Is BTCFi dead? Analyzing the value reconstruction of its infrastructure era from three perspectives.

Question

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 bring a number of ecosystems to uplift the BTCFi sector, but clearly, things have not gone as hoped. As for whether BTCFi is dead, I think it's too early to make a judgment, and there is a misunderstanding of the evolutionary logic of the BTCFi sector. Below, I will share a few observations:

Its linking of Babylon's market performance after its launch to the prospects of the BTCFi sector shows a clear deviation.

Because Babylon can lock users' BTC assets in the form of script contracts on the Bitcoin mainnet while providing "secure consensus services" on numerous BTC layer 2s, thus obtaining rich returns offered by other extended chains. From the supply side, Babylon's technological innovations are indeed useful, but from the demand side, who will purchase such secure consensus services, and who will provide sustainable returns?

Clearly, from the perspective of the B-end demand for "security consensus" from some large, medium, and small new chains, the prospects for BTCFi are obviously not as expected. However, from the perspective of C-end user demand, every BTC Holder has a continuous need to earn interest on their held BTC. The goal of the BTCFi technical solution is to access trillions of dollars of traditional financial capital. The ultimate goal of this BTCFi narrative is to integrate Bitcoin's unique decentralized consensus with global financial liquidity.

Following this logic, in the post-ETF era, the narrative of BTCFi is just beginning. Where does the notion of it being dead come from?

In fact, the technical solutions surrounding BTCFi have been maturing, from the initial EVM-Compatible to UTXO Stack architecture, then to the zkVM protocol framework, RGB client validation framework, optimistic challenge proof (OCP) architecture, and so on. The technical solutions for BTC once presented a chaotic situation, but on the surface, while appearing scattered and disordered, they are actually evolving and choosing directions naturally according to the market.

The following text focuses on comparing the two technical paths of OP_CAT_ and BitVM2, and believes that BitVM2 has more potential because it does not require changes to the existing BTC script.

OP_CAT path - Logically reasonable but requires changing BTC OpCodes, which is difficult to be accepted by core developers.
BitVM2 + OCP Mechanism - The off-chain computation and interaction are achieved through the OCP challenger mechanism. When a "challenge" occurs, the on-chain protocol will be executed 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 centralized custody models, whereas the combination of BitVM2 and OCP now provides 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's value in Optimistic Rollups was recognized, directly triggering a wave of market ecosystem explosion.

Let the technical solutions continue to evolve and roll in on themselves for the time being, because 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. The truly sustainable BTCFi economic model should be built on the network's use value. When the second-layer network processes transactions and collects fees, and a portion of the revenue is returned to BTC stakers, a value cycle based on actual demand is formed.

This model does not rely on the procurement of external chains, but rather earns profits through its own ecosystem, clearly demonstrating superior sustainability in economic modeling.

Above.

In conclusion, from a different perspective, the prospects of BTCFi will become clear. However, the current track is still in the early stages of infrastructure construction, with technical solutions converging and the Tokenomics economic model being refined, while the door to global financial liquidity access for ETFs has just begun to open.