Is it meaningful and necessary to realize staking mining through BTC?

Author: Pioneer of the Web3 World 

The protocol pledges BTC to realize the issuance of protocol tokens, and the pledgers can get protocol tokens in return. But this is just a distribution method. What assets are pledged has no direct relationship with the protocol tokens, and the protocol tokens have not been empowered by BTC.

Participated in an online discussion about a BTC pledge protocol under development.

According to the introduction, the protocol is based on the implementation principle of UTXO, using OP_RETURN re-marking, check lock time verification (OP_CLTV) and partially signed BTC transactions (PSBT) and other technologies to realize the local pledge of BTC assets to realize the asset issuance of protocol tokens.

After listening to the introduction, I sorted out my own views and the aspects that are easier to understand are:

1. Security: This is local staking. Although the assets are constrained by staking for a certain period of time, the control of the assets is still in the hands of the users.

2. Adaptability: Since it is based on UTXO implementation, the pledged assets can be applied to all UTXO-based asset protocols, such as interoperability and asset staking with Ordinals, ARC20, RUNES, RGB++ and other protocol assets.

From the functions introduced, the main thing is to issue protocol tokens through staking, and the protocol can become a Lanchpad for other assets.

A few opinions on this:

1. Asset relevance: There is actually no direct correlation between the pledged assets and the assets to be issued. It seems that the issuance of protocol tokens is achieved by staking assets such as BTC, but the protocol tokens have nothing to do with the pledged assets. This is the same as staking various assets on Merlin SEAL for $Merl distribution.

2. Means and ends: Staking is a means, and the purpose is to gather various asset communities to enhance the consensus of issuing assets. Once you participate in staking, your butt will determine your head, and it is easier to reach a consensus.

3. What does TVL mean? To a certain extent, the pledged TVL can reflect the strength of consensus. In this sense, the parties to the agreement have the motivation to take various marketing measures to expand the types of pledged assets and increase TVL; the more types of pledged assets and the higher the TVL, the stronger the consensus. This requires the operation and resource integration capabilities of the protocol parties.

But in essence, TVL neither reflects the market value of tokens nor forms token liquidity, and cannot reflect or form the true value of tokens.

4. Fairness and decentralization: The distribution of protocol tokens through staking seems fair and decentralized, but the result of token distribution may not be reasonable and decentralized. Financial strength determines the number of tokens obtained, so a few people may obtain a large number of tokens, exacerbating token concentration.

5. Programmable and combinable DeFi capabilities: Because it is a local pledge, the assets issued are also based on UTXO. Both pledged assets and protocol assets lack programmability and scalability, making it difficult to expand and combine DeFi capabilities. How to empower tokens? At present, it is not known what the protocol parties consider in this regard.

6. Deviation between asset issuance, liquidity and token value: For this crypto cycle, BTC ecosystem issuance is an important narrative, but at present, after the issuance of assets such as BRC2O, ARC2O, and RUNES, people are increasingly aware that an innovative asset category will bring a wave of enthusiasm, but how to have continuous liquidity to give long-term consensus and value to tokens is a daunting challenge.

This problem has not been solved. In fact, overall, the marginal benefits of asset issuance are decreasing, that is, everyone's enthusiasm for chasing the newly issued assets will soon fade. For example, RUNES assets, although long-awaited, became popular for two or three days after they went online.

7. Returns for Pledgers: In terms of returns, the pledge method of this protocol, although it is also a local pledge of high-quality BTC assets, is different from Babylon's BTC pledge. In Babylon, BTC enhances the security of various POS chains, so that continuous returns provided by POS chains can be obtained.

This protocol pledges BTC to realize the issuance of protocol tokens, and pledgers can obtain protocol token returns. But this is just a distribution method. What assets are pledged has no direct relationship with the protocol tokens, and the protocol tokens have not been empowered by BTC.

In other words, the returns of pledgers are actually full of uncertainty. In the short term, it is related to the income from staking mining, and in the medium and long term, it depends on whether the protocol tokens have other continuous empowerment methods such as consensus, liquidity, and value capture.

If not, then the ability to activate idle BTC is limited, and the ability to attract other BTC ecological assets will also be limited.

In other words, if the protocol mechanism cannot be opened up and automatic vitality is formed, it will have to rely on off-chain operations to complete it, which becomes a "hard labor" job.

But then again, since the protocol party mainly introduced the narrative of "staking mining" during the discussion, the above analysis is also based on this, and the analysis may be one-sided or incorrect.

Perhaps others have more in-depth and comprehensive considerations, then we will talk about it, and make a record here first.