This research report delves into BounceBit, outlining its product design concept and HTX Ventures’ investment philosophy. The article is sourced from HTX Ventures and compiled, organized, and written by PANews.
Table of Contents:
What is BounceBit?
How does BounceBit work?
Why did HTX Ventures invest in BounceBit?
Future Outlook
With the approval of BTC spot ETF, institutions and individuals worldwide are continuously increasing their BTC holdings, resulting in the rise of BTC price. Currently, it has climbed to the top ten assets in global market capitalization. In this market cycle, BTC scalability and BTC infrastructure have become two highly focused sub-tracks. The exploration of diversified income from BTC ecosystem assets is attracting attention from the crypto market.
So, which solution will become the optimal one to solve the problems of generating interest on BTC assets, network confirmation delays, lack of smart contracts, and high gas fees?
Currently, there are two main solutions to enhance the prosperity of the BTC ecosystem: Layer2 and sidechains.
As one of the investors in BounceBit’s $6 million financing, HTX Ventures considers BounceBits and its CeFi+DeFi product model as a potential innovative solution to open up the BTC ecosystem for more applications. This research report delves into BounceBit, outlining its product design concept and HTX Ventures’ investment philosophy.
What is BounceBit?
BounceBit is a BTC re-collateralization chain designed specifically for Bitcoin. Its built-in BTC re-collateralization infrastructure provides a foundational layer for various re-collateralization products. This foundational layer is safeguarded by Mainnet Digital and Ceffu through regulated custody. It adopts a BTC+BounceBit hybrid PoS mechanism for verification.
BounceBit solves the trust issue of underlying BTC assets through multi-party custody, creating BBTC for DeFi interactions on the Bounce mainnet. Native BTC assets are utilized for low-risk arbitrage strategies on various centralized exchanges. Additionally, under the hybrid token pledge mechanism, pledging with BBTC+BB (BounceBit’s native token) generates LSD tokens, further obtaining node pledge rewards and re-collateralization returns.
By combining centralized custody and sidechains, BounceBit aims to address the long-standing trust issues of sidechains while revitalizing the BTC ecosystem. This will reduce transaction costs and unlock the financial potential of BTC, enabling its application in DeFi, gaming, social, and other scenarios.
How does BounceBit work?
BounceBit’s product design is quite ingenious, as shown in the diagram:
BounceBit Operating Mechanism and Revenue Source Diagram
Users can deposit various types of on-chain BTC assets into the BounceBit protocol, which is actually supervised by the jointly managed MPC wallet of BounceBit, CEFFU, and Mainnet Digital. This solves the trust issue and ensures the security of users’ assets.
Through Ceffu’s off-exchange settlement (OES) solutions like MirrorX, users can securely access the exchange’s deep liquidity and earn profits through diversified trading strategies, while their funds remain securely held in the on-chain MPC wallet. This wallet technology significantly reduces the risk of single point of failure (SPOF) by splitting the private keys into multiple parts. Additionally, as users’ funds are not actually stored on any centralized exchange but reflected through Ceffu, it reduces counterparty risk.
BounceBit collaborates with a series of asset managers with a long history of positive returns for trading through MirrorX. All these asset managers primarily employ interest rate arbitrage as their main trading strategy. Interest rate arbitrage is a risk-free strategy that leverages the interest rate differences between different markets to generate profits.
On the other hand, after users transfer their native assets to BounceBit, they mint new B-Token assets. Taking BTC as an example, users will receive BBTC assets that operate on the BounceBit mainnet after depositing BTC. Currently, these assets can be used in two main on-chain activities: participating in node pledge through the hybrid pledge mode of BounceBit with BBTC+BB, and generating LST tokens for further re-collateralization activities to amplify pledge returns. Additionally, BBTC can be used for various on-chain DeFi interactions. BounceBit has also launched BounceClub, a platform for developers and users to participate in diverse DeFi activities and income generation activities on the BounceBit mainnet, increasing the income potential of BTC assets.
In terms of revenue sources, users can obtain asset income through multiple channels by participating in BounceBit’s pledge and on-chain financial interactions:
CeFi income obtained from native assets in sub-accounts of centralized exchanges.
DeFi income obtained from on-chain interactions on BounceBit.
Pledge income from using BBTC+BB for pledge and re-collateralization income from generating LST tokens.
In summary, while ensuring asset security through multi-party custody, BounceBit provides diversified income generation methods.
Why did HTX Ventures invest in BounceBit?
As one of the major investors in BounceBit, HTX Ventures firmly believes that BounceBit can effectively meet the market’s actual needs through its centralized custody model built on standard sidechains.
The core goal of BounceBit is to solve the problems of generating interest on BTC assets, inefficient utilization of idle BTC, lack of innovation, and high gas fees. Its fundamental purpose is to provide diversified income channels to alleviate the challenges posed by the lack of smart contract functionality in Bitcoin. The current solutions to enhance the BTC ecosystem mainly include Layer-2 and sidechain technologies.
Layer2 is mainly focused on moving BTC transactions off-chain to improve transaction speed. Currently, Layer2 mainly consists of two solutions: state channels and rollups. State channels, such as the Lightning Network, have limited scalable functionality. Currently, the Lightning Network primarily achieves improved point-to-point transaction speed and struggles to deploy Ethereum-level smart contracts. Regarding rollups as a Layer2 solution, due to underlying code and signature verification issues, BTC Layer2 solutions cannot be verified on the mainnet when returning to the ledger. Therefore, it is difficult to achieve sufficient trust. The most promising method currently is to upgrade BTC through the BIP layer based on the new Taproot protocol, with miners updating the underlying code to support OP/ZKP verification and BTC miner calculations. However, there is still a long way to go to achieve rollup implementation.
Sidechains are completely independent chains. Typically, by reflecting BTC from the mainnet to the sidechain, new assets are issued to reflect and apply to native assets. Sidechains generally have better processing speeds but face trust and consensus issues as they are completely independent chains separate from the BTC mainnet. They are also prone to project misconduct, which can affect the security of the reflected assets. This is the TVL dilemma that sidechains commonly face.
BounceBit aims to overcome the consensus and trust issues of sidechains by combining centralized custody and sidechain technology. In the current environment, this hybrid model of centralization and decentralization may provide a compromise solution to address technical and trust issues. BounceBit’s design concept and the background of its development team give it an advantage in competition and open up space for exploring new opportunities.
Future Outlook
With the approval of BTC spot ETF, institutions and individuals worldwide are continuously increasing their BTC holdings, leading to the rise in BTC price. Currently, it has climbed to the top ten assets in global market capitalization. At the same time, in this market cycle, BTC scalability and BTC infrastructure have become two highly focused sub-tracks. The progress of BTC has excited the market and attracted more attention to the BTC ecosystem, exploring more asset application scenarios and income possibilities.
As a CeFi+DeFi product, BounceBit demonstrates innovation in its product model. By combining centralized and decentralized mechanisms, BounceBit introduces three-party custody to solve trust issues, generating new EVM on-chain assets to unleash the financial attributes of native assets. It may become a solution for the new BTC ecosystem.
HTX Ventures believes that there will be more technical developments and breakthroughs in the BTC ecosystem in the future, as well as the emergence of more ecosystem projects. This is an exciting and anticipated prospect for the entire crypto market. In the current stage, BounceBit’s CeFi+DeFi mechanism has good potential for TVL growth, offering opportunities for diversified income exploration of BTC ecosystem assets.
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