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Bitcoin has long been associated with the HODL philosophy—holding onto it for long-term capital appreciation.
While this strategy has been a bedrock of the crypto economy and led to institutional acceptance through ETFs, it has also become a limitation. Many Bitcoin holders are doing little more than waiting for their assets to appreciate, with most Bitcoin sitting idle on exchanges and wallets through multiple market cycles.
In contrast, Ethereum, with only a third of Bitcoin’s market cap, has outpaced Bitcoin in expanding its use cases and providing value across diverse applications.
Ethereum's ecosystem is vibrant, with new use cases and applications continually emerging, not just for Ethereum but for other L1s and L2s as well. This dynamic environment has positioned Ethereum as a more versatile ecosystem, capturing the interest and engagement of the broader crypto community.
Introducing Yield to Bitcoin
How can we change this dynamic for Bitcoin? By introducing yield. Allowing Bitcoin holders to earn while HODLing can add an entirely new dimension of value.
Our Bitcoin-backed PBTC, a liquid yield token, is designed to do just that. It offers a new value proposition by generating yield for Bitcoin. This product is ideal for investors seeking reliable and sustainable passive income, enabling them to grow their Bitcoin holdings while continuing to HODL.
PBTC offers simple and easy access to transparent, real, and scalable on-chain Bitcoin yield.
The introduction of yield is NOT the only value proposition.
In this article (divided into two parts), we focus on the genesis of yield and highlight its implications for the future direction and potential on-chain boom. For another relevant article about the Bitcoin yield/staking landscape, click here.
Learning from Other Protocols
Several protocols have already made significant explorations into the business models and designs of tokenized or wrapped BTC. These efforts have been championed by many DeFi pioneers, providing compelling evidence that these assets can be feasible and sustainable.
They have proven the demand. But existing options aren’t good enough and can be attributed to multiple factors:
- Centralized Issues
- Lack of Sustainable and Clean Yield
- Unknown Security Risks and Vulnerabilities
- Friction with Risk-Averse Holders and Institutions
- Restricted Liquidity
- Lack of On-Chain Attestations
- Lack of Interoperability
Addressing the Gaps with Photon’s PBTC
Photon’s PBTC is designed to support Bitcoin and its long-term holders while providing them with:
- Yield
- Liquidity
PBTC is backed by native Bitcoin, wrapped/tokenized Bitcoin, or Bitcoin’s liquid staking token (LST). This backing ensures that PBTC retains the intrinsic value of Bitcoin while unlocking new potentials.
We opt for a decentralized framework or trust-minimized solution, involving multiple institutions and stakeholders to oversee backing collaterals, minting processes, and yield generation.
While Photon Labs attempts to minimize trust assumptions across all areas of the infrastructure, certain trust assumptions need to exist to mitigate security risks and enable scaling. Trustless is ideal, but it’s important to recognize that relying on maximally decentralized solutions involves a variety of trade-offs too.
PBTC is structured around these main pillars where the model can always be validated on-chain, publicly disclosed, or assessed independently by the public:
- Proof of Custody: Ensuring that all Bitcoin backing PBTC is securely held and transparently accounted for.
- Proof of Yield: Proving that the yield generated by PBTC is real, sustainable, and transparent.
How It Works (Simple Version)
- Deposit Your Bitcoin: Users deposit their Bitcoin into the Photon protocol to start the minting process, with collateral secured by industry-leading MPC custody backed by accurate and transparent attestations all all times.
- Receive PBTC Liquid Yield Token: Once deposited, Photon will mint the tokenized BTC that can be redeemed for BTC at any time.
- Earn Yield: Assets backing PBTC engage in yield-generating strategies, including Bitcoin staking and market-neutral basis trading, again backed by attestations.
- Access BTCfi: Holders can continue using PBTC as a standard asset, which can be utilized and integrated with various DeFi use cases.
Photon makes earning yield on Bitcoin incredibly easy while HODLing with a trust-minimized framework, without giving up custody and liquidity.
In the second part of this blog post, we will dive into the mechanics of creating PBTC, its architecture, and our value propositions through Proof of Custody and Proof of Yield.
Stay tuned to learn more about how PBTC can change the dynamics about holding and earning with Bitcoin.
