01 Background and Demand

Bitcoin, the foundation of the cryptocurrency world, now has a market value exceeding $1 trillion. However, its use is largely limited to being a store of value, and its financial potential remains untapped. One of the main issues is that Bitcoin assets are mostly confined to their native network, making it hard for BTC to participate in the booming DeFi ecosystems on networks like Ethereum.

This issue highlights two major challenges: first, how can BTC holders securely access earning opportunities and transfer BTC to EVM networks? Second, how can investors familiar with the EVM environment gain returns from BTC without directly interacting with the Bitcoin network, such as by joining BTC-based protocols like Babylon that require native BTC staking?

WBTC (Wrapped Bitcoin), an ERC20 token backed 1:1 by Bitcoin and custodied by BitGo, has been the primary bridge for Bitcoin into DeFi. Its market cap is around $8.7 billion, yet this represents less than 1% of Bitcoin’s total market cap, indicating vast untapped liquidity within the Bitcoin network.

Recently, WBTC has faced controversy: BitGo’s control transfer has triggered market concerns, leading MakerDAO to reduce WBTC’s collateral limit, while SparkLend has suspended WBTC lending.

This situation has become a catalyst for the rise of other BTCFi assets. FBTC, incubated by Ignition and supported by Mantle and Antalpha Prime, is a 1:1 BTC-backed asset that can be bridged to any supported chain, enabling seamless integration with various DeFi protocols. FBTC’s goal is to introduce highly liquid, flexible BTC assets, expand Bitcoin’s utility beyond just a store of value, and allow it to participate in diverse yield strategies.

By doing so, FBTC not only provides new earning opportunities for BTC holders but also offers users on other chains a gateway to the BTC ecosystem, positioning itself as a key bridge between Bitcoin and DeFi.

02 How FBTC Works

To understand how FBTC is designed, we can break it down into first principles: FBTC solves the problem of connecting Bitcoin with other blockchains, similar to how cross-chain bridges work.

The challenge can be divided into three main areas: securing deposits on the source chain, ensuring reliable withdrawals on the destination chain, and maintaining effective communication between both chains. To address these issues, FBTC uses a Mint & Burn model, creating a secure and reliable system architecture.

FBTC’s workflow consists of three main steps: minting, burning, and cross-chain operations:

1. Minting Process::

Eligible users deposit BTC into a designated address on the Bitcoin network and send a mint request to the bridge contract on the target chain. A Bridge Monitor watches these requests in real-time.

When a request is received, the monitor asks the TSS (Threshold Signature Scheme) gateway for permission to mint FBTC. Several TSS nodes generate a collective signature using MPC (Multi-Party Computation) technology.

Once all conditions are met, the system mints the corresponding amount of FBTC 1:1 on the target chain.

https://docs.fbtc.com/system-components/architecture

1. Burning Process:

When users want to reclaim their staked BTC, they can burn FBTC. This process works similarly to minting but in reverse. The system verifies the request, destroys the FBTC, and releases the equivalent BTC to the user’s specified address.

https://docs.fbtc.com/system-components/architecture

1. Cross-Chain Operations:

If users want to transfer FBTC from one supported blockchain to another, they initiate a cross-chain request on the source chain. The bridge contract first burns FBTC on the source chain, and then the minting process on the new chain follows the same steps described earlier, completing the cross-chain transfer.

https://docs.fbtc.com/system-components/architecture

03 Key Components of FBTC Protocol

The FBTC protocol has three main components: the BTC chain custody address, smart contracts on the destination chain, and the off-chain service module. Together, these ensure the security, efficiency, and reliability of the system.

The BTC custody address is the foundation of the protocol. Users receive a unique BTC deposit address, and once they deposit BTC, the minting process creates an equivalent amount of FBTC. The custody address is managed using MPC and Multi-Sig technology to prevent any single entity from controlling assets, enhancing security. When withdrawing, users destroy FBTC via a unique withdrawal address to receive BTC, with the process securely verified by Multi-Sig.

The smart contracts on the destination chain include the FBTC bridge contract, minting contract, and token contract. Each contract has clear responsibilities, ensuring smooth operations. FBTC also has a security committee to handle emergencies and maintain system stability.

The off-chain service module supports essential functions. The Bridge Monitor verifies transaction legitimacy, the TSS gateway manages the signature process, and the TSS nodes use distributed signatures to ensure decentralization and security. Each node runs an independent risk control module to strictly verify transaction requests, serving as the final safeguard for system security.

Through this multi-layered design, the FBTC protocol securely connects Bitcoin with the DeFi ecosystem. Each component plays a key role in ensuring safe and efficient operations, making FBTC a crucial bridge between Bitcoin and DeFi.

04 FBTC’s Unique Advantages

As a Bitcoin-based asset, FBTC offers three key benefits: cross-chain liquidity, enhanced security, and an innovative yield mechanism.

Cross-Chain Liquidity:

FBTC achieves true Omnichain properties, allowing users to mint, burn, or perform cross-chain operations on any supported blockchain, enabling FBTC to freely circulate across supported blockchain ecosystems.

This cross-chain liquidity allows FBTC to integrate deeply with BTCFi protocols, maximizing Bitcoin’s composability and expanding the participation opportunities for Bitcoin holders in DeFi. Major Restaking projects already support FBTC.

Enhanced Security:

FBTC uses a unified architecture for minting, burning, and cross-chain processes, ensuring consistency and security while simplifying system complexity. Its security features include MPC and Multi-Sig technologies, distributed TSS nodes, and strict risk control modules. This multi-layered security design provides a reliable platform for managing assets, ensuring transparency and safety.

Locked FBTC (FBTC1):

FBTC1 offers users an additional way to generate returns. By minting Locked FBTC, users can release native BTC to a designated custodian, providing liquidity for CeFi/DeFi strategies and accessing various yield options.

https://docs.fbtc.com/ecosystem/locked-fbtc-token/locked-fbtc-protocols-information

In the FBTC1 process, FBTC0 (standard FBTC) holders transfer assets to a partner vault. The partner regularly deposits FBTC0 into the FBTC1 contract, triggering the minting of FBTC1 and the burning of FBTC0. The corresponding BTC is then moved from the BTC0 address to a designated BTC1 yield address.

Current partners include Avalon, Bedrock, Solv Protocol, and PumpBTC.

05 The Current Status and Adoption of FBTC

Since its launch, FBTC has experienced remarkable growth in just two months. The total amount of FBTC minted has now reached 2,664 units, distributed natively across three key chains: Ethereum, Mantle, and BSC. Its total value locked (TVL) has surpassed $150 million, showing strong demand and market confidence in this innovative asset.

https://dune.com/mantlexyz/fbtc

In the DeFi space, composability is a crucial concept, acting as a foundational piece of the DeFi structure. For a bridge asset like FBTC, the variety of use cases directly influences its demand. As a result, the FBTC team has focused heavily on expanding its applications.

Currently, FBTC has been integrated into more than 20 projects across the three chains it supports, covering nearly every major DeFi sector. Additionally, about 10 other projects are in the process of integration testing, which is expected to further broaden the FBTC ecosystem.

https://fbtc.com/ecosystem

In the first round of staking on Babylon Protocol’s mainnet, out of a 1,000 BTC staking limit, 418 BTC were staked using FBTC on platforms like PumpBTC, Solv, and Bedrock. This shows that FBTC provides a great entry point for users looking to engage with the Babylon Protocol.

FBTC’s fast adoption and broad integration reflect the market’s strong demand for an efficient and secure Bitcoin DeFi solution. As more projects come on board and more users participate, FBTC is expected to create a network effect, playing an increasingly significant role in bridging the gap between Bitcoin and DeFi.

06 Earning Potential with FBTC

FBTC’s wide integration across ecosystems provides users with a diverse range of earning opportunities. Check out Biteye’s visual summary of the FBTC ecosystem for an overview of the projects:

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Here are the main types of projects FBTC can participate in and their potential earnings:

1. Bitcoin Restaking Projects

Similar to LST projects on Ethereum, these allow users to restake into the Babylon ecosystem. By depositing FBTC into various BTC liquid staking projects, users can earn multiple rewards, including:

• Points boosts from the project
• 2-4x accelerated Sparks points (FBTC project points)
• Babylon rewards, retroactively distributed for projects linked to Babylon

Projects like PumpBTC, Bedrock, Solv Protocol, Pell Network, and Satlayer are ideal for users who want to get in early with Babylon.

1. Liquidity Pools

Users can deposit FBTC into liquidity pools to earn:

• Trading fees
• Additional Sparks and Powder points

Major liquidity pools include:

• Merchant: mETH/FBTC and WBTC/FBTC pairs
• Agni Finance: mETH/FBTC pair
• Uniswap: WBTC/FBTC pair
• DODO: WBTC/FBTC pair
• Celopatra: WBTC/FBTC pair

These pools not only provide passive income opportunities but also help improve FBTC’s liquidity.

1. Multichain Networks

By locking FBTC in other liquidity networks, including Karak, Mezo, Fuel Network, and Zircuit, users can gain:

• Project-specific point bonuses
• Sparks Points

1. Staking and Lending

Users can stake or lend FBTC in various protocols to earn:

• Project points
• Sparks points

Major protocols include:

• Lending platforms: Avalon, Lendle, Minterest
• Staking platforms: Astherus

FBTC offers a highly flexible and diverse earnings model. By engaging in these different types of projects, users can choose the most suitable method of earning based on their risk tolerance and investment strategy.

https://x.com/BiteyeCN/status/1833812446831899055

07 Conclusion and Outlook

FBTC has a clear and well-defined purpose: to become the next-generation gateway for Bitcoin. Its core strengths lie in three key areas: FBTC provides a reliable asset management solution by ensuring the security of Bitcoin’s cross-chain transactions with its carefully designed safety mechanisms.

FBTC delivers true multichain liquidity, seamlessly integrating BTC into various blockchain ecosystems. This opens up significant opportunities for value creation, offering new earning channels for Bitcoin holders. It also provides an easy way for users who are familiar with EVM ecosystems but not the Bitcoin network to participate in BTC-native protocols like Babylon. In this way, FBTC serves as a critical bridge, connecting diverse blockchain environments.

FBTC excels in expanding its use cases. Backed by strong industry resources and a solid network of partnerships, FBTC continues to work with high-quality projects, rapidly enhancing its application ecosystem. These wide-ranging use cases not only boost the utility of FBTC but also increase its competitiveness in the market.

Thanks to these advantages, FBTC has seen rapid growth. In just two months since its launch, its total TVL has surpassed $150 million. This impressive achievement highlights both FBTC’s strong growth momentum and the market’s keen demand for this innovative Bitcoin derivative.

If the BTCFi sector experiences the expected explosive growth, FBTC is well-positioned to become a critical cornerstone in the Bitcoin ecosystem. With its continuously improving incentive mechanisms, FBTC has the potential to form a self-sustaining growth loop, further unlocking dormant BTC capital and realizing Bitcoin’s vast liquidity potential.

Disclaimer：

1. This article is a repost from [Biteye], originally titled “Must-Read! Don’t Miss This Bitcoin High Yield Opportunity.” All copyrights belong to the original author. If you have concerns regarding this repost, please contact the Gate Learn Team, and the team will address the matter promptly.

2. Disclaimer: The views expressed in this article are those of the author and do not constitute financial advice.

3. The other language versions of the article have been translated by the Gate Learn team and may not be copied, distributed, or plagiarized without referencing Gate.io.