Merlin Chain: Innovative exploration of Bitcoin interest-bearing

Original source: Merlin Chain

The current market value of Bitcoin has exceeded 1.3 trillion US dollars, but its potential value has not been fully released because it does not support smart contracts and has problems such as expansion. In contrast, EVM-based tokens such as ETH have shown considerable returns under the blessing of a prosperous ecosystem.

BTC ETF has brought in a large amount of institutional funds, and as the Bitcoin halving approaches, the income of Bitcoin miners is about to decline again. How to make the BTC in hand obtain passive income has become an urgent problem to be solved. However, unlike Ethereum, Bitcoin is not a POS network and has no native staking income; it also cannot run smart contracts. Therefore, under the premise of ensuring security, improving the capital efficiency of BTC has become an important task for Bitcoin Layer 2.

As the current leader of Bitcoin Layer 2, Merlin Chain has always been committed to finding a breakthrough in BTC interest generation. This article will introduce a series of interest-generating gameplay and security guarantees of Merlin Chain, providing new ideas for participants in the Bitcoin ecosystem.

PoS node pledge mechanism and stMBTC

Merlin Chain adopts a multi-token PoS consensus mechanism. Users can pledge BTC, MERL or other mainstream BRC20 assets to compete for node qualifications. Users who pledge BTC will receive LSD tokens stMBTC at a 1:1 ratio. The re-staking of stMBTC is the core of BTC interest generation on Merlin Chain.

Before explaining the specific benefits, let’s take a look at the "underlying needs" and "security guarantees" that everyone is most concerned about.

Re-staking requirements of ecological protocols

Middleware, application chain and other protocols usually face the following problems:

1. Cost and threshold are too high: Need to build and maintain your own AVS (actively validated service), which consumes a lot of resources

2. Security is difficult to guarantee: Validators are usually required to stake their own native tokens. The security is directly related to the value of the staked tokens. Under the fluctuation of the currency price, the risk exposure of the protocol also changes accordingly

Merlin Chain's Security

The security of blockchain depends on its destruction cost. The key to ensuring security is to ensure that the destruction cost is higher than the destruction benefit.

Previously, existing articles have described in detail the various security measures of Merlin Chain. Here are just a few points:

1. After the user pledges the assets, the assets at the first layer of Bitcoin will be deposited in the MPC multi-signature wallet jointly managed by Cobo and Merlin Chain, avoiding single-point risk. Cobo is a well-known digital asset custody service provider in the industry, founded by Shenyu. This provides security for Merlin Chain’s pledged assets from the perspective of institutional reputation and law.

2. Merlin Chain has designed a complete penalty mechanism, which uses potential penalty risks to constrain node behavior. If a node behaves maliciously, the pre-pledged assets will be deducted as user compensation.

3. Merlin Chain supports multiple asset pledges including BTC and MERL, and multiple tokens play a role in mutual value support to avoid network risks caused by price fluctuations of a single token.

4. Merlin Chain plans to introduce the Bitcoin Time Stamping mechanism to store Merlin Chain’s on-chain historical records in the Bitcoin layer, and use Bitcoin’s timestamp to avoid long-distance attacks.

By using stMBTC as a pledge token and setting up a separate penalty mechanism, the ecological protocol can enjoy the same security as Merlin Chain and improve economic efficiency.

· No longer need its own AVS saves a lot of time and money and reduces operating costs.

· Since Merlin Chain adopts a multi-token staking mechanism, the value fluctuation risk of a single token is dispersed.

· BTC’s strong consensus and Merlin Chain’s penalty mechanism provide trust guarantee for stMBTC.

In addition, for users who are interested in maintaining the Merlin Chain network but whose hardware equipment and funds are temporarily unable to meet the requirements, Merlin Chain has launched a delegated pledge mechanism to achieve greater decentralization.

The delegator can entrust his tokens and rights to the node, which will pledge them to Merlin Chain and distribute the corresponding stMBTC and the portion of the proceeds to the delegator.

Each node can set up a delegation contract to specify how the proceeds are distributed to the delegator. In addition, if the node behaves maliciously, the interests of the delegator will also be damaged. Therefore, the delegator must choose a trusted node for delegation.

For ecological protocols

· Enjoy the collective security of the Merlin Chain ecosystem

· You can devote more time, energy and resources to project innovation

For nodes and delegators

· You can obtain node income, including network fees $BTC and node rewards $MERL, and reinvest them in node operation/delegation

· You can use stMBTC to participate in the staking of Merlin Chain ecological projects, obtain multiple benefits and governance rights without occupying more funds, and maximize capital utilization

stMBTC re-staking income

stMBTC can be used for RPC nodes, DA, Oracle, MEV management, cross-chain bridges, Rollup With the development of Merlin Chain ecology, infrastructure and application chains will usher in a big explosion, and the channels for obtaining re-staking income of stMBTC will gradually expand.

In addition, users can pledge stMBTC to the re-staking agreement of Merlin Chain ecology to further obtain income, including:

1. Solv Protocol

Pledge stMBTC can mint Merlin Chain's liquidity strategy token $SolvBTC at a 1:1 ratio, achieving risk-free income based on currency standard.

The source of SolvBTC's income is a combination of multiple neutral trading strategies, including Perp DEX market-making income, Funding Rates neutral escape strategy, etc., which ensures stable income while minimizing the impact of market price fluctuations on income.

2. StakeStone

mSTONEBTC is the first income-generating BTC derivative token issued by StakeStone based on the BTC Layer 2 PoS mechanism.

stMBTC can be used to exchange mSTONEBTC 1:1, thereby entering the StakeStone liquidity distribution network and enjoying the benefits of mainstream staking pools, re-staking pools, and LSD blue chip DeFi strategies.

Merlin Ecosystem DeFi Income

stMBTC and tokens such as SolvBTC and mSTONEBTC obtained through the re-staking agreement can be used to participate in a series of DeFi in the Merlin Chain ecosystem to obtain additional income.

DEX

Purpose: Provide liquidity for DEX trading pairs and earn fees

Protocol: MerlinSwap

Stablecoin

Purpose: Pledge to mint stablecoin

Protocol: bitSmiley

Derivatives DEX

Purpose: Pledge for derivatives trading

Protocol: Surf Protocol

Lending Protocol

Purpose: Pledge lending

Protocol: Mage Finance, Avalon Finance

LaunchPad

Purpose: Used to participate IDO

Protocol: MerlinStarter, UniCross

Off-chain CeFi income

After users pledge BTC, MERL and other mainstream BRC20 assets to Merlin Chain, these assets will be deposited in the MPC wallet managed by multiple parties, thereby minimizing single-point risk.

Users can choose to apply CeFi (centralized finance) custody services for layer 1 assets. Merlin Chain works with top asset management teams that have maintained positive returns for a long time to mirror users' on-chain assets on exchanges and achieve over-the-counter settlement. Users can safely access the deep liquidity of exchanges and earn income through diversified trading strategies.

Access to CeFi will bring significant off-chain financial market gains to Merlin Chain's pledged assets, including pledge mining, lending services, and investment products.

Babylon pledge income

In addition to CeFi, users can also choose to use Babylon's pledge protocol for BTC pledged on layer 1 to earn pledge income.

Babylon's pledge is trustless and non-custodial. The pledged BTC will be retained in the multi-signature wallet without transfer, and can be applied for unstaking at any time and returned in just a few days. Users can also choose to stake BTC to multiple PoS networks to achieve additional benefits.

In addition, Babylon will provide further consensus security protection for Merlin Chain. It stamps the on-chain information of Merlin Chain with Bitcoin timestamps, thereby borrowing the security of Bitcoin as a timestamp server.

Applying re-staking on Bitcoin with PoW consensus is by no means an easy task. It is full of challenges and is also the key to activating Bitcoin's huge liquidity. As the leader of Bitcoin Layer 2, Merlin Chain has made many attempts in the field of BTC re-staking, including product development and ecological cooperation. It is expected that Merlin Chain, as a navigator, can open up new paths and bring more possibilities to the Bitcoin ecosystem and the entire crypto industry.

This article comes from a contribution and does not represent the views of BlockBeats

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