Welcome to Slate Sunday. cryptoprune’s weekly features feature in-depth interviews, expert analysis, and thought-provoking editorials that go beyond the headlines and explore the ideas and voices shaping the future of crypto.
I’m balancing a box with a spotty Wi-Fi connection and a faulty computer. Although moving literally disrupts every aspect of life, I am determined to maintain an uninterrupted workflow.
It’s good for cryptocurrencies anyway. The number of meetings at airports, theme parks, and other random locations is increasing.
In the spirit of building airplanes while we fly, I believe Alexei Zamyatin, the mastermind behind the BTCFi project Build on Bitcoin (BOB), has done the same. He doesn’t seem to mind if I get dropped from the call mid-chat and have to reconnect.
Just tether from your phone and get right back to work. I would like to pick his brain on Bitcoin DeFi, one of the most misunderstood concepts in cryptocurrency. What is it, what is the problem, and does it matter to Bitcoin holders who still hold the keys with silent certainty?
“Blockchain, not Bitcoin” and back again
Alexei got into Bitcoin through the back door “just like a lot of people did.” With a background in computer science, he started working at an IT research center in Austria. There, his colleagues were “very excited about privacy and resistance to censorship.” That naturally led him to Bitcoin.
Fascinated by blockchain technology, he quickly turned his attention from Bitcoin to other altcoins and their capabilities. Alexei saw a world of possibilities beyond stacking and holding.
“I was really excited about what else could be done with this technology. I think that’s why I was in the blockchain camp rather than the Bitcoin camp in the early days.”
He admits that once he realized the true value of BTC as an asset, his position changed pretty quickly and he set out to find a way to combine the technology of smart contract platforms like Ethereum with Bitcoin as an asset.
Alexei then fell down the rabbit hole of merge mining and cross-chain bridging, co-authoring early work on Ethereum Rollup before founding BOB.
“We had a mission to really build a platform that acts as a gateway to Bitcoin DeFi, allowing Bitcoin holders to deploy their BTC into the DeFi ecosystem in a secure and transparent way and access these DeFi opportunities with one click.”
find the problem
However, the world of BTCFi is still nascent, and compared to the glitz of Ethereum L2 and dApps, everything feels a little stuck in first gear. why is that? Alexei doesn’t sugar coat it:
“If you want to use Bitcoin in DeFi today, you have to wrap it in another chain, choose from over 50 providers that are fragmented, and have very little transparency.”
Wrapping, bridging, risk, these are messy realities and don’t forget about the users themselves. According to a recent study by GoMining, 77% of Bitcoin holders have never even tried Bitcoin DeFi, and 65% cannot name a single BTCFi project.
Mark Zalan, CEO of GoMining (who runs IT for a large commercial bank, almost in a traditional banking business), acknowledges that Bitcoin users are not the only ones who have lost their way. he said to me:
“Cryptocurrencies in general, and Bitcoin in particular, remain very complex in terms of usability. We are still a long way from the intuitive user-focused experience that a top-of-the-line product like Apple can provide… This is not unique to cryptocurrencies. It is not unique to Bitcoin. This is a challenge that every startup development environment faces.”
Not all users jump through hoops
Mark is technical and product-focused in nature and says, “There’s always going to be early adopters who can jump through a certain set of hoops, because that’s what early adopters do.” However, in order to capture a broader demographic, BTCFi needs to meet the rest of its current user base. He shares:
“What the research tells us is that we feel like we are in that moment with Bitcoin, and the next hurdle to widespread public adoption is making Bitcoin more user-friendly, both in terms of concept and ease of use.”
For Alexei, it’s a double dilemma. He acknowledges that UX is “primarily for experts” and is better handled by someone with a computer science degree. However, the incentives for holding Bitcoin also need to be improved.
“Bitcoin doesn’t have a native yield… It’s not the same as holding Bitcoin as an asset or staking and getting more Bitcoin, like Ethereum or Solana. So it’s a very different risk profile here. The second issue is that it’s not native yet when it comes to Bitcoin and DeFi.”
build something different
So what does BOB actually offer? Alexei claims to offer the easiest and safest way to earn with Bitcoin. BOB Gateway leverages the best of both Bitcoin and Ethereum, enabling multi-chain Bitcoin yields and swaps on any chain in one click.
Users effectively become validators on the network, and their BTC can be slashed and their BTC removed, thus preventing them from performing malicious acts such as double-signing.
This approach to preventing fraud and eliminating validators altogether is more than just a technical sales pitch. It’s a safeguard against nightmare scenarios.
“If you attack the system, you lose your Bitcoins. And in exchange for securing your system and staking your Bitcoins, you receive Bitcoin staking rewards. These are paid from the fees that BOB generates as a chain.”
And most of all? Unlike other services where users can earn rewards in another token, rewards are paid in BTC as it is natively Bitcoin.
Who needs Bitcoin DeFi in the first place?
But is this really for the crowd who bought Bitcoin just to hold and watch? Mark recalled many conversations at the Bitcoin conference in Las Vegas in May, saying:
“The overall feeling is that it’s still complicated.”
oh yeah. If Bitcoin DeFi is complicated for Bitcoiners, who are typically orders of magnitude more tech-savvy than the average consumer, what hope is there for the rest of the world?
Alexei is diplomatic:
“I’m not saying they (Bitcoiners) are not our customers. There is an adoption curve and it’s important to accommodate people who are inherently opposed to using financial products. It has nothing to do with Bitcoin itself. It just doesn’t want to use financial products. The majority, especially the younger generation, are very keen on yield. We are using neobanks. We want to make sure we protect ourselves from inflation.”
The same predicament applies to BTC holders, he notes. While Bitcoin is generally accepted as a good hedge against inflation, it still won’t maximize yield by sitting idle.
“If we don’t do anything, it’s stale capital, and we’re seeing more and more demand for yield on Bitcoin…What people really, really want is something like Ethereum where you can get more BTC just by staking Bitcoin. And in fact, that’s what we’re working on.”
“There are so many bridges, so many hurdles, and the UX is terrible. That’s why we launched BOB Gateway, which will allow you to deploy Bitcoin to all other DeFi opportunities across these 11 chains with one click.”
Bob Gateway is all about access and complicates some of the pain points of other existing solutions by allowing users to simply and natively connect to multiple chains and stake BTC.
What’s next for BTCFi? And what’s at stake?
As every major chain chases Bitcoin liquidity, BOB is determined to be the “shovel seller” of the next gold rush. And what are the early results?
“The system is stable. We’re seeing quite a bit of early activity. We’re pretty close with the teams at BNB, Base, Unichain, Avalanche… and we’re also getting a lot of interest from networks we don’t support yet, like Aptos, Solana… I think this is a very good first sign because a lot of apps are just looking for an easy way to get their users on board with the protocol.”
Can anything go wrong with Bitcoin DeFi? Alexei acknowledged that there will always be “technical risks” with open source protocols, but said the risks will decrease over time as more people use and validate the protocols. What about malicious actors? Well, there’s no incentive:
“If you attack the system, you lose your Bitcoin. But if you don’t attack, you don’t lose your Bitcoin, right? It’s that simple.”
As Bitcoin DeFi evolves and the user base becomes more sophisticated, I asked Alexei if he had any other concerns, such as the institutionalization of the space and the voracious appetite of organizations like Strategy and Metaplanet to gobble up the supply of BTC.
While he is by no means blunt about the risks, he points out that the benefit of Bitcoin’s proof-of-work system is that, unlike proof-of-stake, holding more Bitcoin does not give you more control over the network. In that respect, Michael Saylor’s strategy is not a threat. However, it is important not to simply rebuild traditional finance on blockchain rails.
“Owning a large portion of the supply gives you a degree of influence, and bad actors will try to exploit this influence. But at the end of the day…the network is sufficiently decentralized and decentralized that just because MicroStrategy accumulates a large amount of BTC doesn’t mean it will break the system…The biggest risk is probably that governments will just take over these funds.”
final thoughts
There is also a clear sense from the founders that Bitcoin DeFi is still a developing market. Less “Apple Store Experience” and more command line.
The gold rush continues, but there are still many mountains to climb, including native revenue, user experience, educational inequality, and the ever-present shadow of centralization.
If the problem is resolved, the next wave of Bitcoiners may not just settle for HODLing again. But for those in the trenches, it’s a pretty big deal right now.
