Competition for BTC (re)staking intensifies, and wrapped BTC scrambles to seize WBTC market

Original author: maia, BeWater Research

With the launch of the first phase of the Babylon mainnet a month ago, the launch of BTC LST on Pendle, and the successive launch of various packaged BTCs, market attention has been continuously brought back to BTCFi. The following content will cover the major recent updates on BTC (re)staking and BTC-pegged assets:

BTC (Re)staking:
1. The importance of ecological strategy for BTC LST
2. Pendle is entering BTCFi
3. SatLayer joins the BTC re-staking market competition

BTC Anchored Assets:
1. Coinbase launches cbBTC
2. Multi-chain expansion of WBTC
3. Active expansion of FBTC

1/ Current BTC LST Competition Situation

After Babylon Stage 1 quickly reached the 1,000 BTC cap, the competition among BTC LSTs continued to heat up, and all parties were vying for the staking and interest-earning entrance for BTC and its wrapped assets. In the past 30 days, @Lombard_Finance has achieved rapid growth, reaching the current highest TVL with 5.9k BTC in deposits, surpassing the long-time leader @SolvProtocol.

Lombard has gained a competitive advantage at this stage by reaching a strategic partnership with the top re-staking protocol @symbioticfi, providing its participants with a richer source of re-staking income from the ETH ecosystem and DeFi participation opportunities.

2/ The importance of ecological strategy for BTC LST

In the field of BTC LST, ecological strategy has become a key influencing factor in the current competitive landscape. Unlike ETH LRT, which benefits from the mature DeFi ecosystem of ETH and ETH L2 to support downstream token applications, BTC LST currently faces more complex considerations, including downstream DeFi application scenarios, the development stage of BTC L2, the combination with BTC anchored assets on various chains, and the integration with the re-pledge platform.

At the current stage, the choice of ecological strategy will affect the growth rate and the early market share grab. The specific situation of each BTC LST provider is as follows:

3/ At this stage, @Lombard_Finance is strategically focused on the development of the ETH ecosystem. Through cooperation with @symbioticfi and @Karak_Network, Lombard provides pledgers with rich external rewards outside of @babylonlabs_io. At the same time, $LBTC is the first BTC LST to be supported by the ETH re-staking protocol. In addition, in terms of LST utility, Lombard is actively promoting the leverage of $LBTC on ETH. Important partners include @pendle_fi@GearboxProtocol@zerolendxyz, etc. It is worth noting that with the acceptance of $LBTC deposits by http://Ether.Fi, $LBTC will benefit from all future downstream applications related to $eBTC in the future, further enhancing its competitive advantage.

4/ Unlike Lombard's focused strategy, @SolvProtocol@Bedrock_DeFi are actively expanding multi-chain, and ecological development covers the reception of upstream deposits and the construction of downstream applications. At present, the main liquidity of SolvBTC.BBN and uniBTC is concentrated on the BNB and ETH chains, while also injecting BTC liquidity into other L2s. Solv's strategy worth mentioning is that users are required to deposit SolvBTC to convert to SolvBTC.BBN to participate in Babylon, which will drive market demand for SolvBTC and consolidate Solv as the core business of Decentralized Bitcoin Reserve.

5/ @LorenzoProtocol and @pStakeFinance, supported by @BinanceLabs, will focus on the construction of the BNB chain in the initial launch phase. They have supported receiving $BTCB deposits and minted LST - $stBTC and $yBTC respectively on the BNB chain. Lorenzo's uniqueness lies in the construction of a BTCFi-based yield market, which adopts a structure that separates the liquid principal token (LPT) and the yield accumulation token (YAT), similar to Pendle's model, making the gameplay based on BTC restaking income more flexible.

6/ From another perspective, the different ecological strategies of various BTC LSTs - the acceptance of upstream BTC derivatives and the minting of LST - will affect the liquidity and DeFi adoption of BTC-anchored assets in each ecosystem. As the BTC LST market continues to expand, this trend will become more and more significant, triggering a TVL defense war between chains.

7/ Pendle is entering BTCFi

Recently, Pendle has integrated four BTC LSTs into its points market, including $LBTC, $eBTC, $uniBTC, and $SolvBTC.BBN. The current liquidity and total TVL of each LST on Pendle are shown in the figure. Among them, the actual adoption of $LBTC is higher than the surface value in the LBTC (Corn) pool. Since 37% of $eBTC is backed by $LBTC, Pendle's integration of $eBTC will also indirectly benefit Lombard, giving $LBTC holders more opportunities to optimize their yield strategies.

8/ Except for $eBTC, the other three LSTs are all tied to another important participant, @use_corn. Corn is an emerging ETH L2 with two unique designs: veTokenomics and Hybrid Tokenized Bitcoin. Since Corn's gas token $BTCN will be minted through a hybrid method, the current cooperation also shows the possibility that BTC LST with a trust basis will be accepted for minting $BTCN in the future.

The future integration path may be: Wrap BTC → BTC LST → BTCN → DeFi. This architecture adds another layer of nesting doll leverage to the BTCFi system. Although it enables users to achieve one fish, many fish in more protocols, it also introduces new systemic risks and the possibility that the points system of each protocol will be over-mined and the final benefits will be far less than expected. The release of Corn and Lombard's points can be referred to: https://x.com/PendleIntern/status/1835579019515027549

9/ Point leverage is one of the key scenarios for interest-bearing asset strategies including ETH LRT and BTC LST. As a leader, Pendle's integration of BTC LST will largely drive the wider application trend of the DeFi ecosystem. Currently, @GearboxProtocol has introduced $LBTC in its points market, and @PichiFinance also hinted that BTC LST will be integrated in the near future.

10/ SatLayer joins the BTC re-staking market competition:

@satlayer enters the BTC restaking space as an emerging competitor to @Pell_Network. Both accept BTC LST restaking and use it to provide security for other protocols, similar to what

@eigenlayer

does. As a pioneer in the BTC restaking space, Pell has accumulated $270 million in TVL and has integrated almost all major BTC derivatives across 13 networks. On the other hand, SatLayer is also rapidly expanding its market after announcing a funding round led by @Hack_VC@CastleIslandVC last month.

11/ SatLayer is currently deployed on Ethereum and already supports receiving multiple BTC LSTs including WBTC, FBTC, pumpBTC, SolvBTC.BBN, uniBTC and LBTC, with more integrations expected. As more and more homogenous restaking platforms emerge, the competition for liquidity of BTC and its variants will become more intense. While this provides participants with an extra layer of nesting income opportunities, it also shows signs of oversupply of infrastructure on the supply side of the restaking sector.

12/ Current status of BTC wrapped tokens

Since Justin Sun's involvement in WBTC custody caused a stir, competition in the wrapped BTC market has further intensified. The main competing alternative assets currently include @Binance's $BTCB (supply 65.3k), @MerlinLayer2's $mBTC (supply 22.3k), @TheTNetwork's $tBTC (supply 3.6k), @0xMantle's $FBTC (supply 3k) and the various BTC LST assets mentioned above.

13/ Coinbase launches cbBTC

Coinbase launched $cbBTC, a wrapped asset supported by its custody, last week, with a current supply of 2.7k. $cbBTC is deployed on Base and Ethereum networks, and has been supported by multiple mainstream DeFi protocols including @0xfluid, and plans to expand to more chains in the future. In addition, BTC LST @Pumpbtcxyz and @SolvProtocol quickly expressed their intention to cooperate with Base after $cbBTC went online, demonstrating the development potential of $cbBTC in BTCFi.

14/ Multi-chain expansion of WBTC

Despite concerns about security, $WBTC still occupies more than 60% of the wrapped BTC market. @BitGo recently announced that it will deploy $WBTC on Avalanche and BNB chains, and through @LayerZero_Core's full-chain fungible token (OFT) standard, it aims to consolidate its market position with the help of multi-chain expansion.

However, WBTC's adoption rate continues to decline. As leading DeFi protocols such as @aave and @SkyEcosystem begin to remove WBTC as collateral, this trend will affect the attitude of more DeFi protocols towards WBTC.

15/ FBTC's Active Expansion

$FBTC, managed by Mantle, Antalpha and Cobo, has been deployed on Ethereum, Mantle and BNB chains. Through the "Sparkle Campaign", @FBTC_official is actively promoting the wider adoption of $FBTC in the BTCFi field. In the BTC (re)staking field, $FBTC has been adopted by Solv, BedRock, PumpBTC and Pell, providing Sparks points incentives for early adopters.

16/ Currently, various wrapped BTC assets are actively striving to be integrated by major DeFi protocols and accepted by a wide range of users in order to compete for the market position of the next $WBTC. In addition to the existing wrapped BTC assets, new participants such as @ton_blockchain's $tgBTC and @Stacks' $sBTC will soon join the competition.

17/ In the current trend of BTCFi's continued growth, BTC (re)staking and BTC anchored assets are two key sectors that deserve continued attention.

In the field of BTC (re)staking, there is currently a trend of over-construction and involution on the supply side, while the market volume on the demand side is still unknown. In the current early competition landscape, differentiated ecological strategies and unique downstream gameplay have become key influencing factors for the competition among various BTC LSTs. On the other hand, the trend of various BTC anchored assets nesting with each other also introduces new systemic risks, and there is a possibility that each protocol will be over-mined and ultimately gain little.

For each BTC anchored asset, trust is still a key issue. Exchanges, L2 and BTC LST are actively developing their own BTC anchored assets through different plans, striving to be accepted by mainstream DeFi protocols and a wide range of users, so as to quickly occupy the market lost by WBTC.

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