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Home ยป Mastering the Full Liquidity Chain: How StakeStone Expands into the BTC Ecosystem?
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Mastering the Full Liquidity Chain: How StakeStone Expands into the BTC Ecosystem?

Apr. 12, 20247 Mins Read
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Mastering the Full Liquidity Chain: How StakeStone Expands into the BTC Ecosystem?
Mastering the Full Liquidity Chain: How StakeStone Expands into the BTC Ecosystem?
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StakeStone and Merlin Chain, two heavyweight projects in the Bitcoin ecosystem, have joined forces to expand the boundaries of Bitcoin’s development. Foresight News invited Blue Wharf, core contributor of StakeStone, and Jeff, founder of Merlin Chain, to discuss the significance of this collaboration and its impact on the Bitcoin ecosystem.

Host: Peng SUN, Researcher at Foresight News
Guests: Blue Wharf, Core Contributor of StakeStone; Jeff, Founder of Merlin Chain

Positioning

Host: Please introduce yourselves and your respective projects.

Blue Wharf (Core Contributor of StakeStone): Hello everyone, I’m Blue Wharf from StakeStone. StakeStone is a full-chain liquidity distribution protocol that primarily serves liquidity assets in the market. Before the rise of the Bitcoin ecosystem, the main liquidity assets in the market were based on Ethereum. However, during the development of the Bitcoin ecosystem, we realized the potential of BTC as a new liquidity asset. Based on the vision of liquidity distribution, we chose to fully integrate and support Bitcoin assets.

For Ethereum assets, our protocol’s structure is very clear. Users provide liquidity assets to us, and we distribute them continuously through the transition layer, earning risk-free returns. We support various consensus mechanisms such as PoS, restake, AI, and RWA. We are not an LP (Liquidity Provider), and ETH is one of our underlying consensus assets. As more consensus mechanisms appear in the market, we will also support more underlying consensus assets, as they are essentially risk-free.

In addition to consensus assets, if there are further risk-free underlying assets similar to RWA in the market, our protocol can also support them. Each underlying asset is a strategy, and this strategy is pluggable. Our entire protocol structure is designed to distribute liquidity to various risk-free underlying assets. After the emergence of interest-bearing assets, we distribute them to various chains and their application layers, creating a liquidity distribution protocol based on mainstream assets.

With the growth of the Bitcoin ecosystem, we realized that Bitcoin had the opportunity to generate interest for the first time. By creating interest-bearing Bitcoin assets and distributing liquidity downstream to various chains and their application layers, this became possible. At the beginning of this project, in line with the vision of our long-term liquidity distribution protocol, we officially announced the interest-bearing BTC asset “mSTONEBTC” for the Bitcoin ecosystem.

Jeff (Founder of Merlin Chain): Hello everyone, I’m Jeff, the founder of Merlin Chain. Since last year, we have been developing and building protocols on the Bitcoin layer one and launched the Bitcoin scaling solution, Merlin Chain, this year. Our main goal is to enable Bitcoin assets to have smart contracts on layer one and to have better liquidity in an efficient and low-cost environment. This will also facilitate the integration of more applications such as DeFi, gaming, and social networking.

Since the launch of Merlin Chain in February, we now have nearly 2 million active addresses and nearly 40,000 BTC and a large amount of other Bitcoin native assets on the chain. We also announced our collaboration with StakeStone, aiming to ensure decentralization of the entire network and enable the Oracle on the network to handle more data verification and network security maintenance.

Host: What is the core narrative and positioning of StakeStone?

Blue Wharf (Core Contributor of StakeStone): In April last year, we had in-depth discussions with liquidity providers and realized that it was difficult for them to provide liquidity using native Ethereum due to the approximately 4% staking income of native ETH. Settlement is based on ETH and the interest is settled in ETH. When a public chain absorbs ETH liquidity, it faces a 4% PoS opportunity cost. This 4% opportunity cost should not be underestimated because it is settled in Ethereum, which means that if you are a public chain token such as Manta, you need 10% of Manta tokens to cover this 4% opportunity cost.

For projects within the Manta ecosystem, they would need an annualized return rate of possibly 20% to cover the PoS cost. We believe this is a huge contradiction and an irreconcilable one in the industry. When LSDfi became hot in April last year, the contradiction surfaced during the Shanghai upgrade process. Since then, we realized that the history of ETH as a liquidity asset was about to change.

Because ETH is no longer the most efficient asset in terms of capital efficiency, it means that someone needs to come forward and create a new liquidity asset carrier that can replace the liquidity attributes of ETH. This new Ethereum asset will serve as a new liquidity standard, covering all opportunity costs, allowing various public chains and others to continue their necessary ecological development at a lower cost. We believe this is a huge problem and opportunity in the industry, so StakeStone was born in April last year. In fact, when we initially discussed with many chains and projects, people didn’t fully understand this concept. It wasn’t until Blast stood up to create a Layer2 solution with interest-bearing capabilities and exposed the biggest problem to the entire industry.

At that time, we were the only solution provider in the industry, and Manta was the first to adopt this solution. Our collaboration with Manta was very successful because we not only identified the problem but also solved it, as Blast would only have a solution after three months. Seven months ago, we had already paid attention to and solved this issue, so our collaboration with Manta was very successful. Since then, projects have started using new solutions to attract liquidity. We don’t trust any underlying assets on the chain because the underlying assets in this industry are constantly changing. Therefore, StakeStone was designed as a protocol compatible with multiple underlying assets. Currently, Ethereum is the largest risk-free underlying asset, but if there are iterations in a few months, everyone will understand the meaning and value of StakeStone as an upstream liquidity protocol.

The same logic applies to the Bitcoin ecosystem. We will continue to use our protocol, not without code changes. We will continue to do some customized development for BTC, solving similar problems. For example, BTC definitely needs a carrier to solve the opportunity cost. Our positioning and vision have always been to distribute liquidity assets to improve the liquidity efficiency of the entire Web3 industry.

Host: What strategic considerations are reflected in your entry into the Bitcoin ecosystem through interest-bearing BTC? How will your collaboration with Merlin Chain be carried out?

Blue Wharf (Core Contributor of StakeStone): We couldn’t have predicted the explosive growth of the Bitcoin ecosystem to what it is today. Our initial idea was that in the early stages of the Bitcoin ecosystem, the scale of Bitcoin as a liquidity asset was far behind Ethereum. Therefore, the Bitcoin ecosystem also needs a larger and better liquidity asset as a corresponding settlement asset.

So when we first started working on the Bitcoin ecosystem, we collaborated with Merlin Chain to provide interest-bearing ETH. With the development of the Bitcoin ecosystem, we realized that relying solely on interest-bearing ETH for liquidity in the Bitcoin ecosystem was no longer sufficient. This is why we decided to further develop interest-bearing BTC. Currently, there are two ways to implement interest-bearing BTC. One is similar to the Babylon approach, where a timestamp is created on another chain and invoices are issued on the chain. The other is to issue invoices directly on the Bitcoin chain.

The first approach appears to be very Crypto Native because the asset’s staking is done on the public chain. However, there is a big problem with this approach: Layer1 itself does not have interest-bearing capabilities, so those who choose this approach must seek a true source of interest. Moreover, Layer1 itself does not have the interest-bearing capabilities.

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