I didn't expect the topic of "BTCFi is dead" to come so quickly. Indeed, since @babylonlabs_io went live, the market has expected Babylon to invigorate the BTCFi track with its ecosystem, but clearly, things turned out contrary to expectations. As for whether BTCFi is dead, I think it's too early to make a judgment, and there is a misunderstanding of the evolution logic of the BTCFi track. Following the text below, I will share a few observations:
1) Its point linking the market performance after Babylon's launch to the prospects of the BTCFi track is obviously biased.
Because Babylon can lock users' BTC assets in the Bitcoin mainnet in the form of a script contract while being able to provide "security consensus services" on numerous BTC layer 2s, thus obtaining rich rewards offered by other extended chains. From the supply side, Babylon's technological innovation services are indeed useful, but from the demand side, who will procure such security consensus services, and who will provide continuous revenue?
Clearly, from the perspective of the B-end demand for "security consensus" from various new chains, the prospects for BTCFi are obviously not as expected, but from the perspective of C-end user demand, every BTC Holder has a need for continuous income from their held BTC. The goal of the BTCFi technical solution is to connect to tens of 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 talk of it being dead come from?
2) In fact, the technical solutions around BTCFi have been maturing, from the initial EVM-Compatible to UTXO Stack architecture, then to zkVM protocol framework, RGB client verification framework, Optimistic Challenge Proof (OCP) architecture, and so on. The technical solutions of BTC once presented a chaotic situation, but while it seemed superficially fragmented and chaotic, it was actually following the natural evolution and choice direction of the market.
The following text focuses on comparing the OP_CAT_ and BitVM2 technical paths, and believes that BitVM2 is more promising because it does not require changes to the existing BTC script.
1. OP_CAT path - logically reasonable but requires changes to BTC OpCodes, making it difficult for core developers to accept.
2. BitVM2+OCP mechanism - realizes off-chain computation and interaction through the OCP challenger mechanism. When a "challenge" occurs, it executes the on-chain protocol on the Bitcoin mainnet, with Bitcoin layer 1 acting as an arbitrator 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, while now the combination of BitVM2 and OCP has already provided a trustless native secure cross-chain mechanism.
When technologies like BitVM2 that do not require changes to the BTC core code mature, Bitcoin will迎来 its "OP moment", just as Ethereum recognized the value of Optimistic Rollups, directly spawning a wave of market ecosystem explosion.
3) Let's allow technical solutions to constantly evolve and develop, as there is another layer of logic: the biggest challenge facing BTCFi is not technical feasibility but a sustainable Tokenomics economic model.
Currently, many solutions rely on token issuance and incentives, which are clearly unsustainable. A truly sustainable BTCFi economic model should be based on its network's usage value. When the second-layer network processes transactions and collects fees, part of the revenue is returned to BTC stakers, forming a value cycle based on actual demand.
This model does not rely on purchasing from external chains but generates revenue through services within its own ecosystem, which is significantly better in terms of economic model sustainability.
Above.
In summary, looking at it from a different perspective, the prospects for BTCFi will become clear. The track is currently in the early stages of infrastructure construction, the technical solutions are converging, and the Tokenomics economic models are being refined, while the door to global financial liquidity access through ETFs has just opened.
