With Bitcoin’s market capitalization nearing $2 trillion, Ryan Chow from Solv Protocol suggests that BTCFi could outpace Ethereum’s decentralized finance sector if a small portion becomes productive.

Bitcoin’s decentralized finance, known as BTCFi, is still in its nascent stages. Nevertheless, some analysts are recognizing considerable opportunities. For example, American cryptocurrency-focused hedge fund Pantera Capital claims BTCFi could unlock as much as $500 billion in value with widespread adoption.

Solv Protocol, a platform aimed at enhancing the utility for Bitcoin holders and their BTC, is one of the key players betting on this future. The project has already surpassed $2 billion in total value locked (TVL), with ambitions to implement yield-generating strategies for Bitcoin similar to what Lido achieved for Ethereum.

In an exclusive interview with crypto.news, Solv founder Ryan Chow shares insights on why BTCFi might eventually eclipse the Ethereum DeFi ecosystem, though he acknowledges that the path forward is long. He also discusses transparency standards such as “proof-of-TVL,” the possibility of a Bitcoin staking ETF, and what is needed to attract institutional capital into Bitcoin’s on-chain economy.

CN: Bitcoin’s DeFi sector is still evolving, but Pantera believes it could reveal a $500 billion opportunity with the right traction. Solv has achieved $2 billion in TVL, while Ethereum’s Lido has surpassed $16 billion. What do you foresee for the Bitcoin staking market if BTCFi gains momentum similar to Ethereum’s?

RC: While comparisons to Ethereum’s staking market provide some context, the potential in BTCFi is shaped by a much larger factor: Bitcoin’s position as a leading global asset class.

With a market cap close to $2 trillion, Bitcoin has firmly established itself as a significant store of value. For an asset of this scale, the development of a sophisticated financial ecosystem is vital. The real opportunity lies in mobilizing the considerable portion of this $2 trillion that currently remains idle. If BTCFi manages to financialize a significant share of Bitcoin’s market cap, its scale could exceed that of Ethereum’s DeFi, bolstered by Bitcoin’s overall asset size. Solv is building the essential infrastructure needed to turn Bitcoin into a genuinely productive component within the global financial system.

CN: Considering the frequent updates of total value locked on centralized web2 platforms like DefiLlama, should staking protocols adopt a standardized approach, like ‘proof-of-TVL,’ similar to ‘proof-of-reserves’ to enhance transparency and reduce user confusion?

RC: Transparency is crucial for building trust and promoting the sustainable growth of the ecosystem, especially in BTCFi. Metrics like TVL, proof-of-reserves, and a proposed proof-of-TVL are vital tools, and we believe standardized methods are necessary for ensuring clarity.

At Solv, we are committed to applying multiple levels of transparency: we provide public dashboards, support third-party verification such as Chainlink PoR, and collaborate directly with data platforms like DefiLlama for accurate reporting. We are dedicated to exploring various methods that truly enhance transparency and encourage industry cooperation on these standards. Verifiable transparency and integrity are essential for attracting the institutional involvement needed for the substantial growth of BTCFi.

CN: If the SEC approves Ethereum staking ETFs, do you think a Bitcoin staking ETF could follow? What might the market potential be?

RC: If the SEC gives the green light to Ethereum staking ETFs, it could open the door for similar products in the ecosystem. However, a Bitcoin staking ETF would face unique implementation challenges because Bitcoin’s consensus mechanism is not designed for staking like Ethereum’s proof-of-stake. It would likely need to rely on third-party solutions for yield generation, such as Bitcoin LSTs [liquid staking tokens], which may raise further regulatory considerations regarding security and operational mechanics.

The market potential for such products could be substantial, considering the positive inflows observed with spot Bitcoin ETFs shortly after their approval. Traditional financial institutions looking for exposure to Bitcoin alongside yield generation may find these offerings attractive, particularly as the broader market becomes more comfortable with digital asset investments. Nonetheless, the regulatory landscape would likely require stringent security measures and complete transparency regarding yield generation practices.