Deep Dive into the Bitcoin Landscape: Does BTC Need Liquid Staking to Improve Capital Efficiency?

Original author: Mikhil Pandey

Original compilation: Deep Tide TechFlow

Reading guide

This article is the result of a book written by Mikhil Pandey, co-founder and chief strategy officer of Persistence Labs, on “Diving down the XTZ hole of today’s Bitcoin landscape.”

Through this article, Mikhil Pandey tries to lead everyone through the role of Bitcoin in Crypto Assets, the current Bitcoin landscape, the role of BTC liquid staking, and where he thinks it is next.

Learn about Bitcoin

Bitcoin is the largest peer-to-peer Payment Network in store of value, the world’s remittance system, digital gold, TradFi Hedging tool, and the first PoW Blockchain in history.

What exactly is Bitcoin? Which of the above describes Bitcoin? In short, I think all of them, and longest more.

Bitcoin is a layer 1 blockchain originally designed for trustless and transparent flow of coin value, and its idea emerged during the 2008 global financial crisis.

The native digital asset BTC that drives this network has evolved from one of the most daring financial experiments of our time to the largest Crypto Assets.

Today, Bitcoin, both the network and the asset, has become a paradise of finance, mechanism design and hope.

• The Satoshi people are pushing Bitcoin toward a more useful, capital-efficient, and Programmability future
• The world’s largest institutions are offering BTC ETF to provide exposure to the general public
• A new generation of builders is finding unique ways to take advantage of Bitcoin Block short, including Ordinals, NFT, BRC-20, Runes, stake, and more
• Bitcoin network activity is at an all-time high and generating longer value (fees) for Miners than ever before

Bitcoin has something for everyone. The best thing about it is that the various perceptions of BTC are a feature, not a flaw.

Two pillars built on Bitcoin

For the public, Bitcoin is gradually transitioning from a “network” to an “ecosystem”. Recently, the ecosystem built on top of Bitcoin has seen exponential rise.

But it’s not uncommon, in addition to network improvements from the community, longer stakeholders have tried to build on top of Bitcoin. In fact, it was part of Satoshi Nakamoto’s vision.

Satoshi Nakamoto once said, “This design supports every possible type of transaction that I devised a few years ago.” Secured transactions, margin contracts, third-party arbitration, longer signatures, etc. These are all things we want to explore in the future if Bitcoin is popular, but they all have to be designed at the beginning to ensure they are possible later. ”

Since 2012, there have been constant attempts to expand Bitcoin to a wider range of uses beyond payments:

• Decentralization Domain Name Service (Namecoin)
• Broader representation of assets (Colored Coins, MasterCoin, Counterparty)
• Scale the Bitcoin network with sidechains, Rollups, and L2 (Taproot, Stacks, Liquid Network, Merlin, Urbit, Lightning, bitVM, etc.)
• Expand BTC functionality (Memes, NFTs, BRC-20, BRC-420) and yield (Babylon, BounceBit, Stroom Network, Trustless Machines, etc.) with Ordinals and Runes

But where do these developments lead Bitcoin? Portal Ventures’ article on Bitcoin perspectives best sums it up:

Make Bitcoin more Programmable, address smart contracts and scaling limitations to deploy on the Bitcoin network Make BTC more capital efficient, super financialization built with BTC

Where is BTC liquid staking available for?

Bitcoin is a network of PoW that Miner contribute computing power to solve mathematical puzzles in Block production and be rewarded with new Bitcoin.

So, how does staking appear in the market, let alone liquid staking? Let’s understand some of the basics of blockchain.

Consensus involves continuous agreement on the state of the network (data, transactions, balances, etc.). While PoW relies on computing power (mining) to achieve and maintain network Consensus, PoS includes the concept of security assurance. Staking involves locking Tokens to participate in Consensus, contribute to overall network security, and earn stake rewards.

Margin is usually set up to guarantee good behavior when we need to trust that other people/counterparties can behave well. A typical example is when a landlord collects a margin from a tenant.

In short, PoS is driven by trust in the economic security of an asset. What could be better than an asset with billions of dollars of economic trust? and what could be better about Bitcoin?

By “locking” BTC, its economic security can be exported to almost any encryption application. Imagine a world where financial applications, including blockchains of all shapes and sizes, can leverage BTC to add dynamism and security to every application.

Trustless BTC stake (and therefore liquid stake) opens up the potential for BTC-led Decentralized Finance to thrive, making BTC more capital-efficient. Coin market, stablecoins, economic security, insurance, etc. Apps are unlimited.

What is the future of Bitcoin?

One could argue whether BTC is already capital efficient in terms of pumping market capitalization, adoption, and premier store of value status in Crypto Assets?

This begs the question: what exactly is capital efficiency, which Wall Street defines as “how effectively a company uses money to operate and grow.” Against this backdrop, BTC is largely idle most of the time with retail holders, miners, and institutions.

This can be attributed to longest factors:

• Lack of sustainable revenue opportunities
• Friction of risk-averse holders “moving” BTC
• Lack of institution-friendly revenue products
• Unknown security risks of moving BTC out of the Bitcoin network
• Opposition from some OG Bitcoin holders

Recently, the entire industry has struggled to address the various hurdles mentioned above faced by BTC in order to unlock its liquidity and capital efficiency in the encryption world.

While Bitcoin community may seem a bit divided (which is always the best), keep an eye on important developments in Bitcoin ecosystems like Bitcoin L2, L&L BTC stake, Ordinals and Runes, VMs, and more.

BTC liquid staking is more than just a statement. It comes and may determine the yield of Crypto Assets. With simple BTC-led financial products expected to bring much-needed liquidity and utility to today’s Decentralized Finance landscape, the future of Bitcoin has never been more exciting.

We have already seen the exponential rise of Ethereum liquidity stake and the subsequent boom in the on-chain financial sector. When the same thing happens to the assets that first created the “encryption” asset class, one can only imagine the possibilities and the doors that opened.

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