When competition within the BTC ecosystem becomes intense, projects seeking liquidity and yield externally become more worthy of attention.

Cryptocurrency investment is an art that follows the flow of funds, with alpha clues often hidden in first-round financing dynamics. Research indicates that in the first quarter of this year, the most concentrated financing projects were within the BTC ecosystem. For instance, Bitcoin staking protocol Babylon secured $70 million in funding, reflecting the optimism of venture capitalists toward this market hotspot.

However, within the BTC ecosystem, Bitcoin’s scalability and capital efficiency still need improvement. For example, Bitcoin’s share in DeFi has always been low, especially compared to its massive market capitalization.

But if you think differently and consider how other ecosystems can benefit from the BTC ecosystem’s popularity and how BTC’s value can spill over, the situation changes significantly. Capital is always fluid. Currently, the BTC ecosystem attracts liquidity, but assets rarely flow outward.

There are still many active users in other ecosystems. Is there a way to extend BTC’s asset yields and capital efficiency to these other ecosystems? Moreover, with long-term bullish expectations for BTC and miners holding onto their coins, there is always an opportunity cost of having funds on hand, creating a need for more yield-generating options.

Therefore, when competition within the BTC ecosystem intensifies, projects that seek liquidity and yield externally become more notable. Recently launched FBTC is such a project. It allows your assets to participate in various Bitcoin yield sources through FBTC, which is pegged 1:1 to BTC, regardless of the blockchain they are on.

This has also led to the emergence of a new concept—Omnichain BTC. Amid the continuous growth in Bitcoin’s value and the introduction of various innovative Bitcoin yield sources, this new concept holds additional opportunities.

Additionally, the project is supported by leading infrastructure and technology platforms such as Mantle and Antalpha Prime.

Does a Full-Chain Bitcoin asset like FBTC have market competitiveness? What potential yields should we pay attention to?

wBTC, The Maximum Solution, Not the Optimal Solution

Why should we focus on synthetic assets like FBTC? First, let’s examine the current situation of BTC assets outside the Bitcoin ecosystem.

From the core logic of “assets needing to flow outward,” you’ll find that the most prominent example of BTC flowing outward is wBTC (Wrapped BTC), an ERC-20 token on the Ethereum blockchain, pegged 1:1 to BTC. However, recently, wBTC has been at the center of attention due to a trust crisis. The company behind wBTC, BitGO, announced it would relinquish control of wBTC, sparking discussions about the security of wBTC’s control in the future.

Beyond this controversy, wBTC’s performance in the Ethereum ecosystem, known for its diverse asset types and mature DeFi use cases, has also been less than stellar.

Public data shows that, despite wBTC’s leading position in both absolute asset amounts and market share compared to similar BTC synthetic assets on Ethereum, its overall performance remains unsatisfactory.

But this does not mean that wBTC is leading in terms of user experience, mechanisms, and yields.

Firstly, wBTC has poor on-chain liquidity, and its trading volume and depth on centralized exchanges are relatively low. Beyond the ownership controversy, the main concern is wBTC’s low asset yield, such as its inability to support Bitcoin yield scenarios in the Babylon ecosystem and CeDeFi products.

As shown in the chart below, wBTC significantly lags in yield returns compared to various crypto assets. For example, on platforms like Compound and AAVE, wBTC offers only a 0.01% - 0.08% return.

Clearly, for synthetic BTC assets, wBTC is currently the maximum solution but not the optimal one.

Whether for Ethereum or other ecosystems, capital utilization never sleeps. The market always demands better solutions that challenge wBTC, with improvements needed in the following areas:

• Better Asset Yields: Providing more income-generating opportunities.
• Enhanced Capital Efficiency and Liquidity:* Minimizing friction during synthetic BTC movement and ideally establishing connections with more blockchains.
• Increased Trustlessness: Ensuring greater security during synthetic BTC issuance.

Additionally, in the BTC-related ecosystem, the Total Value Locked (TVL) only accounts for 4% of the BTC token market size, compared to 75% of the TVL in the ETH ecosystem, where the ETH token market size is much lower.

More ERC20 synthetic BTC assets face significant opportunities. This is the fundamental logic behind the existence of FBTC.

FBTC, the pioneer of full-chain BTC synthetic assets

If we were to define FBTC, it is a new type of synthetic asset that is pegged 1:1 to BTC and supports omnichain BTC circulation.

Currently, FBTC will initially run on Ethereum, Mantle, and BNB Chain, with plans to expand to more networks in the future.

What does it mean to be pegged 1:1 to BTC? Simply put, when you deposit BTC into a fixed address, FBTC (for example, in ERC20 format) is generated 1:1 on any chain of your choice. You can then use FBTC to earn yields in various DeFi scenarios.

In summary, the key advantages of FBTC are:

• Multi-Party Custody: FBTC will utilize multiple MPC (Multi-Party Computation) custody providers.
• Technical and Organizational Assurance: FBTC’s minting, burning, and cross-chain bridging are managed by a TSS (Threshold Signature Scheme) network run by the FBTC Security Committee and security firms.
• Reserve Transparency: FBTC’s reserve proofs can be queried in real-time and are monitored and verified by security companies.
• Utilization of Locked FBTC: Locked FBTC can be directed to use the underlying BTC as collateral or participate in Babylon staking.
• Audience Trust: Built by well-known entities in the blockchain ecosystem and Bitcoin financial institutions with long-term presence, gaining trust from numerous miners and builders.
• Governance Tokens as Incentives.

To understand FBTC’s product design and operation, you don’t need to delve into complex technical details. Instead, consider three key questions:

Where do you deposit BTC? Where does BTC go? Who ensures the deposit and withdrawal process?

FBTC’s design addresses these questions as follows:

• BTC Chain Custody Address: This is where BTC is deposited.

To use FBTC, the system first generates a Bitcoin network deposit address for each qualified user. These addresses are controlled by MPC (Multi-Party Computation) multi-signature nodes (specific security design of these nodes will be explained later). After a qualified user deposits Bitcoin into their address, FBTC is issued to the corresponding qualified user on the target chain. Therefore, the total amount of Bitcoin locked in the MPC-controlled addresses will match the total supply of FBTC on the target chain; in other words, one BTC deposited results in one BTC locked and one FBTC generated.

• Target Chain Smart Contract: This facilitates the generation and mapping of BTC across various ecosystems.

How is the BTC deposited into the deposit address distributed to the target chain?

This involves a bridging smart contract that manages assets for qualified users and handles the cross-chain issuance of FBTC. Essentially, you can think of it as a pre-written smart contract designed to handle the supply and transfer of the related synthetic asset tokens.

• Off-Chain Module: Ensures that the deposit and issuance processes run smoothly.

With BTC entering the system and contracts issuing synthetic assets to the target chain, various roles are crucial for the process. In the FBTC system, modules such as bridge monitors, TSS gateways, TSS nodes, and risk control each play their part to ensure the entire process from BTC to FBTC (and vice versa) operates smoothly.

For example, bridge monitors track on-chain events in real-time, such as new minting, burning, and cross-chain requests. TSS gateways coordinate the signing process to ensure transactions are completed successfully. TSS nodes use a distributed signing mechanism, with each node running independent risk control modules to mitigate overall asset risk.

What’s more important than the technology is the design and arrangement of the various roles involved. In the process described, the assets deposited in the MPC addresses are actually managed by custodians, with key shares held by multiple trusted institutions. FBTC issuance is carried out in a decentralized manner under limited risk control.

Moreover, not all users have the right to mint FBTC. The term “qualified users” refers to entities, institutions, and merchants that meet certain criteria and are authorized to mint FBTC. This functions more like a delegation mechanism, where merchants mint FBTC, and users can then subscribe to it rather than mint it directly.

Currently, the FBTC website provides an entry point where users can swap FBTC through different DeFi protocols. However, the amount of circulating FBTC depends on the minting activities of the qualified users.

This resembles a pragmatic alliance system, where highly trusted institutions initially form an alliance to ensure the smooth operation and security of the product in its early stages. Subsequently, the system gradually evolves towards full decentralization.

An example to quickly understand FBTC minting and destruction

If the roles and technical design still seem abstract, let’s look at a specific example of how FBTC is minted and burned.

Suppose Alice wants to mint 1 FBTC on Ethereum from her 1 BTC. Here’s how it works:

1. Transfer Initiation: Alice transfers 1 BTC to the MPC custody address provided by the FBTC system.
2. Minting Request: Alice interacts with the FBTC bridging contract on Ethereum to initiate a request to mint 1 FBTC.
3. Request Monitoring: The bridge monitor detects and monitors Alice’s minting request and the 1 BTC deposit transaction in real time.
4. Request Forwarding: The bridge monitor sends Alice’s minting request to the TSS gateway.
5. Transaction Signing: The TSS gateway coordinates multiple TSS nodes to sign the transaction. These nodes use the MPC algorithm to generate a transaction signature, ensuring the validity of both the deposit transaction and the minting request.
6. FBTC Minting: Once verified, the FBTC tokens are minted and sent to Alice’s wallet address on Ethereum.

In the example above, both technical and governance aspects ensure the smoothness and security of the process, which users do not need to be aware of:

When a qualified user (such as Alice) transfers BTC to the custody address, this address is managed by multiple custodians through an MPC address. This means any withdrawal of BTC requires signatures from multiple custodians, preventing any single custodian from independently accessing the BTC and thus protecting against asset theft.

The bridge monitor tracks in real-time, ensuring that every step is conducted under strict supervision.

The TSS gateway coordinates multiple TSS nodes to sign the transaction. These nodes use the Threshold Signature Scheme (TSS) to jointly sign transactions, ensuring that FBTC minting or BTC withdrawals are only completed when all security and verification conditions are met.

Another benefit is that the Mint and Burn mechanism makes cross-chain transfers of FBTC easier.

Similarly to the minting process, if Bob initiates a request to transfer 1 FBTC from Ethereum to BSC:

The bridging contract on Ethereum burns Bob’s 1 FBTC, reducing the supply of FBTC on Ethereum.

The bridge monitor detects this event and sends it to the TSS gateway.

The TSS gateway then triggers the bridging contract on BSC to confirm the cross-chain operation.

Once the transaction is confirmed, Bob receives 1 FBTC on BSC.

This process follows the same procedure and security measures, ensuring that each cross-chain operation is confirmed by multiple validation nodes. This avoids single points of failure and malicious actions while achieving seamless transfer of synthetic BTC assets between different blockchain networks.

Better resources create better assets

From the design perspective, the technical design of FBTC is not overly complex, with clear principles for entry and exit. For cross-chain synthetic assets like FBTC, while technology and security are the baseline requirements, the capacity to cover resources is the upper limit.

It can be said that better resources lead to better assets: in simple terms, accumulating resources and building a broad network of cooperation are key to the success of FBTC or similar projects. Ultimately, FBTC must have adopters, users, promoters, and the ability to mobilize these individuals and resources to ensure its operations run smoothly.

So, what exactly is meant by “resources”?

The FBTC asset alone cannot move on its own. You need to attract and integrate multiple partners and participants, including decentralized finance (DeFi) protocols, cross-chain bridges, exchanges, and custody service providers. The involvement and support of these partners can enhance the project’s credibility and use cases, thus promoting the circulation and acceptance of FBTC assets.

Therefore, the question becomes whether FBTC can secure these resources and capabilities.

For Mantle, as an L2 solution, it naturally integrates more easily with various DeFi protocols such as lending, liquidity mining, and decentralized exchanges (DEXs), which are inherent parts of its chain ecosystem. This not only provides more earning opportunities for FBTC holders but also enhances the use cases and market demand for FBTC.

Currently, FBTC has partnered with 24 various projects, demonstrating its connectivity:

1. Babylon Ecosystem: solv, pumpbtc, bedrock, pell network, lombard, satlayer, etc.
2. On-chain DeFi: merchant moe, agni, dodo, Init, etc.
3. CeDeFi: avalon finance, bouncebit, etc.
4. New Chain Projects as Asset Custodians: fuel, mezo, bob, botanix, etc.

For cross-chain synthetic assets, these seed partners play a crucial role in FBTC’s initial launch, injecting a substantial amount of liquidity into the market.

Mantle, holding billions of dollars in its treasury, is well-known as a major player in the L2 space. It’s likely that a portion of these funds will be used for partnerships and promotion, which could significantly impact FBTC’s growth. However, as of now, the official channels haven’t announced additional incentive programs, so it’s worth monitoring for potential opportunities.

Antalpha Prime, a key contributor to the BTC ecosystem’s infrastructure development, provides essential technical support for the growth of BTC-related projects. Additionally, Cobo, an early infrastructure provider for FBTC, excels in digital asset custody and management with robust security and MPC capabilities. This expertise ensures the safety and reliability of FBTC in both custody and cross-chain operations, boosting the project’s credibility and transparency. Cobo is also among the initial custodians for Babylon staking.

FBTC was officially launched on July 12th, and within a month, its on-chain circulation quickly grew to $70 million. Looking ahead to Q3, there will be new earning opportunities for FBTC holders. Beyond staking or restaking on Ethereum and Mantle, depositing FBTC into yield-bearing partner protocols can also generate APY through lending and staking mechanisms.

FBTC has already launched on BSC, with plans to expand to other major and emerging blockchain ecosystems. To encourage FBTC holding, the project will soon introduce the Ignition Sparkle Campaign, set to launch at the end of August, potentially laying the groundwork for future airdrops. Interested users can visit the project’s website for more details.

Conclusion

Crypto assets are always active, and the pursuit of greater returns and liquidity is an unending drive. The entities that provide better services for asset movement will benefit from this flow, much like gas stations that see constant traffic alongside highways and fast lanes.

FBTC, from its product design and initial planning, appears to be a fueling station for BTC assets. By utilizing a cross-chain synthetic approach, FBTC aims to activate and link BTC’s ecosystem with external returns.

However, as with any venture, success will also depend on ongoing market strategies and operations. Building on security, connecting through a comprehensive chain, and maximizing returns are the foundational goals for FBTC. The future looks promising for this endeavor.

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1. This article is reprinted from [techflowpost], the original title is “Interpretation of FBTC: the pioneer of full-chain BTC synthetic assets, covering capital efficiency to the wider crypto world”, the copyright belongs to the original author [techflow Deep Wave ], if you have any objection to the reprint, please contact Gate Learn Team, the team will handle it as soon as possible according to relevant procedures.

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