Merlin Chain: Innovative Exploration of Bitcoin Staking

Source: Merlin Chain

The current market value of Bitcoin has exceeded $1.3 trillion. However, due to its lack of support for smart contracts and scalability issues, its potential value has not been fully realized. In contrast, tokens like ETH in the EVM ecosystem have shown significant returns under a thriving ecosystem.

The BTC ETF has brought in a large amount of institutional funds. With the Bitcoin halving approaching, miners' earnings are set to decrease again. How to generate passive income from BTC has become an urgent issue. Unlike Ethereum, Bitcoin is not a POS network and does not have native staking rewards. It also cannot run smart contracts. Therefore, improving the capital efficiency of BTC while ensuring security has become an important task for Bitcoin Layer 2.

As the leading Bitcoin Layer 2 solution, Merlin Chain is always looking for breakthroughs in BTC yield. This article will introduce a series of yield strategies and security measures of Merlin Chain, providing new ideas for participants in the Bitcoin ecosystem.

Proof of Stake Node Staking Mechanism and stMBTC

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

Before discussing specific returns, let's first look at the "underlying requirements" and "security measures" that are of most concern.

Re-staking Requirements for Ecosystem Protocols

Protocols like middleware and application chains often face the following issues:

1. High Costs and Thresholds: Need to build and maintain their own AVS (actively validated service) systems, consuming a lot of resources.

2. Difficulty Ensuring Security: Usually require validators to stake their native tokens, with security directly related to the value of the staked tokens. As token prices fluctuate, the protocol's risk exposure also changes.

Security Measures of Merlin Chain

The security of a blockchain depends on its cost of disruption, with key security lying in ensuring the cost of disruption is higher than the potential gains from disruption.

Prior articles have detailed Merlin Chain's various security measures. Here are a few key points:

1. After users stake assets, the assets on the Bitcoin layer will be stored in an MPC multi-signature wallet managed jointly by Cobo and Merlin Chain, avoiding single-point risks. Cobo is a well-known digital asset custody service provider founded by Shenyu, providing security for Merlin Chain's staked assets from institutional reputation and legal perspectives.

2. Merlin Chain has designed a comprehensive penalty mechanism to constrain node behavior with potential penalty risks. If a node behaves maliciously, it will deduct pre-staked assets as compensation for users.

3. Merlin Chain supports staking of various assets including BTC and MERL, providing mutual value support among multiple tokens to avoid network risks due to fluctuations in a single token's price.

4. Merlin Chain plans to introduce the Bitcoin Time Stamping mechanism, storing Merlin Chain's on-chain history on the Bitcoin layer and using Bitcoin's timestamp to prevent long-range attacks.

By using stMBTC as the staking token and implementing a unique penalty mechanism, ecosystem protocols can enjoy the same level of security as Merlin Chain and enhance economic efficiency.

· No longer need their own AVS, saving a significant amount of time and money, reducing operational costs.

· With Merlin Chain's multi-token staking mechanism, the risk of price fluctuations of a single token is diversified.

· The strong consensus of BTC and Merlin Chain's penalty mechanism provide trust guarantees for stMBTC.

Additionally, for users interested in maintaining the Merlin Chain network but currently lack the hardware and funds to meet requirements, Merlin Chain has introduced a delegation staking mechanism to achieve a higher level of decentralization.

Delegators can delegate their tokens and rights to a node, which will collectively stake them on Merlin Chain and distribute corresponding stMBTC and earnings to the delegators.

Each node can set its own delegation contract, specifying how earnings will be distributed to delegators. Furthermore, if a node engages in malicious behavior, delegators' interests will be affected. Therefore, delegators must choose trustworthy nodes for delegation.

For Ecosystem Protocols

· Enjoy the collective security of the Merlin Chain ecosystem.

· Allocate more time, energy, and resources to project innovation.

For Nodes and Delegators

· Receive node rewards, including network fees in $BTC and node rewards in $MERL, and reinvest them in node operations/delegation.

· Participate in Merlin Chain ecosystem projects' staking with stMBTC, gaining multiple returns and governance rights without using additional funds, maximizing capital utilization.

stMBTC Re-staking Returns

stMBTC can provide security guarantees for RPC nodes, DAs, Oracles, MEV management, cross-chain bridges, Rollup sorters, and other scenarios. With the development of the Merlin Chain ecosystem, infrastructure and application chains will experience a boom, expanding the channels for stMBTC re-staking returns.

Furthermore, users can stake stMBTC in Merlin Chain's re-staking protocols to further earn returns, including:

1. Solv Protocol

Staking stMBTC can mint Merlin Chain's liquidity strategy token $SolvBTC at a 1:1 ratio, achieving risk-free returns pegged to the coin.

SolvBTC's returns come from multiple neutral trading strategies, including Perp DEX market-making profits, Funding Rates neutral escape strategies, etc., ensuring stable returns while minimizing the impact of market price fluctuations.

2. StakeStone

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

stMBTC can be exchanged 1:1 for mSTONEBTC, entering the StakeStone liquidity distribution network to enjoy mainstream staking pools, re-staking pools, and LSD blue-chip DeFi strategy returns.

Merlin Ecosystem DeFi Returns

stMBTC and tokens obtained through re-staking protocols like SolvBTC and mSTONEBTC can be used to participate in a series of DeFi projects within the Merlin Chain ecosystem, earning additional returns.

DEX

Usage: Provide liquidity for DEX trading pairs and earn fees.

Protocol: MerlinSwap

Stablecoin

Purpose: Staking to mint stablecoins

Protocol: bitSmiley

Derivatives DEX

Purpose: Staking for derivatives trading

Protocol: Surf Protocol

Lending Protocol

Purpose: Collateralized lending

Protocol: Mage Finance, Avalon Finance

LaunchPad

Purpose: Participation in IDO

Protocol: MerlinStarter, UniCross

Off-chain CeFi Yield

Users can collateralize BTC, MERL, and other mainstream BRC20 assets on Merlin Chain. These assets will be stored in an MPC wallet managed by multiple parties, minimizing single-point risks.

Users have the option to utilize centralized finance (CeFi) custody services for layer-one assets. Merlin Chain partners with top asset management teams with long-term positive yields to mirror users' on-chain assets on exchanges, enabling off-chain settlements. Users can securely access exchange liquidity and earn profits through diversified trading strategies.

Integrating CeFi will bring significant off-chain financial market benefits to Merlin Chain's collateralized assets, including staking mining, lending services, and investment products.

Babylon Staking Yield

In addition to CeFi, users can opt to stake BTC using Babylon's staking protocol for staking rewards.

Babylon's staking is trustless and non-custodial, with staked BTC held in a multi-signature wallet, not requiring transfer and allowing for unstaking requests at any time, with returns processed within a few days. Users can also choose to stake BTC on multiple PoS networks for additional returns.

Furthermore, Babylon will provide further consensus security protection for Merlin Chain. It timestamps on-chain information of Merlin Chain with Bitcoin, leveraging Bitcoin as a secure timestamp server.

Applying re-staking on top of Bitcoin's PoW consensus is no easy task, full of challenges yet also unlocking the vast liquidity of Bitcoin. As a leader in Bitcoin Layer 2, Merlin Chain has made many attempts in the field of BTC re-staking, including product development and ecosystem partnerships. Looking forward to Merlin Chain as a pioneer opening up new paths, bringing more possibilities to the Bitcoin ecosystem and the entire crypto industry.

This article is contributed content and does not represent the views of BlockBeats

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