Build it and they will come may not be enough for Bitcoin DeFi

Welcome to Slate Sunday, CryptoSlate’s weekly feature showcasing in-depth interviews, expert analysis, and thought-provoking op-eds that go beyond the headlines to explore the ideas and voices shaping the future of crypto.

I’m balanced on a box with a spotty WIFI connection and a glitching computer. Moving house disrupts literally every aspect of your life, yet I’m determined to maintain an unbroken workflow.

It kind of lends itself to crypto anyway. The number of meetings I’ve taken from an airport, theme park, or some other random place is racking up.

In the spirit of building the airplane as we fly, I expect Alexei Zamyatin, the mastermind behind the BTCFi project Build on Bitcoin (BOB), has done the same. He doesn’t seem to mind as I’m thrown out of our call halfway through our chat and have to reconnect.

One quick tether from my phone and we’re back in business. I want to pick his brains on one of the most misunderstood concepts in crypto: Bitcoin DeFi. What is it, what’s wrong with it, and does it even matter for Bitcoin holders still clutching their keys in silent conviction?

‘Blockchain, not Bitcoin’, and back again

Alexei got into Bitcoin through a back door, “like many people did.” With a background in computer science, he started working at an IT research center in Austria, where his colleagues were “really excited about privacy and censorship resistance.” That naturally led him to Bitcoin.

Fascinated by blockchain technology, he soon turned his attentions from Bitcoin to other altcoins and their functionality. Besides stacking and holding, Alexei saw a world of possibilities:

He admits that his position changed fairly quickly once he understood the real value of BTC as an asset, and he set about finding ways to combine the technology of smart contract platforms like Ethereum with Bitcoin as the asset.

Alexei then fell down the rabbit hole of merge mining and cross-chain bridges, co-authoring early work on Ethereum rollups, before founding BOB:

Finding the pain points

Yet the world of BTCFi is still emerging, and it all feels somewhat stuck in first gear compared with glitzy Ethereum L2s and dApps. Why is that? Alexei doesn’t sugarcoat it:

Wrapping, bridging, risk, these are the sticky realities, and don’t forget the users themselves. According to a recent survey by GoMining, 77% of Bitcoin holders have never even tried Bitcoin DeFi, and 65% can’t name a single BTCFi project.

CEO of GoMining, Mark Zalan (who’s about as old-school banking as they come, running IT for large commercial banks), confirms it’s not just Bitcoin users getting lost. He told me:

Not all users will jump through hoops

Mark says there will always be initial adopters who are technical in nature, focused on the product, and able to “jump through a particular set of hoops, because that’s what early adopters do.” But to draw in a wider base, BTCFi has to meet the rest of its userbase where it’s at. He shares:

For Alexei, it’s a two-fold dilemma. He concedes that the UX is “mainly for experts,” better navigated by those with computer science degrees. But the incentives of holding Bitcoin also need improving.

Building something different

So what does BOB actually offer? Alexei claims to provide the easiest and safest way to earn with Bitcoin. BOB Gateway taps into the best of both Bitcoin and Ethereum, enabling multi-chain Bitcoin yield and swaps on any chain with just one click.

Users effectively become validators on the network and are prevented from carrying out malicious actions like double-signing because they can be slashed and have their BTC removed.

This fraud-proof, validator-slashing approach is more than just a technical pitch; it’s a defense against the nightmare scenario:

And best of all? Unlike some other services that allow users to earn rewards in another token, as it’s native Bitcoin, the rewards are paid in BTC.

Who needs Bitcoin DeFi anyway?

But is this really for the crowd that bought Bitcoin just to hold and watch? Mark recalls many conversations at The Bitcoin Conference in Vegas in May, saying:

Yikes. If Bitcoin DeFi is complicated for Bitcoiners, who are generally orders of magnitude more tech-savvy than you’re average consumer, what hope is there for the rest of the world?

Alexei is diplomatic:

He points out that the same predicament is true for BTC holders. While Bitcoin is generally accepted as a good hedge against inflation, it’s still not maximizing yield by sitting idle:

Bob Gateway is all about access, allowing users to connect simply and natively to multiple chains and stake their BTC, uncomplicating some of the sticking points of other existing solutions.

What’s next for BTCFi? And what could go wrong?

With every big chain chasing Bitcoin liquidity, BOB is determined to be the “shovel seller” in the next gold rush. And the early results?

Can anything go wrong with Bitcoin DeFi? Alexei concedes that there’s always “technical risk” with open-source protocols but says it decreases over time as more people use and verify them. And as for malicious actors? Well, there’s no incentive:

As Bitcoin DeFi evolves and the userbase grows more sophisticated, I ask Alexei if anything else concerns him, like the institutionalization of the space, and the ravenous appetite of entities like Strategy and Metaplanet gobbling up the BTC supply.

He’s by no means blasé about the risks, but points out that the benefit of Bitcoin’s proof-of-work system, unlike proof-of-stake, is that holding more Bitcoin doesn’t give you more control of the network. In that respect, Michael Saylor’s strategy isn’t a threat. However, it’s important that we don’t simply recreate traditional finance on blockchain rails.

Final thoughts

There’s a clear sense, even from founders, that Bitcoin DeFi is still a market in the making; less “Apple Store experience” and more command line.

The gold rush is on, but there are still plenty of hills to climb: native yield, user experience, an education gap, and the ever-present shadow of centralization.

If the problems get solved, the next wave of Bitcoiners may never settle for just HODLing again. But for those in the trenches, that’s a pretty big if for now.