Most successful crypto investors will agree that it’s always good to hold a substantial amount of Bitcoin in your digital asset portfolio, as it’s the oldest, most valuable, and most secure token there is. Yet doing so comes at a disadvantage because Bitcoin is one of the few digital currencies that can not easily be used to generate yield.
This is why much of the Bitcoin circulating supply in the market is simply left idle, sitting in the wallets of countless users who do nothing more than hope the price will increase. This is known as “HODL”, and while it could be extremely profitable in the past as Bitcoin made some astonishing gains, most believe those days are long gone.
With Bitcoin now valued at around $100,000, it’s unlikely to shoot up like it did in the early days of crypto. But that does not mean Bitcoin holders have to be content with just moderate gains.
In the wonderful world of DeFi, there are ways to put Bitcoin to work. One of the most popular methods is to use Bitcoin to mint wBTC, or “wrapped Bitcoin”, which is an ERC-20 token on the Ethereum blockchain. It’s possible to swap your BTC for wBTC on a 1:1 basis, and then use those wBTC tokens to participate in activities like lending, borrowing, and liquidity provision via various Ethereum-based DeFi platforms.
But although wBTC can be rewarding, it’s not a very good option for those who value the decentralized nature of crypto. The downside to wBTC is that it’s an extremely centralized token. To mint fresh wBTC, it’s necessary to deposit BTC tokens with an intermediary known as BitGo, which acts as a custodian for all of the collateral that backs the wBTC in circulation.
This is necessary to prop up the value of wBTC, but it creates an enormous risk, as BitGo has become a high-value target for hackers, keen to extract the billions of dollars in value that live within its wallets.
Admittedly the risk of BitGo being hacked is small, as it has successfully avoided doing so thus far. But just because it has not been hacked yet does not guarantee it is 100% safe in the future. Add to that, there is always the risk that BitGo might misbehave.
We know from the earlier episode with the FTX exchange that seemingly reputable crypto companies can and do get up to no good, using their customer’s deposits to make risky investments and so on. While FTX’s founder Sam Bankman-Fried did not intentionally lose his customer’s funds, the fact is that he was extremely reckless and ultimately did exactly that.
A Safer Way To Use BTC in DeFi
Fortunately, there is a much safer way to generate yield on Bitcoin without accepting the risks of centralization. Thanks to advances in Bitcoin’s programmability, BTC holders now have the option to put their capital to work in Solana’s DeFi ecosystem, while avoiding relying on any intermediaries or custodians.
This is all thanks to a new protocol called Zeus Network, which has created a permissionless gateway that unlocks greater potentials for BTC on the Solana blockchain, where it’s represented as zBTC token. Users can swap their BTC for zBTC, and use it to participate in a DeFi ecosystem that is fast catching up with that of Ethereum.
Zeus has built a pluggable architecture that enables zBTC to leverage the secure foundation of Bitcoin itself while benefiting from the rapid transaction throughput of the Solana blockchain. Having recently validated its first BTC transaction on Solana, Zeus demonstrates the potential to deliver a winning combination, merging the most secure blockchain with the most efficient of them all.
The key is Zeus’ APOLLO dApp, which simplifies the process of transferring BTC to Solana. To use it, simply connect your Bitcoin wallet and deposit BTC into the dApp, and it will mint an equivalent number of zBTC tokens. Because the deposit acts as collateral, it means zBTC’s value is always pegged to that of BTC, similar to how wBTC is.
However, the difference is that Zeus doesn’t use any custodians. Instead, the tokens are locked up in a smart contract that’s controlled by the Zeus protocols’ network of validators and guardians, meaning a kind of decentralized custody.
The key thing to understand is that no single validator or guardian can access any of the deposit BTC. This can only be done when the network’s participants reach a consensus, and in turn, that can only happen when the rightful owner of the BTC burns the zBTC tokens they originally minted.
Zeus created a number of technological innovations to facilitate this system, including something known as “bidirectional hooks”. Meanwhile, the APOLLO dApp acts as a kind of integration layer that makes Solana’s DeFi ecosystem accessible.
The way it works is that when a user wants to deposit BTC to mint zBTC, nodes will propose a transaction and submit it to a program state. This creates a programmable signature, and then the nodes relay signed transactions to the Solana network. When any nodes try to act maliciously, they will certainly be caught by others, meaning their SOL deposits will be slashed as punishment. This process ensures that Zeus’s protocol is always protected.
It’s a simple, elegant way for BTC holders to access a growing range of popular DeFi dApps on Solana and start earning yield on their holdings. No longer must they be satisfied with mere “HODLing”, for they can take their capital to dApps like MarginFI, Solend, and Kamino Finance and find numerous yield-generating possibilities.
Of course, with Zeus locking up their original BTC deposits, all the users will still be happy if the price of BTC jumps significantly.
Institutional Demand For BTC Yield
Given the significant upswing in institutional capital flowing into Bitcoin over the last year, Zeus is an extremely timely and promising innovation. Some of the biggest investors in Bitcoin these days are the new exchange-traded funds or ETFs that emerged last year, and their institutional backers won’t be satisfied with just sitting and holding the asset when there are possible revenue-generating opportunities to be had.
Now consider this – Blackrock’s iShares Bitcoin Trust ETF alone held more than $59 billion worth of BTC assets at the time of writing. That’s an awful lot of capital and a lot of responsibility on the shoulders of BlackRock’s representatives.
The temptation to use a noncustodial communication layer like Zeus to earn a yield on those deposits is huge, and it will increase if the price of Bitcoin fails to increase significantly, as its ETF customers are expecting to see significant returns.
Zeus provides institutions exposed to Bitcoin with an unprecedented opportunity, not only to earn yield but do so while taking advantage of Solana’s efficient blockchain infrastructure, which boasts the fastest transaction speeds and among the lowest gas fees of any decentralized network. By utilizing Solana-based DeFi instead of Ethereum, institutions can avoid the bottlenecks associated with traditional DeFi and maximize their yield-generating strategies.
What’s all the more compelling is that Zeus isn’t sitting still, for it has plans to expand into Bitcoin-collateralized stablecoins, which will provide further opportunities for generating yield. In addition, support for Bitcoin-based NFTs, Ordinals, and Runes is also in the pipeline.
As Zeus expands its capabilities, its association with Solana can be leveraged to position itself as the go-to tool for Bitcoin yield generation. And with Solana’s broader DeFi ecosystem itself going from strength-to-strength, there are good reasons to think it might be flooded with Bitcoin-based liquidity in the coming months, bringing benefits to every stakeholder involved.
