Introduction

With Ethereum’s transition to the Proof of Stake (PoS) consensus in September 2022, the burgeoning fields of Liquidity Staking and Restaking have flourished, allowing users not only to stake ETH for fixed returns but also to restake or leverage DeFi protocols for multiple yields. This has become a focal point in the market over the past period. Currently, this trend is quietly shifting to the Bitcoin ecosystem. The project introduced in this article, BounceBit, is an emerging star in the Bitcoin restaking arena, capable of creating various earning methods for BTC holders. Additionally, the project made headlines in February this year by securing a $6 million seed round led by Blockchain Capital and Breyer Capital, with a prestigious lineup of participants, including well-known institutions such as OKX, IDG, Bankless, HTX, and others.

Source: BounceBit Medium

What is BounceBit?

BounceBit can be understood as a Layer1 foundation layer integrating BTC financial services and re-staking applications aimed at unlocking BTC’s liquidity, enhancing BTC’s utility, and providing BTC holders with multiple yields from both CeFi and DeFi.

BounceBit is currently in its first phase, launching its testnet on the 8th of this month, and is expected to launch its mainnet in April of this year. Users can currently deposit assets such as Ethereum’s WBTC, USDT, DAI, and BNB chain’s BTCB, and FDUSD into BounceBit to earn points, and participate in Dapp interactions on the testnet, with the opportunity to receive token airdrops in the future.

It’s worth mentioning that, as of March 23, 2024, BounceBit’s TVL (Total Value Locked) has surpassed $638 million, with a user count reaching 75,367. This remarkable achievement is attributed not only to founder Jack Lu’s extensive industry experience, endorsements from top investment institutions, and expectations of token airdrops but also to BounceBit’s own potential and technical features.

BounceBit Helps BTC Holders Earn CeFi + DeFi Yields

According to official documentation, BounceBit enables BTC holders to realize earnings by integrating “the security of CeFi custody and the diverse functionalities of DeFi innovations.” This article uses the example of users depositing BTC into the BounceBit platform to fully explain the user journey and earning opportunities, as follows:

First, users transfer BTC to the Binance exchange and convert it into BTCB (Bitcoin wrapped on the BNB chain). Then, using BNBChain (BEP20), users deposit BTCB into the BounceBit platform. The BTCB stored in BounceBit is transferred to the regulated entities Mainnet Digital and Cefu for custody. The custodied BTC is guaranteed transparent on-chain asset traceability through Cefu’s MirrorX service. Meanwhile, users can already start their CeFi + DeFi earning opportunities (explained in the next paragraph)

Source: BounceBit Docs

CeFi Earning Opportunities: Funding Rate Arbitrage and Financing Arbitrage

As mentioned earlier, BounceBit utilizes the custody services of Mainnet Digital and Cefu, along with MirrorX technology, to implement a transparent CeFi model, allowing users to track the status of BTC on-chain. Within this framework, BounceBit collaborates with leading asset management firms to offer BTC holders various arbitrage strategies for generating interest.

These arbitrage strategies are primarily provided by entities such as Chainup, Pythagoras, and Higgs Capital, and include low-risk strategies like funding rate arbitrage and financing arbitrage to realize earnings. It’s worth noting that, at present, these earning opportunities are only available to users who deposit at least 0.1 BTC or 1,000 USDT.

Source: BounceBit Docs

DeFi Earning Opportunities: Staking / Re-Staking Rewards and Participation in the DeFi Ecosystem

Apart from CeFi earnings, users can also wrap their deposited BTC on the BounceBit platform into BBTC (BounceBTC) to participate in the node staking and DeFi ecosystem of the BounceBit blockchain, as explained below:

• The BounceBit blockchain introduces a dual-token PoS consensus mechanism, meaning that validation nodes can secure the network using either BBTC or the native token BB. Therefore, users can delegate BBTC to validation nodes to earn staking rewards, which will be returned as transaction fees denominated in BB.
• After staking BBTC on the BounceBit blockchain, users will generate LSD tokens, i.e., stBBTC. Users can use stBBTC for BounceBit’s re-staking ecosystem - Shared Security Clients (SSC), such as cross-chain bridges, oracles, sidechains, etc., to earn re-staking rewards.
• Moreover, users can invest BBTC and stBBTC into BounceBit’s DeFi ecosystem to find earning opportunities, including providing liquidity, liquidity mining, lending, participating in Launchpad activities, etc.

Source: BounceBit Docs

BounceBit’s Dual-Token Staking Consensus Mechanism

BounceBit stands out from blockchains that utilize a single-token staking mechanism by introducing an innovative dual-token staking concept aimed at bolstering network security and increasing stake engagement. Specifically, within BounceBit’s Proof of Stake (PoS) structure, validators can choose whether to stake the native BB token or BBTC to secure the network, or they can opt to stake both types of tokens concurrently.

This dual-token approach not only widens the stakeholder base but also introduces additional flexibility and security into the consensus framework. This is partly because BTC possesses greater liquidity, accessibility, and comparatively lower volatility. If the BB token’s value were to decrease dramatically, theoretically, it wouldn’t significantly increase the network’s security risk due to the economic stability provided by BTC, which could act as a deterrent against malicious intentions.

Moreover, BounceBit operates on an Epoch-based time sequence, with each Epoch defined as 24 hours. Staking rewards are distributed after each Epoch, with payments made in BB tokens. Additionally, BounceBit employs voting weights to select validators for the forthcoming Epoch, with those not chosen awaiting reevaluation in the subsequent Epoch.

Source: BounceBit Docs

BounceBit Develops its Ecosystem by Emulating Apple’s Business Model and Ensures Compatibility with EVM

According to official documentation, BounceBit is fully compatible with the Ethereum Virtual Machine (EVM), ensuring developers within the EVM ecosystem can easily migrate their projects. A major highlight is BounceBit’s innovative business model, which draws inspiration from the innovative spirit of the iOS system and Apple’s method of integrating user experience to construct the BounceBit ecosystem. The business model includes two core components: the BounceBit App Store and BounceClub.

The role of the BounceBit App Store is similar to that of the App Store on Apple devices, offering a variety of Web3 plugins (DeFi, gaming, SocialFi, etc.) that can be freely integrated into BounceClub, akin to downloading apps from the App Store. Notably, these plugins, which include Bitswap, Bitstable, Bitleverage, and Bitstaking, can only be listed after developers apply to deploy smart contracts and undergo BounceBit’s review process.

Source: BounceBit

The BounceClub acts as the central hub of the BounceBit ecosystem, where BounceClub owners can freely integrate plugins from the BounceBit App Store to design a customizable ecosystem without needing any programming skills. Additionally, BounceClub owners can create their own token economy structures, meaning each BounceClub can achieve its own vision based on its incentive measures and operational policies, thereby strengthening the BounceBit ecosystem.

Conclusion

Overall, BounceBit carves a unique path within the BTC ecosystem, diverging from the focus on nascent BTC asset issuance protocols and Layer2 projects that dominate market attention. Instead, BounceBit goes against the grain by integrating the security of CeFi custody with the liquidity of circulating WBTC, unifying the existing market scale. Simultaneously, it introduces a Dual-Token PoS consensus mechanism for BTC, enhancing the flexibility and security of BounceBit’s consensus structure and deepening its competitive edge in the BTC re-staking race.

However, BounceBit is currently in the testnet phase, with its ecosystem construction still in the very early stages. Despite the optimism surrounding its potential to offer BTC holders multiple forms of earnings, the viability of the BounceClub ecosystem, developed in a manner akin to Apple’s business model, in fostering developer and user engagement post-mainnet launch remains to be observed and discussed.