Technical interpretation of bitSmiley: Why is the BTCFi market so popular?

Author: HAOTIAN

I saw that @bitsmiley_labs received another $10M in new financing to accelerate its vision of landing a new stablecoin bitUSD on Bitcoin. So, what exactly does this BTCFi stablecoin project, affectionately called "Smiley Face", want to do? What about its core technical framework? Why is the BTCFi market so popular in the market? Next, let me talk about my views:

1) Ethereum DeFi ecosystem originated from MakerDAO's DAI algorithmic stablecoin, and eventually fermented from the governance incentives of the Compound lending platform, igniting a wave of DeFi summer. In order to seize the first-mover advantage in the BTCFi market, bitSmiley combined DeFi infrastructure such as MakerDAO (DAI) and Compound (Lending) and launched three major components:

1. bitUSD: an over-collateralized stablecoin protocol, benchmarked against DAI, users can deposit Bitcoin into the bitSmiley Treasury to mint bitUSD; the bitRC20 standard is adopted to maintain high transparency, and the native cross-chain bridge is cooperated with ZetaChain to ensure the circulation of the whole chain environment;

2. bitLending: a native trustless lending protocol, which adopts peer-to-peer atomic exchange technology to achieve transaction matching, and introduces an insurance system to optimize the deficiencies of the liquidation process of traditional lending;

3. Credit Default Swaps (CDS): an innovative derivative protocol that integrates NFT cutting CDS and uses the method of aggregate bidding to improve the efficiency and fairness of the CDS market.

2) The specific product components can only be evaluated after further experience. I will mainly talk about two core technical points:

1. Native cross-chain cooperation with @zetablockchain: ZetaChain is a POS blockchain built on Cosmos SDK and Tendermint PBFT consensus engine, which provides a series of interoperability operations by embedding a specific chain in the full-chain environment. Since Bitcoin does not have smart contracts, light nodes can be deployed and multi-party signature operations can be performed based on the ECDSA signature algorithm. ZetaChain only needs to effectively track and manage UTXO on Bitcoin to achieve secure cross-chain.

In addition, since ZetaChain is an Ominichain smart contract for the full-chain environment, after solving the cross-chain problem between the Bitcoin network, in theory, it can use its full-chain circulation environment to achieve transparent management of full-chain assets.

2. The bitRC20 standard looks like the BRC20 inscription standard. Yes, bitUSD borrowed the asset paradigm of inscriptions, which issues assets on the Bitcoin mainnet. When users want to over-collateralize BTC, they can first bridge assets to the bitSmiley official bridge. After the bitSmiley layer2 chain determines the user's collateral assets and performs consensus verification, it will transmit the information of minting bitUSD to the Bitcoin main network.

Since the traditional BRC20 inscription casting requires the total amount of deployment to be preset in advance, bitRC20 has added Mint and Burn operations for stablecoin scenarios to meet the needs of stablecoins to dynamically adjust the supply. This is actually the meaning of the indexer indexer. This flexible inscription issuance method is easier to get practical application and empowerment of the project.

The above.

In the end, it is not difficult to see why mainstream capital is rushing into BTCFi, and DeFi infrastructure providers like bitSmiley are also rushing to layout.

On the one hand, everyone is eyeing the huge asset growth space in the BTCFi market. Based on the current total BTC network lock-up of $1.6 billion, it only accounts for 0.14% of the total BTC market value. Compared with the lock-up rate of network assets such as ETH and Solana, there is still 50-100 times of growth space. Its source of funds is not limited to the chain, and there is also a huge off-chain demand behind the BTC+ETH ETF fund;

On the other hand, I think that after mastering the strategic positioning of the landing applications of stablecoins, lending, derivatives, etc. of core BTC assets, its application scenarios will radiate the entire chain environment, and will have the effect of revitalizing and leading innovation for the DeFi model and users of the entire chain environment.