Introduction:

This article shares how pSTAKE Finance integrates Babylon’s groundbreaking features into its liquid staking solution in the evolving Bitcoin DeFi ecosystem. It also introduces investment opportunities in this protocol and highlights the associated risks.

With its untapped potential, the Bitcoin ecosystem is gradually becoming the next focal point of this bull market. pSTAKE Finance, as the first BTC LSD (Liquidity Staking Derivative) project successfully launched and unlocked, is leading the innovation in liquidity within the BTC ecosystem.

Coinciding with the recent Bitcoin conference, pSTAKE Finance has again become a focal point in the market.

How exactly has pSTAKE Finance transitioned to BTCfi? What are the operational logic and innovative mechanisms behind it? This article will delve into the liquid staking mechanism of pSTAKE Finance, exploring its innovative highlights within the Bitcoin ecosystem and potential profit opportunities.

pSTAKE Finance: A Liquid Staking Protocol Unleashing the Potential of BTCFi

What is pSTAKE Finance?

pSTAKE Finance Protocol

pSTAKE Finance, launched in 2021, is a multi-chain liquid staking protocol focused on enhancing the security of PoS (Proof of Stake) blockchains such as Ethereum, Binance Chain, and Cosmos. Through community governance involving pSTAKE Finance token holders, the protocol’s features and products are continuously iterated, aiming to become the leading LST (Liquid Staking) protocol on Cosmos and BNB Chain.

Source: pSTAKE Finance

However, with its shift to BTCfi this year, pSTAKE Finance’s development path has undergone significant changes, focusing on Bitcoin yield and liquid staking.

Project Highlights

Due to Bitcoin’s lack of native smart contract functionality and limited interoperability with other blockchains, along with the core community’s reluctance to alter Bitcoin’s asset mechanism, many Bitcoin-based liquid staking protocols have progressed slowly.

However, pSTAKE Finance is leveraging its early exploration and innovation in LSD (Liquid Staking Derivatives) within the Bitcoin ecosystem. By launching a Bitcoin liquid staking solution with Babylon, this approach does not transfer BTC to other chains. Instead, it uses a Remote Staking mechanism to transmit Bitcoin’s security benefits to other chains, thereby realizing its economic utility.

Source: pSTAKE Finance

pSTAKE Finance is expected to help Bitcoin fully unleash its consensus economic value and liquidity, becoming a driving force behind the BTCFi wave.

pSTAKE Finance Team Development

pSTAKE Finance was developed by the Persistence team, which also created the Layer 1 blockchain network of the same name and launched the native token $XPRT.

The project was founded by Tushar Aggarwal, a graduate of Nanyang Technological University in Singapore, who has held key positions at various crypto funds and Outlier Ventures. He has been dedicated to promoting liquid staking within the Cosmos ecosystem. In 2019, Tushar co-founded Persistence with Mikhil Pandey, a University of Mumbai graduate. They subsequently launched the pSTAKE Finance project in 2020.

The co-founder and CTO, Deepanshu Tripathi, founded the one-stop NFT service platform AssetMantle in 2022.

Abhitej Singh, the head of ecosystem and marketing, and project lead, Mikhil Pandey, both bring extensive experience in their fields. Abhitej previously worked at BLOCK42.network and Cosmos India, while Mikhil, a senior member of Persistence, has advanced from a market research assistant to overseeing strategy and business development.

Funding Status

pSTAKE Finance has announced three rounds of funding to date.

Source: rootdata

In November 2021, pSTAKE Finance completed a $10 million seed round, led by Galaxy Digital and DeFiance Capital, with participation from Aave’s Head of Institutional Business, Ajit Tripathi, and Terra founder, Do Kwon.

A month later, pSTAKE Finance conducted a public fundraising round on CoinList, raising $10 million and reaching a valuation of $20 million.

In May 2022, pSTAKE Finance received strategic funding from Binance Labs, though the amount was not disclosed.

Business Scale

According to DeFiLlama, as of the writing date, the protocol’s Total Value Locked (TVL) exceeds $5 million, with $ATOM accounting for 64.83% and BTC following at 16.73%.

Image 4. Source: DeFiLlama

According to official disclosures, Testnet V1 was launched on June 18, and the mainnet for pSTAKE Finance’s BTC Liquid Staking solution was launched at the end of July, with over 32K users and a TVL of 14.92 BTC.

Tokenomics of $PSTAKE

The $PSTAKE token has a total supply of 500 million tokens and was listed on Gate.io in April 2022. The circulating supply is nearly 88%, with a market cap of $34 million.

Compared to the current TVL (Total Value Locked) of $5 million, the token’s market cap might not appear particularly low. However, considering the enormous potential for unlocking Bitcoin liquidity, the token also has room for appreciation.

Source: Gate.io

It is important to note that, similar to $UNI, the $PSTAKE token is used for voting on protocol improvement proposals and participating in protocol security. However, it does not yet capture protocol revenue, which could impact the economic value of the token and needs further refinement.

pSTAKE Finance’s Innovation in BTCfi Business

The Practical Background of Introducing Bitcoin Liquid Staking

Many Bitcoin holders store their assets in cold wallets, which do not generate any yield. With the rapid development of DeFi, the demand for ways to earn additional income from these idle assets has been increasing.

In the traditional staking context, token holders lock their assets on the blockchain to validate transactions and earn rewards, but this process sacrifices the assets’ liquidity. In other words, holders cannot use or trade these assets during the staking period, a major obstacle for investors seeking high liquidity.

On the other hand, developers have found that more innovative functions can be realized through the Bitcoin blockchain as the Bitcoin codebase evolves (such as the introduction of SegWit and Taproot). In particular, they can design secure solutions that allow BTC to participate in Proof of Stake (PoS) mechanisms by leveraging Bitcoin’s inherent attributes, such as timestamps and the UTXO model.

Against this backdrop of growing investor demand and technological advancements, pSTAKE Finance and Babylon have teamed up to unlock the liquidity of Bitcoin, turning it from a mere store of value into an active yield-generating asset. This transformation highlights several key benefits:

• Yield Generation: The traditional “HODL” strategy of Bitcoin limits the yield for holders. Liquid staking allows holders to earn income while holding Bitcoin, enriching Bitcoin’s value proposition.
• Attracting New Investors: Introducing Bitcoin yield mechanisms will provide more opportunities for all retail investors and open the door for heavyweight institutional investors. This may persuade them to continue investing billions in Bitcoin through ETFs, as they can increase capital efficiency by generating income.
• Enhancing Market Stability: By introducing staking and yield mechanisms, Bitcoin’s volatility can be effectively reduced, attracting more risk-averse investors and promoting market stability and prosperity.
• Integrating into the DeFi Ecosystem: Liquid staking enables Bitcoin to be more deeply integrated into the DeFi ecosystem, enhancing its position in the cryptocurrency market and unlocking more ecological use cases.

How does pSTAKE Finance’s Bitcoin Liquid Staking Solution Work on Babylon?

To understand pSTAKE Finance’s BTCfi solution, we first need to learn about Babylon, a revolutionary Bitcoin staking protocol. Babylon is a security-sharing protocol that allows users to stake Bitcoin to secure another PoS blockchain and earn rewards. Its innovation lies in leveraging the security of Bitcoin’s proven PoW network and applying it through its second-layer security solution to PoS networks. Most importantly, users cannot transfer assets and can retain custody.

Leveraging Bitcoin scripts and cryptography, Babylon provides a secure avenue for staking Bitcoin across traditional PoS chains. For instance, it utilizes Bitcoin’s built-in timestamp function to transform BTC into slashable assets via UTXO destruction, deterring malicious staking behavior.

Beyond trustless staking, Babylon adheres to the principle of “Your Bitcoin, Your Rules,” allowing stakers to easily unstake at any time and redeem their BTC instantly through its checkpoint function.

So, how does pSTAKE Finance integrate Babylon’s groundbreaking features into a liquid staking solution?

• Staking Bitcoin: Users lock their Bitcoin into the pSTAKE Finance protocol to initiate the staking process.
• Receiving Liquid Staking Tokens: Upon deposit, pSTAKE Finance mints a liquid staking token (yBTC, expected in September) representing the staked assets.
• Earning Rewards: pSTAKE Finance deposits the staked assets into the Babylon Bitcoin secure sharing infrastructure, generating PoS token rewards for BTC holders by staking on Babylon’s secure shared PoS chains.
• Retaining Liquidity: Holders of liquid-staked BTC can continue using it as a standard asset, freely trading it, and utilizing it in other DeFi/BTCfi protocols that accept it.

This means users can earn passive income from their BTC without sacrificing its liquidity, offering a win-win situation for BTC holders.

Overall, pSTAKE Finance simplifies BTC staking while maintaining the trust required by BTC holders through Babylon’s native staking framework. This eliminates the need for bridges or relinquishing custody, providing a secure and reliable way to earn native yields while preserving BTC liquidity.

How does pSTAKE Finance Ensure User Asset Security?

Bitcoin liquid staking is a non-custodial process, meaning users don’t need to entrust their assets to a third-party custodian. Instead, they need only trust the audited code and smart contracts.

pSTAKE Finance has implemented robust security measures to safeguard user BTC deposits. The reputable auditing firm, Oak Security, has thoroughly audited the pSTAKE Finance Liquid Staking solution. Similarly, the partner protocol, Babylon, has undergone eight security audits from renowned security firms including Red4Sec, Consensys, and Pessimistic. The protocol also partners with Immunefi to run an ongoing bug bounty program, offering up to $100,000 for the discovery of any critical vulnerabilities.

It’s worth noting that additional security checks are planned for the future.

Furthermore, pSTAKE Finance utilizes a custodial solution through Cobo, an institutional-grade custodian managing over $1.5 billion in assets.

Finally, pSTAKE Finance has partnered with leading blockchain security firms such as Halborn, Hexens, Oak Security, Immunefi, and Forta to deliver a secure liquid staking product suite.

What are pSTAKE Finance’s Competitive Advantages in the BTCfi Field?

BTCfi is still in its early stages, with new protocols like Solv, Lorenzo, Lombard, and BounceBit showing competitiveness.

While Babylon’s real trustless collateral innovation is in building high-security, seamless user experience, and novel mechanism design products, pSTAKE Finance’s expertise in these areas makes it easier for everyone to earn Bitcoin yields.

Specifically, pSTAKE Finance has the following advantages:

• Continuous focus on security;
• Over 4 years of experience in building liquid staking yields for multiple ecosystems;
• Unique product mechanism: deposit BTC and receive BTC through auto-compounding yBTC tokens;
• One-click access to diversified Bitcoin yields;
• $yBTC (yield-generating Bitcoin tokens) will be ubiquitous: Ethereum, L2s, Bitcoin L2s, etc.

Rules for BTC Staking on pSTAKE Finance

• Deposit Limits: To ensure the security of pSTAKE Finance and the stability of the Babylon protocol, the minimum deposit on pSTAKE Finance is currently set at 0.005 BTC, with a maximum cap of 50 BTC. These limits may be adjusted based on future circumstances.
• Unlock Schedule: Due to the limitations of the Babylon staking infrastructure, withdrawals from pSTAKE Finance’s BTC liquid staking are initially unavailable. Unstaking and withdrawals are expected to be enabled in the coming weeks after the V1 launch at the end of July.
• Deposit and Withdrawal Fees: There are currently no protocol fees, however, on-chain gas fees will apply, depending on the Bitcoin network.
• Rewards: Regarding rewards, once the Babylon sharing solution is live, pSTAKE Finance will deposit as much BTC as possible (similar to Ether.fi). Any rewards generated through the Babylon protocol (direct incentives/points) will be directly passed on to pSTAKE Finance users. Additionally, pSTAKE Finance is actively exploring multiple reward avenues for future versions to provide diversified earning opportunities.

How to Participate in BTC Staking on pSTAKE Finance?

Recently, Babylon has been conducting a BTC staking rewards program, and pSTAKE Finance is currently the only project offering token rewards. Interested users can participate in the program.

To stake your BTC on pSTAKE Finance, please visit app.btc.pstake.finance. For detailed instructions on how to proceed, please refer to the link below. This article will not cover the specific steps.

https://blog.pSTAKE Finance.finance/2024/06/18/bitcoin-liquid-staking-testnet-guide/

Source: pSTAKE Finance.finance

Conclusion

pSTAKE Finance’s Bitcoin liquid staking solution enables users to securely deposit BTC and passively earn incomes from Babylon’s secure consensus mechanism while maintaining the liquidity of their BTC through yBTC (a yield-bearing BTC derivative).

This solution has explored a new path for Bitcoin-based liquid staking, demonstrating great potential. The next challenges lie in expanding the use cases of yBTC, competing for users in the booming BTCfi landscape, and refining tokenomics.

As Dr. Han Lin, CEO of Gate.io, expressed at ABS 2024, blockchain technology continuously transforms, with new protocols and innovations making blockchains more efficient and powerful. Blockchain and Web3 technologies hold immense future potential. We eagerly anticipate more efficient transformations and beneficial explorations from innovative protocols like pSTAKE Finance in the future.

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