Can Binance Megadrop's first project, BanceBit, become the Ethena of the BTC ecosystem?

BounceBit is a restaking (restaking) foundation layer in the Bitcoin ecosystem. In terms of design, it collaborated deeply with Binance to build high-yield CeDeFi components; in addition, it built its own Bouncbit Chain to build specific usage scenarios for restaking and integrate an interesting system. BanceBit's token, BB, will launch on Binance on 5/13. According to official information, the TVL is over $1BN at the time of writing this article.

In terms of investment institutions, BanceBit raised a 6M dollar seed round in February of this year, led by Blockchain Capital and Breyer Capital. Also, in March and April, OKX Ventures and Binance Labs made strategic investments, respectively.

At its core, BoungeBit's design is very different from today's Bitcoin L2. It didn't design a new asset type, nor did it try to modify any part of Bitcoin's underlying protocol. On the contrary, it clearly knows that the core of the Bitcoin ecosystem is BTC itself, which has a huge market capitalization and the best decentralized attributes. What BounceBit is doing is simply leveraging BTC itself. Looking back at this seemingly laid-back approach, after research and thought, we vaguely feel that it is an approach that directly attacks the essence.

Below, we'll discuss its mechanism in detail and discuss some of its key designs.

Referring to the architecture diagram above, you can see that BouncBit mainly consists of three parts:

• Bounce Bit Protocol: part of CeFi;

• Bounce Bit Chain: Staking and LSD parts;

• Share Security Client: Restoring section.

For details of Bounce Bit Protocol, refer to this chart: When users deposit BTC into BanceBit Protocol, they will receive a Liquid Custody Token (LCT) as proof of deposit in a 1:1 format. For example, if you deposit BTC, you'll get Bounce BTC (BBTC), and if you deposit USDT, you'll get back Bounce Bit USD (BBUSD). According to official instructions, currently accepted assets are: BTC on Bitcoin, WBTC and USDT on Ethereum, and BTCB and FDUSD on Binance Smart Chain.

Next, BounceBit Protocol will keep all assets deposited by the user in a multi-party computing (MPC) escrow account (and will not leave), and the assets on this side will enter Binance in the form of a mirror (Mirror) and entrust it to an asset management company to perform operations such as Funding Rate Arbitrage (Funding Rate Arbitrage) to generate profits, and then return this profit to the user.

Funds will be segregated between Binance and escrow accounts through T+1 OTC Settlement (OES) methods to ensure safety.

The specific fund custodian service providers here are Ceffu and MainNet Digital. Ceffu's predecessor, Binance Custody, has been Binance's only cooperative escrow partner for a long time (several crypto-friendly Swiss banks have recently been added). MainNet Digital is a Singaporean service provider that started with MainNet Capital (MainNet Capital).

BounceBit Chain is an independent layer 1 that uses a delegated-proof-of-of-service (DPoS) consensus mechanism and is EVM compatible.

The core of PoS is a large number of nodes (nodes), which become relevant stakeholders in this blockchain through the act of staking (staking) funds. Through verification, it contributes to the security of the overall blockchain, and is also exchanged for corresponding rewards. (To borrow from Xu Mingen's vivid explanation, this is a reward for digital labor.)

In the BoseBit Chain design, users can freely choose to delegate (Delegated) BBTC or/and BB in their hands to any specific Validator Nodes (Validator Nodes) in the Active Validator Set (AVS) to earn rewards.

Verification nodes can freely set a Commision Fee (Commision Fee) to compete in the market. In the current setup, AVS will simultaneously have 50 verification nodes (25 accepting BTC staking and 25 accepting BB staking) in every 24 hour period. 50 is confirmed by governance. As for which verification nodes will be selected for AVS, it will be re-confirmed every Epoch based on performance.

The entire staking process above will be executed through the Liquid Staking Module, and the corresponding StbBTC and StBB will be given to the user as proof of staking (also known as LSD).

There are two uses for this LSD:

1. Using the DApp on BounceBit Chain, imaginable scenarios include: as collateral for CDP stablecoin agreements, as collateral for Lending agreements, and creating liquidity on DEX (and earning LP rewards)

   
   

2. Having Share Security Clients (SSCs) rent the security of the Bouncbit Chain, such as Bridge, Oracle, Sidechain, etc., this is part of restaking. The logic here is consistent with EigenLayer. However, we haven't seen any client cases yet. It is estimated that early rewards will also be given in the form of points, giving users the expectation of airdrops. As to whether it will be a story of carrots and donkeys, it will take time to verify.

Taken together, the relationship between the complete architecture and each structure is shown below:

As the native token of BanceBit Chain, BB has a total supply of 2,100,000,000 pieces. The specific distribution and unlocking schedule is as follows:

BB's TGE is expected to occur in May 2024. The circulating supply at the time of listing will be 409,500,000 units, accounting for 19.50% of the total token supply.

There are two things that have caught our attention here:

1. Investors account for 20%, slightly higher than the 10% to 15% common in Web3.

   
   

2. Binance Megadrop accounts for 8% and will release all at TGE.

Combining 1) Bounce Bit is Binance Megadrop's first project, 2) Bitcoin (BTCB) in the BNB format from the beginning, etc., we can see that BouncBit has a deep connection with Binance. As you can imagine, this level of airdrop is expected to attract a large number of users and TVL from Binance in the early stages, but whether BB can achieve continuous development after a large number of airdrops depends on whether BB has a corresponding actual revenue scenario to support a competitive APY.

There are already several DeFi projects in the Bounce Bit ecosystem, including BitSwap (DEX), MultiBit (BTC EVM two-way bridge), BitStable (stablecoin), etc.

Taking BitSwap as an example, as the first DEX built on Bounce Bit, it hopes to simplify cross-chain transactions and become a liquidity center for BRC-20 assets through cooperation with MultiBit and DAII. Users can exchange any ERC20 token (ETH/USDT/etc.) for DAII on BitSwap, and DAII is paired with other BRC20 bridging assets. Additionally, by integrating MultiBit's CCIP, users can seamlessly transfer the BRC20 bridge to Bitcoin.

ERC20 <—> DAII <-> bridged BRC20 <—> BRC20

https://twitter.com/BitSwap_xyz/status/1750015734216864145

After understanding the basic design of BanceBit, let's explore a few interesting points:

1. CeDeFi mode has its application scenarios

   Even if users enter a relatively decentralized environment like BoseBit Chain, as the name suggests, they may still face CeFi risk exposure implicit in BBTC or BB because the main format is CeDeFi. However, we should not think of centralized exchanges (CEXs) or all centralized components as a monster. For example, most dApps now use contracts that can be upgraded, and control is actually in the hands of the project party (this also means that users own project tokens, not equity); or for example, many L2 currently use centralized sequencers (sequencers). But that doesn't prevent people from using them.

   
   

   Decentralization has a spectrum. Centralized exchanges, such as Binance, are often a safer and more reasonable act for Xiaobai users than managing their own wallets and then trading on DeFi Protocol. For large investors, CeDeFi also provides them with a compromise option to increase profits through centralized service providers on the premise of relatively safeguarding asset safety.

   
   

2. Revenue Sources and Sustainability

   Revenue sources and their sustainability are central to examining any Web3 product. Looking at Bouncbit, it can be simply divided into three types of earnings:

   
   

   a. Access Binance's asset management benefits on the Bounce Bit Protocol side

   Binance's asset management earnings currently see mainly Funding Rate Arb (Funding Rate Arb). Under the premise of proper execution, this strategy can almost achieve Delta Neutral, which is a low-risk and controllable trading strategy.

   
   

   b. Staking rewards on BanceBit Chain

   Staking rewards on Bounce Bit Chain come from on-chain transaction fees and additional BB tokens issued through POS.

   
   

   c. Ecological DeFi earnings

   DeFi earnings depend on how active DeFi is in the Bouncbit ecosystem.

   
   

   Furthermore, given that the Boucebit ecosystem is now in the early stages of development, the development of SSC's subsequent re-staking ecosystem is the key to observing Bonucebit's momentum. It is speculated that the team will launch related activities or hackathons to encourage the development of applications, so that SSC's subsequent re-staking rewards are at an attractive level.

   
   

3. Value for BTC L1

   During the recent explosion of the Bitcoin ecosystem, inspired by Mezo's design ideas, we also used the first principle framework to evaluate any new project: What value does this chain/protocol bring to BTC L1?

   
   

   If the essence of PoS/DPoS is to use decentralized capital to protect the blockchain network, then it can be strengthened in two levels: one is more capital, and the other is that capital is more decentralized. The second point is difficult to argue, but in terms of the first point, if PoW assets can also be included, a blockchain that uses PoS as a consensus will have a stronger guarantee. At the asset level, the design idea for creating new usage scenarios for BTC (only) is, in our opinion, simple, violent and straightforward. This is in stark contrast to many other chains in the Bitcoin ecosystem.

   
   

   At first, we thought this approach was laid-back; we didn't consider how to do a good job with native EVM or how to use the native UTXO architecture. However, after research and thought, we think this is an approach that directly attacks the essence: clearly telling users that this is a product with centralized components, and that only BTC is used as an asset on BounceBit's chain. After all, the key is to use BTC in a way that BTC holders can trust to increase its usage scenarios. Specific methods can be flexible and adaptable.

How to effectively use BTC is undoubtedly the focus of the BTC ecosystem. Different project parties handed over different answers in this proposition essay. BounceBit's solution is simple and straightforward, and closely revolves around BTC revenue to create value. At the same time, the project has been in operation for less than half a year, and it has become the first phase of the Binance Megadrop project. The team's ability to operate and integrate resources can be seen. However, in the long run, whether its SSC can develop well is the key to measuring the true success of BounceBit. We will have to wait and see.