BTCFi's Future: Analyzing Market Misconceptions and Technological Evolution

According to PANews, recent discussions about the demise of BTCFi appear premature. The launch of Babylon was anticipated to invigorate the BTCFi sector, but expectations have not been met. However, it is too early to declare BTCFi dead, as there may be misunderstandings about its evolution. Linking Babylon's market performance directly to BTCFi's future is misleading. Babylon allows users to lock BTC assets on the Bitcoin mainnet while providing 'security consensus services' across various BTC layer-2 networks. While Babylon's technical innovations are beneficial, the demand for these services remains uncertain. From a B2B perspective, the demand for 'security consensus' is not as high as expected. However, individual BTC holders have a need for continuous returns on their holdings. BTCFi aims to integrate Bitcoin's decentralized consensus with global financial liquidity, targeting trillions in traditional financial capital. Thus, the narrative of BTCFi is just beginning, especially in the post-ETF era. BTCFi's technical solutions are maturing, evolving from EVM-Compatible architectures to UTXO Stack, zkVM protocols, RGB client verification frameworks, and Optimistic Challenge Proof (OCP) architectures. Although these solutions appear chaotic, they are naturally evolving with market demands. The article compares two technical paths: OP_CAT and BitVM2, suggesting BitVM2 has more potential as it doesn't require changes to Bitcoin's existing scripts. The OP_CAT path is logically sound but requires changes to BTC OpCodes, which may face resistance from core developers. In contrast, BitVM2 combined with OCP mechanisms enables off-chain computation and interaction, executing on-chain protocols on the Bitcoin mainnet when challenges arise. This approach ensures security without altering Bitcoin's core code, potentially leading to a significant market impact similar to Ethereum's Optimistic Rollups. BTCFi's biggest challenge is not technical feasibility but a sustainable tokenomics model. Many current solutions rely on token issuance and incentives, which are unsustainable. A viable BTCFi economic model should be based on network usage value. When layer-2 networks process transactions and share fees with BTC stakers, a value cycle based on actual demand is created. This model does not depend on external chain procurement but generates revenue through its ecosystem, offering better sustainability. In conclusion, BTCFi's future is promising when viewed from a different perspective. The sector is in its early infrastructure-building phase, with technical solutions converging and tokenomics models improving. The door to global financial liquidity through ETFs is just opening.