Welcome to Slate Sunday, CryptoSlate’s curated weekly collection. Each week, we deliver insightful interviews, expert viewpoints, and compelling analyses that delve into the core ideas and leading voices shaping the future of cryptocurrency.
Currently, I’m precariously perched on a box battling a flaky internet connection and a temperamental laptop. Moving is chaotic, disrupting everything, yet I’m determined to keep my workflow going.
It almost mirrors the crypto world. I’ve joined meetings everywhere, from airports to amusement parks.
In the spirit of continuous development, I anticipate that Alexei Zamyatin, the driving force behind the Build on Bitcoin (BOB) project aiming to bring DeFi to Bitcoin, has experienced similar situations. He doesn’t seem bothered when our call drops midway and requires reconnection.
A quick hotspot from my phone gets us back online. I’m eager to discuss one of crypto’s most misunderstood concepts: Bitcoin DeFi. What exactly is it? What are its shortcomings? And is it even relevant to Bitcoin holders who steadfastly hold onto their digital assets?
From ‘Blockchain, Not Bitcoin’ and Back Again
Alexei’s journey into Bitcoin started indirectly, “like it did for many.” With a computer science background, he started at an IT research center in Austria, where colleagues were passionate about privacy and censorship resistance. This interest naturally led to Bitcoin.
Initially captivated by blockchain technology, he diverted his attention from Bitcoin toward alternative cryptocurrencies and their capabilities. Beyond simply storing and holding, Alexei envisioned numerous possibilities:
“I was excited by the tech’s potential, so I initially leaned toward the blockchain-focused camp, rather than being solely Bitcoin-centric.”
He acknowledges that his perspective changed once he grasped Bitcoin’s true value as an asset. He then pursued combining smart contract platform technology like Ethereum with Bitcoin as the underlying asset.
Alexei explored merge mining and cross-chain bridge concepts, contributing to early work on Ethereum rollups before launching BOB:
“Our aim was to create a platform serving as a gateway to Bitcoin DeFi. This allows Bitcoin holders to seamlessly and securely deploy their BTC into the DeFi space and access diverse opportunities with ease.”
Identifying the Challenges
The BTCFi landscape remains nascent, progressing slower compared to the thriving Ethereum Layer-2 solutions and decentralized applications (dApps). Why the lag? Alexei offers an honest assessment:
“Using Bitcoin in DeFi today involves wrapping it to other blockchains, choosing from over 50 different, often non-transparent providers.”
Wrapping, bridging, and managing risk pose significant hurdles, and then there are the users themselves. A recent GoMining survey revealed that 77% of Bitcoin owners have never engaged with Bitcoin DeFi, and 65% are unable to name a single BTCFi initiative.
GoMining’s CEO, Mark Zalan, a veteran of traditional banking, confirms that this isn’t just Bitcoin users struggling. He stated:
“Crypto generally, and Bitcoin particularly, still suffer from usability problems. They’re far from the intuitive, user-centric experience found in top products from companies like Apple. This isn’t unique to crypto; it’s a challenge for any developing startup.”
Meeting Users Where They Are
Mark notes that initial adopters tend to be technically inclined, focused on the technology, and accepting of certain hurdles, because “that’s what early adopters do.” To reach a wider audience, BTCFi must be more accessible.
“Our survey highlighted that we’re at a key point with Bitcoin. The next wave of adoption depends on making it far more user-friendly in terms of both its concepts and ease of use.”
For Alexei, the challenge is two-fold. He admits that the user experience is primarily tailored for experts, often requiring a computer science background. Furthermore, the incentives for holding Bitcoin need improvement.
“Bitcoin doesn’t have built-in rewards… It’s different from holding or staking Ethereum or Solana to earn more of the same token. This significantly changes the risk profile. The other issue is that Bitcoin DeFi isn’t yet fully integrated.”
Building a Better System
So, what makes BOB different? Alexei asserts that it provides the safest, easiest way to generate returns with Bitcoin. BOB Gateway leverages the best of both Bitcoin and Ethereum, enabling multi-chain Bitcoin yield and swaps on any chain with a single action.
Users become validators on the network, and they are discouraged from harmful activity (like double-signing) due to the risk of slashing and BTC removal.
This validator-slashing approach is a safeguard against the worst-case scenario:
“Attacking the system will result in losing your Bitcoin. But in return for securing the system and staking your Bitcoin, you’ll earn Bitcoin staking rewards, paid from BOB’s chain fees.”
Importantly, unlike some services offering rewards in alternative tokens, the rewards are native and paid in BTC.
Does Bitcoin DeFi Have a Place?
Is this concept appealing to those who primarily hold Bitcoin? Mark referenced conversations at The Bitcoin Conference in May:
“The prevailing sentiment was that it’s still too complicated.”
If Bitcoin DeFi is complicated for Bitcoiners, who generally possess higher technical expertise than the average user, is there any hope for broader adoption?
Alexei offers a balanced perspective:
“I wouldn’t say Bitcoiners aren’t our customers. Adoption happens over time, and some are simply against financial products. That’s independent of Bitcoin. The majority, especially younger people, are eager for yield. We use neobanks, and we want protection against inflation.”
He argues that the same situation applies to BTC holders. While Bitcoin is viewed as an inflation hedge, it doesn’t maximize returns if left idle:
“Untapped capital produces nothing, and there’s increasing demand for yield on Bitcoin. People want something like Ethereum, where you stake your Bitcoin and earn more BTC. That’s what we’re developing.”
“So many bridges and hurdles exist, and the user experience is often terrible. That’s why we created BOB Gateway, which simplifies deploying your Bitcoin across these 11 chains.”
BOB Gateway improves access, enabling users to connect seamlessly and natively to multiple chains to stake BTC, resolving some of the pain points of existing solutions.
The Future of BTCFi
With Bitcoin liquidity being pursued, BOB aims to be the “shovel seller” in the next rush. What have the results been?
“The system is stable, and we’re seeing early traction. We’re in close contact with teams on BNB, Base, Unichain, Avalanche… And we’re seeing significant interest from networks like Aptos and Solana, as many apps are seeking easier ways to onboard users into their protocols. This is a positive indication.”
What could go wrong with Bitcoin DeFi? Alexei acknowledges the “technical risk” involved with open-source protocols, but states risk declines as usage and verification increase. What about harmful actors? There’s no incentive:
“Attacking the system means losing your Bitcoin. Otherwise, your Bitcoin stays safe. It’s straightforward.”
As Bitcoin DeFi expands, I ask Alexei if other concerns, like institutionalization and entities consuming large amounts of BTC, worry him.
He emphasizes that Bitcoin’s proof-of-work system, unlike proof-of-stake, prevents owning more Bitcoin from granting more network control. Therefore, Michael Saylor’s accumulation isn’t a threat. However, we need to avoid recreating traditional finance on blockchain.
“Owning a large portion of the supply gives some influence, and bad actors might try to use that influence. However, the network is sufficiently distributed that MicroStrategy acquiring BTC won’t break the system. The greatest risk is government seizure.”
Concluding Thoughts
It’s clear, even from founders, that Bitcoin DeFi is an evolving market – not like the Apple Store experience yet.
The gold rush is underway, but several problems still exist: yield, user experience, education, and centralization.
If these problems are addressed, the next wave of Bitcoin users might not settle for simply holding. But resolving these challenges is a big “if” for now.