Bitcoin (BTC) has always been the undisputed king in the changing environment of cryptocurrency; it can be described as a store of value that has no equals in terms of security and acceptance. Nonetheless, its Proof-of-Work (PoW) consensus has traditionally restricted its use in decentralized finance (DeFi), and holders have no opportunity to use their asset to make any yield. The next project is BounceBit, a revolutionary Layer-1 blockchain that will make BTC a productive asset by its unique two-token Proof-of-Stake (PoS) system and an original Liquid Staking Derivative (LSD) unit. BounceBit was able to launch its mainnet in early 2024 and has recently grown its Total Value Locked (TVL) to over $500 million with over 8,000 BTC staked which illustrates good market penetration. This paper discusses Native LSD Module, a BounceBit product which is a game changer to the BTC holders who need other liquidity and yield without sacrificing security.
What is BounceBit?
BounceBit is a blockchain platform based on Bitcoin and is built around closing the gap between the limitations of the BTC chain and the dynamic DeFi ecosystem. Being a PoS Layer-1 network that is compatible with the Ethereum Virtual Machine (EVM) in all aspects, it allows easily executing smart contracts, taking advantage of the liquidity and stability of Bitcoin. As opposed to the classic Ethereum-based restaking systems, BounceBit grants a two-token security design: all validators have to stake the native governance token, BB, and also to stake BBTC (the wrapped Bitcoin offered by BounceBit). This hybrid solution combines BTC deep liquidity and the incentives of BB to establish a superior security system that cannot be attacked easily and that fits the spirit of Bitcoin.
CeFi + DeFi hybrid model is also another distinguishing feature of the platform. It works with regulated custodians such as Mainnet Digital and Ceffu to create compliance and security to enable users to deposit BTC on chains such as Bitcoin, Ethereum (as WBTC), or BNB Chain (as BTCB) to deposit and redeem BBTC in 1:1 ratios. Using this mechanism of Liquid Custody, the assets remain visible on-chain, but allow off-chain yield strategies, including funding rate arbitrage through the MirrorX OTC settlement of Ceffu. BounceBit's mission? To make Bitcoin a participative and income-generating asset in a multi-chain future.
The Native LSD Module: Opening the Box of Staked Assets.
The core of the innovation of BounceBit is its Native LSD Module which is a smart contract system that provides liquid staking on the chain. Traditional staking binds assets putting them at risk of opportunity cost. The solution to this has been provided by BounceBit by the issuance of Liquid Staking Derivatives (LSDs)- tokenized receipts of assets that have been staked which can be traded, lent or utilized in DeFi and receive staking rewards.
Here's how it works:
Deposit and Bridge BTC: This is a bridge of BTC (or analogs such as WBTC/BTCB) to BounceBit through approved bridges where the user receives BBTC as a liquid representation in regulated custody.
Stake with Validators: Holder of tokens of the BBTC entrusts their tokens to the node operators (validators) through the LSD module. The consensus of the network is achieved by validators who are stakeholders of both BB and BBTC.
Give / Receive LSD: Stakers in turn receive stBBTC (in the case of BBTC) or stBB (in the case of BB) vouchers which reflect the value of the underlying asset, which include rewards and penalties. These LSDs are complete fungible and EVM compatible.
Restake or Use: stBBTC may be re-staked to Shared Security Clients (SSCs) such as bridges or oracles to yield extra money, or used as a part of DeFi protocols to farm, lend, or provide liquidity. Unstaking is not hard: redeem on bbscan.io, wait 24 hours and receive your BBTC along with rewards accrued.
This is not a feature, but a part of the PoS engine of BounceBit, in which staked BTC participates in the security of the network, which is rewarded with infrastructure yield, in addition to DeFi and CeFi yield.
Advantages of the Bitcoin Holders.
To all BTC holders who want a break from zero-yield HODLing, the LSD module with BounceBit provides three benefits:
Liquidity With No Lockup: stBBTC will be traded on DEXs on BounceBit, retaining market exposure and receiving staking rewards (usually 4-8% APY node operations, and other variable staking DeFi) benefits.
Layered Yields: Holders combine income of three sources:
- CeFi Yield: Arbitrage base returns (e.g., 2-5% through funding rates).
- Staking Rewards: Network securitization incentives.
- DeFi Opportunities: Restaking, farming, or governance on 10-16% looped strategies of compounds APYs.
Increased Security: The two-token mechanism guarantees that validators possess a skin in the game regarding the stability of BTC that decreases the chances of slashing. Besides, regulated custody reduces the counterparty risks.
The initial users have achieved great results: BounceBit has reached $300 million TVL in several weeks of operations, and the staking in BTC has skyrocketed to reach 260 million. In mid-2024, it raised $6 million in seed capital with massive players such as Blockchain Capital and OKX Ventures proving its Bitcoin DeFi vision.
The LSD Module: How to Get Started.
It is easy to earn your BTC on BounceBit, by doing so:
Bridge Assets: Deposit the following in portal.bouncebit.io using the MultiBit Bridge or zkBridge on Polyhedra: BTC/WBTC/BTCB.
Stake through Portal: Via wallet, pick BBTC, pick a validator and delegate. Receive stBBTC instantly.
Trade on DEXs Trade stBBTC on DEXs, restake to SSCs, or participate in yield farms. Monitor all on bbscan.io.
Unstake When Ready: Start redemption of a 24 hour cooldown, withdraw.
BTC, WBTC, BTCB, and stables such as USDT are all supported, which makes it available to a variety of portfolios. Always DYOR and take into account gas charges in native chain currencies.
Risks and Considerations
No innovation is risk-free. BTC holders: important factors to consider:
Market Volatility: LSDs such as stBBTC are not pegged and move with the prices of BTC.
Criminalizing Risks: Mischievous behaviour of the validators may cut funds staked, but the dual-stake business of BounceBit prevents that.
Custody Dependencies: Regulation notwithstanding, centralized risks are created through dependence on CeFi partners.
Smart Contract Vulnerabilities: Any DeFi requires audits, and BounceBit has been audited several times, but there are still ways to break it.
One must only stake what he/she can risk and keep track of the performance of validators.
Verdict: A New Age of Bitcoin Yield.
The Native LSD Module of BounceBit is not a simple liquid staking or a customization of the existing one but a revolution that transforms Bitcoin into a reserve that moves and gains momentum in the development of DeFi. Combining PoS innovation and CeFi compliance makes it possible to allow holders to can and get multi-layered yields as well as enhance security within the network. With a growing market cap of 1 trillion and more, it is possible to unlock trillions of uninvested dollars with protocols such as BounceBit, creating a more open crypto economy. The portal will be waiting to the BTC maximalist willing to venture into yield farming. The future of HODLing? It is liquid, it is staked and it is just beginning.
