Is there really a need for the BTC ecosystem and BTCFi? What is the significance of native BTC expansion?

💠 Supply-side perspective: The controversy over increasing the 21 million BTC cap

There has always been a controversy over raising the 21 million BTC cap.

For some friends, the belief is that the 21 million cap is a consensus, and raising the cap would break the scarcity of BTC.

However, if we look at it from the miner's perspective, we can understand the logic behind this controversy.

🔹 The emergence of the controversy: Future miner income may decrease

We all know that BTC halves approximately every four years, meaning that the mining rewards for miners will be halved every four years. With continuous halving, in the future, the BTC mined will decrease.

However, it is likely that the growth of BTC prices will slow down.

Without considering individual miners, let’s look at the entire BTC network. Every four years is a cycle; if BTC's native income is halved and the price of BTC does not double, then the entire BTC network's mining revenue may start to gradually decrease.

As a result, some miners may start to exit mining, and the overall hashing power of the BTC network may decrease, which means that the security of the BTC network may weaken.

This is the logic behind the idea of "increasing the 21 million BTC cap," which is, of course, a controversial idea.

🔹 Breaking the controversy: BTC network transaction fee revenue

Why did the brother say earlier that if BTC's native income is halved and the price of BTC does not double, the entire BTC network's mining revenue may decrease, rather than definitely decrease?

Because BTC mining revenue comes from two parts:

The first part: Newly produced BTC. The second part: BTC network transaction fees.

BTC halving refers to the halving of the first part of the revenue, while the second part of the revenue may increase.

In fact, previously, the brother discussed this topic with @KyleJustKnows.

However, after seeing the data on the second part, that is, BTC network transaction fees, the brother fell silent at that time.

First, let’s look at the daily mining rewards of BTC, where we can see the BTC halving. Currently, the daily mining rewards for BTC are just over 450 BTC.

However, the daily BTC transaction fee revenue is only about 5 BTC. On the other hand, we can see that BTC's current fee revenue is almost no different from 10 years ago.

In December 2017, the daily BTC fee revenue once reached 1000. At that time, the SEC had approved BTC futures, and BTC entered a bull market peak phase. But this was only for a very short time; soon, BTC's fee revenue returned to calm.

This means that after 10 years, even with a significant improvement in BTC's consensus, the launch of BTC futures, the listing of BTC ETFs, and BTC becoming a strategic reserve in the U.S. ... still did not bring more fee revenue to miners by increasing on-chain activity.

However, in 2023-2024, BTC fee revenue has risen to around 400-500 multiple times. This is closely related to the first part of BTC mining revenue, which is newly produced BTC. The increases in BTC fees were due to inscriptions.

In other words, the prosperity of the BTC ecosystem can bring more fee revenue to miners. Although inscriptions are not the most ideal BTC expansion solution.

However, the BTC ecosystem needs BTC expansion and BTC ecology so that miners can earn more in the future without needing to increase the 21 million BTC cap, and more miners can participate in mining control, thereby maintaining and increasing the security of the BTC network.

💠 Demand-side perspective: BTC's Defi ecosystem

From the demand side, does the market need a BTC ecosystem?

In fact, the market has already provided an answer:

On one hand, BTC has properties of gold, currency, and securities. In traditional financial markets, gold, currency, and securities clearly have many derivative financial products.

On the other hand, $WBTC in the Web3 space has also provided an answer.

The market capitalization of $WBTC peaked at over $1.4 billion in 2021, falling alongside BTC prices during the bear market, currently returning to $130.59 million. Of course, the BTC-native $WBTC market cap is decreasing, but this may be due to the growth trend of coinbase's $cbBTC, which has consistently been increasing.

$WBTC is a cross-chain asset of BTC on Ethereum, and since 2019, WBTC's market cap has generally been on the rise. The significance of WBTC on Ethereum is to participate in various Defi ecosystems.

In Uniswap:

Ethereum chain $WBTC's TVL is $170 million, with a daily trading volume of $85.652 million;

On the Arbitrum chain, $WBTC's TVL is $45.449 million, with a daily trading volume of $55.053 million;

On the Unichain chain, wBTC's TVL is $42.913 million, with a daily trading volume of $28.187 million...

There are also many derivative tokens of BTC on Curve, with considerable trading volumes.

In Aave, $WBTC deposits amount to $4.44 billion;

In Makerdao/Spark, users have deposited $WBTC $105.6 million, along with $cbBTC $255 million.

...

So the market needs a BTC ecosystem, at least there is demand for BTCFi.

💠 In conclusion

Returning to the initial question, what is the significance of native BTC expansion?

On one hand, non-native BTC expansion is insufficient to significantly increase mining revenue. Native BTC expansion can provide more revenue for miners, and through incentives for miners, it can enhance the security of the BTC network.

On the other hand, non-native BTC expansion also carries certain uncertainties in terms of decentralization and security for users.

In summary, native BTC expansion technology and ecology are common needs from both the supply side and the demand side.