achieving the intuitive user-centric experience delivered by leading products like Apple. This challenge is not unique to crypto or Bitcoin; it’s a common hurdle for all startups in development.”
Not all users will comply with obstacles
Mark mentions that there will always be early adopters who are technically inclined, product-focused, and capable of “jumping through specific hoops, as early adopters tend to do.” But for broader appeal, BTCFi must meet users where they are. He elaborates:
“The survey highlighted that Bitcoin is at a critical juncture, and the next challenge for wider adoption is making the experience significantly more user-friendly, both conceptually and functionally.”
For Alexei, this presents a two-fold challenge. He admits the user experience is “primarily for experts,” more accessible to those with a technical background. Additionally, the incentives associated with holding Bitcoin also require enhancement.
“Bitcoin lacks native yields… Holding Bitcoin is not the same as possessing Ethereum or Solana, where staking yields more tokens. This results in a different risk profile. Moreover, Bitcoin and DeFi aren’t integrated yet.”
Creating a unique offering
So, what exactly does BOB provide? Alexei asserts it delivers the most straightforward and secure method to earn with Bitcoin. BOB Gateway harnesses the strengths of both Bitcoin and Ethereum, facilitating multi-chain Bitcoin yields and swaps across various chains with a single click.
Users essentially become validators on the network, safeguarded from engaging in harmful activities like double-signing since they can face penalties and have their BTC forfeited.
This fraud-proof, validator-slashing strategy is more than mere technical jargon; it’s a safeguard against potential disasters:
“If you attack the system, your Bitcoin is at risk. In exchange for securing the system and staking your Bitcoin, you earn Bitcoin staking rewards, funded by the fees that BOB generates as a chain.”
And the best part? Unlike many other platforms that compensate users with alternate tokens, rewards here are distributed in BTC, maintaining the native currency’s integrity.
Who needs Bitcoin DeFi anyway?
But is this really aimed at those who acquired Bitcoin merely to hold and observe? Mark recalls numerous discussions at The Bitcoin Conference in Vegas this past May, noting:
“The prevailing sentiment is that it’s still quite convoluted.”
Ouch. If Bitcoin DeFi presents challenges for Bitcoin enthusiasts—who are generally more tech-savvy than the average consumer—what chance do the broader public have?
Alexei responds diplomatically:
“I wouldn’t claim that Bitcoiners aren’t our target audience. It’s crucial to acknowledge the adoption curve and recognize that some individuals are inherently disinterested in financial products. This disinterest isn’t specific to Bitcoin; it’s simply people resistant to financial tools. However, a significant portion of the younger generation is eager for yield. We utilize neobanks and want to guard against inflation.”
He highlights that BTC holders face a similar dilemma. Though Bitcoin is often viewed as a hedge against inflation, merely holding it doesn’t maximize yield:
“If you’re not actively using it, that’s stagnant capital. We’re witnessing a growing demand for Bitcoin yield… People primarily desire something akin to Ethereum, where they can stake their Bitcoin and earn more BTC. This is a direction we’re currently pursuing.”
“The number of bridges and obstacles is overwhelming, and the user experience remains poor. That’s why we created BOB Gateway, enabling users to deploy their Bitcoin into diverse DeFi opportunities seamlessly across 11 chains with a single click.”
BOB Gateway is designed to enhance access, allowing users to connect effortlessly and natively to multiple chains, simplifying challenges associated with existing solutions.
What lies ahead for BTCFi? And where could it falter?
With major chains vying for Bitcoin liquidity, BOB aims to be the “shovel seller” in the forthcoming gold rush. How are initial outcomes looking?
“The system is stable. We’re witnessing significant early engagement. We’re collaborating closely with teams on BNB, Base, Unichain, Avalanche… Additionally, there’s substantial interest from networks we haven’t yet integrated, like Aptos and Solana… Many applications are seeking easier methods to onboard users into their protocols, which I see as a promising first indication.”
Can anything jeopardize Bitcoin DeFi? Alexei acknowledges that “technical risks” persist within open-source protocols but emphasizes that these risks diminish as user engagement and verification increase. Concerning malicious entities? The incentives simply aren’t there:
“If you target the system, you’ll lose your Bitcoin. Conversely, if you choose not to attack, your Bitcoin remains secure. It’s quite simple.”
As Bitcoin DeFi develops and the user base matures, I inquire if any other issues concern him, such as the institutionalization of the sector or entities like Strategy and Metaplanet voraciously acquiring BTC.
While he remains mindful of the risks, he underscores that Bitcoin’s proof-of-work model, unlike proof-of-stake, means greater Bitcoin holdings don’t equate to heightened network control. In that sense, Michael Saylor’s strategy does not represent a significant threat. However, it’s vital to avoid simply reproducing traditional finance on blockchain frameworks.
“Having a substantial portion of the supply grants some influence, and malicious actors will likely attempt to exploit this power. However, ultimately… the network is sufficiently distributed and decentralized that even if MicroStrategy accumulates significant BTC, it won’t compromise the system… The most pressing risk is probably government seizure of funds.”
Concluding thoughts
A clear sentiment emerges, even from founders, that Bitcoin DeFi is still a developing market; less “Apple Store experience” and more command line interface.
The gold rush is underway, but there are numerous challenges ahead: achieving native yield, enhancing user experience, bridging the education divide, and navigating the lurking threat of centralization.
If these issues are addressed, the next wave of Bitcoiners may never settle for mere HODLing again. But for those actively working in the space, that remains a significant “if” for the time being.
