Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Build on Bitcoin: Combining Bitcoin's Security With Ethereum's Versatility - Alexei Zamyatin

Episode Date: March 10, 2025

Bitcoin’s security and reliability as a store of value are undeniable. However, its liquidity remained untapped for too long due to a lack of trustless bridges and native smart contract capabilities. As BTC is only native to Bitcoin’s L1, any attempt to include it in DeFi relies on the trust assumptions of third party custodians that wrap it. Build On Bitcoin (BOB) aims to expand Bitcoin’s functionality by integrating it with Ethereum’s smart contract capabilities. BOB operates as an OP Stack L2 with a hybrid design incorporating ZKPs, Bitcoin staking, and Ethereum for data availability. By functioning as a rollup, BOB processes transactions off-chain and batches them for settlement on Bitcoin and Ethereum, significantly improving transaction speed and reducing costs compared to Bitcoin’s base layer.Topics covered in this episode:Alexei’s backgroundSetbacks for Bitcoin DeFiBitcoin bridgesBitVMBOB operators and trust assumptionsBOB architecture & Bitcoin stakingBitcoin LSTsThe future of Bitcoin DeFiEpisode links:Alexei Zamyatin on XBuild on Bitcoin on XSponsors:Gnosis: Gnosis builds decentralized infrastructure for the Ethereum ecosystem, since 2015. This year marks the launch of Gnosis Pay— the world's first Decentralized Payment Network. Get started today at - gnosis.ioChorus One: one of the largest node operators worldwide, trusted by 175,000+ accounts across more than 60 networks, Chorus One combines institutional-grade security with the highest yields at - chorus.oneThis episode is hosted by Brian Fabian Crain.

The challenge that we're facing on the Bitcoin Defi side is that there's technical limitations. You have Bitcoin and Defyify today, but since Bitcoin only exists on Bitcoin, and if you want to use it in another chain that has Defy, you have to deposit it into that chain. And it's the same process as depositing into an exchange or another chain, right? You give it to someone who will safe keep it and then unsure that when you're withdrawing from that chain or platform that you get your Bitcoin back. Since we are so limited in what we can do in Bitcoin scripting language, bridging deposit custody logic has always been centralized. so far. So I think the biggest gap, two gaps here are you X and making Bitcoin more accessible. Because honestly, if you're an ethuser and you want to use Ethereum and Defy, it's super easy,

right? You just use the protocol. You have aggregators. If all the tools are there, if you want to use Bitcoin, you have to first pick a bridge, understand the risks. You have to deposit your Bitcoin from Bitcoin01 into that bridge. And then, like, all the interfaces look different. So you have this hurdle. So that is like the key concept of BitVM. There is no like virtual machine per se involved. It's a way to defrapped from Bitcoin. for the first time ever now, and that allows us to make this gigantic jump from a multi-sig bridge, where if 3-5 Sinus collude your assets are gone to BitVM, it's a bit more sophisticated in terms of how to describe security, but let's say we're 50 operators in BitVM.

Even if all of them colludes, they cannot steal. As long as somewhere in the network, there's one person to trigger a challenge. It makes a transaction and says, wait a second. These guys are trying to steal. Your assets are safe. Welcome to App Center, the show which talks about the technology projects and people driving decentralization and the blockchain revolution. I'm Brian Crane.

And today I'm speaking with Alexei, who is the co-founder of Bob. Bob stands for building on Bitcoin. And it's, you know, it's one of the most far advanced and most interesting Bitcoin Layer 2 Bitcoin Defi projects. So I'm excited to speak with Alexei today to talk about Bob and talk about Bitcoin and Bitcoin Defi. Now, just before we start the conversation with Alex, I would like to share a few words from our sponsors this week.

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join the NOSIS community in the NOSISDAO forum today. Deploy on the EVM-compatible NOSIS chain or secure the network with just one GNO and affordable hardware. Start your decentralization journey today at NOSIS. I.O. Cool. Well, thanks so much, Alex A, for coming on. Thanks for having me. Super excited. I always find it interesting to start with, you know, sort of your crypto, your personal crypto journey. Like, how did you get into crypto and how have, what, yeah?

Yeah, absolutely. So it's been 10 years from me since I kind of, you know, went down the rabbit tool with Bitcoin research. I started with Namecoin. And that was kind of my first love in the space. And I'm really excited, not just about, you know, Bitcoin in the sense of money and payments, but about censorship resistance and how we can build a better internet. And Namecoin was the first Altcoin.

It tried to create a decentralized DNS, so your websites can't be censored. You don't have to ask whether you can buy a domain. And from there, it turned into a bit of a random walk. I spent some time working on Namecoin, looking at merge mining then because Namecom was the first blockchain that inherited Bitcoin security at the same time, and spent a lot of time looking into kind of these kind of designs, wrote the first paper on Merge mining. and the good things and the bad things about it. Spent some time on lightning.

Never was a too big fan. It always felt a bit too complicated to me for the end users. Of course, it is a very great interesting protocol. And essentially, after the block size wars, personally also came to the conclusion, like, Bitcoin is very hard to change. We probably will not do this very often. There's no chance that Bitcoin will have native L1 for contracts

the same way that Ethereum has them. So let's figure out how we can unlock defy or like more use cases for Bitcoin without changing the core protocols. So start looking at bridges, side chain designs. And that's ultimately what led to us building Bob. And the reason we're building Bob and the reason for this, I guess, pursuit of something that's previously was considered the Holy Grail no longer impossible. Now we actually have a blueprint to achieve this.

But the pursuit of Bitcoin and Defy has always been driven by the fact that, look, Bitcoin started this whole thing, right? It's the thing that kicked off this revolution in finance that we have the centralization. We are trying to build a better, mortuary and financial financial financial financial system. But to do anything with Bitcoin other than payments, you are forced to go back to centralized providers, right? We have centralized exchanges dominate. Bitcoin holders mainly keep the Bitcoin.

And if they do something like trading or borrowing lending, they go to centralized providers. There is a subset of users that use Bitcoin and DeFi. But it's all backed by centralized bridges, which is fine because we didn't have better technology so far. But what always bug me about this is it just makes no sense, right? Bitcoin is the biggest, digital asset out that has the biggest community, the best distribution. What it kind of feels like sometimes is that we're taking this new thing and then we're kind of plugging it back into the traditional financial system. Same with ETS, right?

It's both cure and curse. Yes, it's great because you have more distribution and you have people getting access to Bitcoin that would never have bought it otherwise because, like, pension funds and, like, it's great. But on the other hand, if in five years, 10 years from now, we have to go to the bank and ask them, hey, can I use Bitcoin? Then for me, it's no longer Bitcoin, right? So that's why we're really pursuing this vision of creating a system that allows us to access Bitcoin and use in defunit, the centralized manner, unlock use cases like trading, borrowing, lending, more advanced products, be it even micropayments, be microloans against Bitcoin to borrow

stables. But that should be possible without asking permission of a centralized provider. because it is possible on Ethereum and Solan and other chains. But it's not possible for Bitcoin, and Bitcoin is still bigger and will remain bigger than everything else combined for the foreseeable future. So I think you've talked a lot about why Bitcoin Difa is so important. And I totally agree with you. But why has it been so hard? I mean, it's been so many years and it still feels like it, you know, very little is working

in his life today. Well, I mean, there's multiple challenges with Defyre, right? Even defy on Ethereum is still hard to use. I mean, we saw CZ from Binance admit that Sotoli Foneli admit that they've never used defy before Ethereum Foundation is using Difa for the first time, right? So you can see that it's still, you know, a process. Defy has not yet reached mass adoption. Bitcoin has, however, as an asset.

So, like, you know, and then the subset of people who are. our Bitcoin holders and use defy is actually quite big. I would argue everybody who is using defy where it also has Bitcoin. But the challenge that we're facing on the Bitcoin defy side is that there's technical limitations. You have Bitcoin and Defy today, right? But since Bitcoin only exists some Bitcoin and if you want to use it in another chain that has defy, you have to deposit it into that chain. And it's the same process as depositing into an exchange or another chain, right? You give it to someone who will safe keep it and then unsure that when you're withdrawing from that chain or platform that you get your Bitcoin back.

And on Bitcoin, well, since we are so limited in what we can do in Bitcoin scripting language, this bridging deposit custody logic has always been centralized so far. And you ultimately have multi-signatures. So you have three out of five signers, or even if it's like 30 out of 50, it doesn't matter. You have a set of users that controls your Bitcoin. And that means that you're taking quite big hits in terms of on the security assumptions. It's no longer self-custodial. It's no longer risk-free.

You instantly have the centralization bridge risk. And I think the bridge hacks over the past years have just, you know, scared a lot of people from participating in this. Arguably, there's still a pretty big defy market for Bitcoin, right? If you look at WBDC, CBTC growing quickly, you have Bitcoin LSDs emerging. So there is clearly demand and people always are looking for creative ways to get the best of both worlds. So like, you know, optimize security to the extent possible that then, still make it usable. So I think so far it's been these two things, right? Defy is still early per se. The U.X isn't great. Bitcoin's user base is huge, right? 300 million plus users. Not all of them

know defy. Most of them actually probably don't know what defy is. They probably don't know what an EMM is. They probably don't know how app it works. And then, but how like, so if you look at from that angle, okay, yes, like not like the percentage of Bitcoin holders that actually use defy is probably not as high as it should be. But then if you look at the defy user base and compare like that to like if you basically look at, okay, how many of them actually have Bitcoin or how many of them have used Bitcoin in Defi using one of these wrappers, that percentage is actually going to be very, very high because almost everyone is a Bitcoiner at heart, I would say. Everyone has Bitcoin, just like a lot of Bitcoiners have Ethereum and other assets, right? So I think the biggest gap, two gaps here

are you X and making Bitcoin more accessible. Because honestly, if you're an eth user and you want to use Ethereum and Defy, it's super easy, right? You just use the protocol. You have aggregators. If all the tools are there, if you want to use Bitcoin, you have to first pick a bridge, understand the risks. You have to deposit your Bitcoin from Bitcoin01

into that bridge. Okay, most bridges, like especially on the RAPDC side, the Bitcoin's the ones, you either, you know, if you want to actually mint the Bitcoin yourself, you have to go to a merchant, they'll KIC, you, there'll be a minimum deposit. There's going to be fees. And then all the interfaces look different.

So you have this hurdle of like, okay, it's actually not easy to just get your Bitcoin into Defi. And then that's also something we've been working to fix. Just like make it super easy for an existing Defi user to access their Bitcoin that's maybe in the ledger. And they haven't used so far, but now want to actually experiment with it. And at the other end, it's, of course, the security challenges with so far all the bridges have been centralized. Yeah. So let's talk about the bridges. I think that is absolutely one of the most important topics.

I mean, you pointed out right today, the vast majority of Bitcoin that's held somewhere else. I think first of all is probably held on Ethereum. And then of that, the vast majority is WBTC, which is BitGo version of Bitcoin and in Coinbase's version of Bitcoin CBBT. So, but let's let's ignore that part for a moment. I'm curious about the other part, right? That's more in some kind of on-chain decentralized way. Like, what's the status there? What do you think are the best solutions?

And which ones would you trust or prefer? Well, I think trust is perceived, right? There is no, it's subjective. It's user by user. Everybody has a different notion of trust. And that's also something Bitcoin or a set. have learned. If you look at Lightning, for example, yes, you can use itself, you can operate it yourself, but most people trust a provider then themselves with managing their keys and, like, managing

the whole setup. You have a lot of institutions that will just not care about a minor security improvements and hence will prefer to using a custodial solution with an institutional custodian where they just know the business that has the Bitcoin. But maybe taking a step back, as mentioned, right, if you want to use Bitcoin on another platform, whether it's a centralizing, exchange, Ethereum or Bitcoin layer two, you have to deposit it into that platform. You're giving up custody. That's just how it works, right? You're always losing custody. And the biggest question of bridging is, how do I get the Bitcoin back? Like, if I'm unwrapping, where I've sent it to you, Brian, and then you want to unwrap and get the Bitcoin back

that you've purchased on Bitcoin01, how do we enforce that? And in the ideal case, right, if you look at chains like ecosystem like cosmos and polka dots, which specialized, like, in being interconnected with each other, having these chains interconnected, what you do there is you have two chains that verify each other. So when I'm minting, when I'm locking my Bitcoin to, let's say, Bob, Bob as a chain will verify that the Bitcoin has been locked. And then when I'm withdrawing, so I'm burning the rapid TC on Bob and I'm getting them on Bitcoin, Bitcoin should verify.

Like, oh, yeah, you're burning this on Bob. Here's your Bitcoin back. And you should have a smart contract on Bitcoin that manages the custody of the assets while they're bridged. Now, the problem is that Bitcoin just so far could not do this. that. And what you then had is we were emulating this smart contract logic that you could build, let's say, on Ethereum or in Cosmoschshades or in Polkodod and other ecosystems with smart contract logic on Bitcoin went to emulated using a trusted third party. And then we're trying to distribute that trust as much as possible. Where at Bitcoin internally has many keys.

And then you have systems like TBTC, which in public, right, there's like anonymous signers and there's like 30 to 50 maybe more, I think, by now, which have these keys. But the model is always the same. If the majority is honest, everything's fine. But if the majority is this honest, they can steal all your money. And it's not that people, like, it's not that these bridge operators actually collude to steal. It's just that they could get hacked, right? It's also, like we've seen with a bi-bit attack today, doesn't mean that somebody's malicious. These attacks are very sophisticated and they could just be executed. If you know who to target, you just hack a few devices. The fewer devices you need, the more likely it is that you can get hacked. And then what we've seen so far is

in this model, right, why is TBTC V2 struggled to get more adoption? I mean, we've worked with a TBTC team very closely on the Bob side as well. And the feedback we receive from many OG Bitcoin holders for a lot of them are institutionalized, big institutions funds, for them, the security upgrade between a trusted multi-sig where you have a company behind it, like Bitcoin, or APTC or Cornbuses, to, okay, it's a multi-sig, but now there's a multi-sig, but now there's a multi-sig, but now there's more sinus, but I don't know who they are, that step doesn't make sense for them, because for them trust is perceived. They prefer the legal risk over the technical risk where they don't know how the system works and you have to build a lot of trust over time for people to make that transition,

right? You have to have a lot of TBL in that more decentralized bridge for people to start using it. And it's just like with yield as well, big institutions, right, they don't move the Bitcoin unless there's a big opportunity or big, big improvement. And same with bridges. Unless there's a big improvement to a multi-sick controlled by a custodian, they're not going to, they're not going to punch. And that's where BitVM comes into play. That's where basically we're looking at, there's a light at the end of the tunnel. We now have a way to move away from multisic designs on Bitcoin and transition to a system, which is very close to this like-client design where Bitcoin actually verifies that you're withdrawing back onto Bitcoin layer one from the layer two. And with

BitVM, you have this model that it's basically, for those of you, are not super familiar. A good comparison is arbitralmary Ethereum, right? Or optimism on Ethereum. It's a fraud-proof-based design. And the key concept here is that we run some execution of chain, we run the verification off-chain. And if the operators misbehave, they can be challenged and we can prevent that. So that is like the key concept of BitVM.

There is no virtual machine per se involved. It's a way to defra-proof some Bitcoin. for the first time ever now, and that allows us to make this gigantic jump from, okay, you have a multi-sig bridge where if 3 or 5 sinus collude your assets are gone, to, okay, in BitVM, it's a bit more sophisticated in terms of how to describe security, but there's two things we can look at. Let's say we're 50 operators in BitVM. Even if all of them colludes, they cannot steal.

As long as somewhere in the network, there's one person. This could be you and me, anyone, the person was using the bridge at that moment, to trigger a challenge. As long as somebody within the period of time, let's say a few days or a few hours, usually we work with like seven days, makes a transaction and says, wait a second, these guys are trying to steal, your assets are safe. And even if all 50 of them collude, the worst thing they could do is basically hold your funds captive.

They can freeze your money, but they cannot steal it, meaning that the incentive to collude is actually very low. And the game theory behind it becomes quite interesting, because if you're 50 operators, they don't know if they're trying to collude, try to collude and coordinate around 50 people that are anonymous, where if any one of them decides to actually be honest and not attack the system, they'll kick out everybody else and penalize them

and to actually make money of this. So that from Game 3 perspective makes it very, very hard to even run a coordinated attack to freeze funds and then, of course, stealing is just almost impossible. And that is such a huge security upgrade that we think, okay, that is something where over time people will transition over as we build trust in BitVM because it's just such a jump from, okay, three to five can steal to right, as long as one person's online my assets are safe.

I want to understand a little bit better, you know, BitVM and what Bit VM is. I mean, you mentioned 50 operators here. So, but Bit VM, first of all, it's not an upgrade to a bit. Bitcoin, no? There's no changes to Bitcoin itself. Correct. The beauty of BitVM is that it works as it is today. Of course, like any additional up codes on Bitcoin make it easier and help us. But you don't need to change Bitcoin. And that, I think, is what makes it so exciting. It works as of today. And then BitVM is what? It's some kind of standard for how you write. scripts that and have them verified on Bitcoin or like, or how does it work with VM?

So, so if we, I, a very good example of explaining BitVM is, let's say we want to run like a multiplication program in Bitcoin and, right? Let's very simply want to multiply to numbers and let's say it's a difficult task. Like multiplication, of course, like we wouldn't use it for multiplication, use it for more advances, things like bridges, but let's use multiplication as example. Now, the first thing we have to clear up is what many people don't know is that using BitConcript, you can write any program. You can do universal computation in BitcoinScript, but it's very inefficient. And the way to think about it is something that is maybe fine lines of code in solidity is going to be like a thousand lines of code using Bitconscript.

And that means that, you know, with these, like, it's just so much bigger. So, for example, if you want to multiply to numbers on Ethereum, you just write A multiplies like times B. You don't think about how to build multiplication is just a function that's available, right, to you as a programmer. Super easy. You don't think about it. Well, in Bitcoin, you actually have to build it yourself, like using logical gates. You actually have to build your multiplication, which is just super inefficient. You can fit like three multiplications in a single Bitcoin block if you write them out of all yourself, which is, right?

So, I mean, you can think about it is like you're just adding the numbers instead of actually multiplying. So that's the limitation. But in theory, we can write anything. And so what we do in BitVM is we take a program and we basically, let's say this multiplication program. We split it up as we would in BitcoinScript. So let's say, like, in Solidity and Ethereum, it's like one line in Bitcoin, it's like you just add, add, add, add, add, add, add, add. So let's say we're multiplying two times 10. So in Bitcoin script, you'd basically, and again, I'm oversimplifying this to visualize it.

But you'd be like, okay, 2 plus 2 plus 2 plus 2 plus 2 plus 2 plus 2. And then let's assume that this program is too big, right? Of course, it can like multiplication can probably get in, but think about it now as, okay, we're actually verifying if you burn something like the rapid asset on the other chain where you have to check the consensus rules and usually we'll use a ZK proof and you need to plug in the ZK verifier into Bitcoin script. And that ZK verifier is currently, I mean, it's down to 400 megabytes.

But it's still way too big. It doesn't fit into a block. A Bitcoin block is for megabytes in size. Like we really optimized it, it just doesn't work. So what we do is we chunk it up. Just like with this multiplication example, we take it and we split into sub-programs that if you run them all after the other,

you get the same results. And then what we do in BitVM is we say, okay, you will now, as an operator, you're going to commit using on-shun commitments that, and this is what we actually do in script, that you're going to run exactly this process. Like you and I will agree you're going to run exactly this program. Let's say it's this again multiplication example.

You and I agree that you're going to run this multiplication on off-chain and then you're going to give me the result and post it on-chain. And then as an operator, you're going to run it. So you multiply 2 times 10 and then if you write 20, I clearly can verify it. It's correct. You run exactly the program that you're supposed to. We're good. Now if you say it's 19, which is clearly wrong, I can see that. I'm going to challenge you.

So I'm going to say, wait a second. You're lying because I know that. because I know that this, like, I ran it off chain on my machine. I know that this is wrong. Now, I just need to find out where you modify the program so I can prove to all the Bitcoin full nodes that you're cheating and then prevent you from taking money out of this out of this BitVM deposit. And let's assume, like, I put some money in and if you give me the right answer,

you're able to take it out. So I'm paying you for computation. A very simple example. So what I'll do is I'll post a challenge transaction. And that gives you seven days or whatever. or a few hours, it's a parameter to respond. And when you have to respond by posting the intermediary results of your computation. So what you're going to do is you're going to start with 0, 24, 6, because you're always adding

2, 4, 6, 8, 10. And then let's say at some point you say 11. And then it's 30, 15. So you clearly, that's wrong. Like 10 plus 2 is not 11, right? I will see that. I will see that in this step, that's exactly where you've tried to cheat. and then what I'll do is I'll take that sub-program,

exactly only this piece that takes us input 10 and adds to, and I'm going to run it in a Bitcoin transaction, and I'm going to link it back to the commitment you've made using Bitcoin script and like Lampor signatures, which is a cool concept, but we don't have to go into that in detail. But what this allows me to do is I can prove to everyone on Bitcoin that you've cheated because I can show, look, you're saying that running this program gives 11 as a result,

but it's actually, if I run it on chin, all the full notes will check it. It's 12. You're cheating. You'll not get the money out. And now if we take a step back and think about the bridging, in the bridging case, you could be trying to manipulate the recipient address.

So you're, as an operator, you're supposed to send a Bitcoin to me, but you're sending it to yourself. And since we know exactly what the program should look like, because we've agreed on like, this is what you're going to do, you committed to it on-chain with using like on-chain commitments, I can always prove that you're cheating. And the cool thing is this only requires two transactions, right? I challenge you respond and then I prove and we're done.

And these transactions are not cheap, but I can guarantee that every Bitcoin phone node will know that you're misbehaving and prevent you from accessing the funds, which in the bridge case is very good, because that means you as an operator, if you're trying to steal funds from Bitcoin, I can prevent you from doing that. I will invalidate your attempt to withdraw, basically.

Yeah, so the CK Verify was like 400 megabyte. So like you would break it into like, I don't know, I mean 400 parts of one megabyte or something? Actually, I got it wrong. So it's one gigabyte in size and just in current practice rights, where it's currently the sizing is one gigabyte after the optimization. and what we're doing is a breaking into chunks of 400 kilobytes. But these chunks could be maximum 4 megabytes in size, but then there's like a balance between like,

do you make the chunk smaller? So it's cheaper for me to challenge you and to prove you wrong or do I make it cheaper for the operator to respond? Like there is some like parameters that you can move back and forth. But that's basically the idea. If that challenge happens 400 kilobyte, okay, that's like a 10th of a Bitcoin block size. So, okay.

probably pretty expensive or how much does that cost in terms of fees? I mean, there is like a fact, like you have to model the fees. We don't know how the Bitcoin fees are like how the Bitcoin price and the Bitcoin like theme market is going to develop. So that is of course something we have to pay attention to. And the idea is that as an operator, you're predepositing some amount of Bitcoin. Let's say 0.1 to 1BTC, right? Could be less.

But that is used to if you misbehave that we take that money. and that's used to reimburse or to cover the costs of somebody challenging you or like there is some costs to the operator for like also not misbehaving. But the main point here is that these costs and the maybe some deposits the operator has to make to offset these costs for potential challengers. So like, you know, if I'm challenging, I don't pay the costs myself. All of this is completely independent to the TVL. to the amount of Bitcoin deposited.

So, sure, if you have only like 10 BTC in the system, paying 0.1%, 0.1 BTC in like costs of challenging is quite high. If you have 100,000 Bitcoin deposited, it's nothing, right? And so BitVM, it's like, security is always, you know, there is no perfect security. You always have to balance the, like, cost versus benefit. And if you have a small system that has no TVL, then using BitVM as an overkill.

If you're a big Bitcoin L2, that is getting a lot, of TVL, then yes, you should definitely use it because there is some costs associated, but if you have a lot of TVL, your chin is making fees. You can have a pot that will offset any operational challenging costs for people who actually enforcing safety. So the economics can be modeled and it basically scales with size. The bigger, the cheaper it gets. Yeah, yeah. I mean, I guess it's like with all these fraud systems, right? In the end, you're trying to create incentives such that, you know, it never makes sense to try to attack it.

And then you never actually have to go through this. And you never have to pay all this. But then, of course, you still need to have the situation that, let's say you don't get to a point where maybe it would be so expensive to get this challenge into the Bitcoin chain that like it's not worth for anyone to like challenge anything. Or like maybe maybe you'd even struggle to get it in at all. So I guess that is still a scenario you have to worry about. Absolutely.

I mean, there is no perfect safety in that. There's always risk for sociality. And in this case, you have to trust that there's someone online that will post a transaction and that transaction will get into the Bitcoin blockchain. But to prevent that transaction from going, and then now it's a question of fees, right? If you have a big, like, for example, for us as Bob, like, we'll have a pot. Like, if you're willing to, you can crowd fund this transaction first of all. You can, multiple users can come together, provide the inputs to the fees.

And then we can have a pot on Bob that basically, again, verifies that, oh, if you've made a successful challenge, here's a pot. He's a bounty for you to actually, you know, reclaim actually makes some money on this. Because, again, if we have a lot of TVL, that system generates fees. Part of that has to be reinvested into security. And that is this, that's where we have bug bounties and whatnot. We invest in audits. If you look at the numbers, like purchasing in the worst case, you, like, what's the

worst case? You have to buy a full block. That's like, say, the worst, worst case scenario. the average cost of the last two years to buy a full Bitcoin block in terms of fees was 0.1 to 0.3BTC. So, again, it's not cheap, but it's also not the end of the world. It's actually doable, especially if you think that this could be securing a multi-billion dollar ecosystem. If it's securing $10, okay, then no, it doesn't make sense. So, yeah, we're talking about, again, about unlocking Bitcoin Defi, you have $50 to $20 billion,

depending on the price and like how much moves in and out, of BDC wrapped into D5. $5.5 billion staked in Babylon. With these numbers, it's already worth it. Right. So we're just at a stage where there's so much demand for Bitcoin Defi that using BitVM, it's like we're past this kind of hurdle of, are we sure that people want to use Bitcoin and DFi? Are there enough people are going to bridge in?

So what's the status with BitVM? So today there's no bridge life, right, that leverages BitVM. But are there like a bunch of different people building bridges? And what's the timeline here? So BitVM bridges are currently in test net state already. So right now they're on test nets. You've seen prototypes live launch end of last year. So in Q4, we had a few teams, including us showcase like,

okay, here's the transactions. Like the system is already working. And now it's all about like fine-tuning it, cleaning up the code audits to get a public test net. And depending when this podcast is airing, there may or may not be above public test net for BitFam already live. And then the way we kind of see this is we're expecting rollout to happen throughout this year. You'll probably see systems initially launch with training wheels and then gradually remove all the additional safety mechanisms so you fully rely on this proof or verify logic. I mean, yes, sure, it's taking a while.

But if you look at the, like, what we've actually done is we've created a system that can allow, like trust minimized Bitcoin bridging and roll-ups, it took Ethereum 5 plus years to get to that. Bitcoin is moving much faster because a lot of the ZK stuff is already there, right? A lot of the infrastructure is there, so we don't have to reinvent it from scratch. The interesting part is the ZK roll-up thing,

or the ZK component within Bitcoin, L2 is like within BITVM, it's different to that it's not a ZK roll-up, right? We're actually just using it as a pre-processing step. Instead of, I could plug in the whole computation, right, from the EVM into, that BitVM part, but it's just going to be always, it's going to be huge and inefficient. And with the snark, we just standardize it, right? You always get the same thing, which is constant in size, and it allows you just to kind

of plug in different computations. So for anything where you can generate a start proof, it works with BitVM. That's kind of the way to think about it. And what we expect to see is main nets later this year. So, I mean, on our side, we're going to start rolling it out and after the audits are complete. and it's going to take a while, realistically speaking, because I don't expect everyone, why don't they want to throw money at this,

oh, I'm going to bridge them with using BitVM. There are some UX components that need to be fine-tuned and people need to build trust. Like, how many people can actually look at a Zika verifier and tell you, oh, yeah, this is secure? Not that many. So it takes time to build a community of developers, auditors, open source contributors that have looked at it

and have said, okay, this is safe, I'm going to use it, and then you have the DGYNs coming in because they're excited about it. And our approach is also here working with institutional partners from day one. In fact, we're already working with a big group of institutional partners to, A, educate them about BITVM, but also understand how could this BITVM system fit into their current setup? My personal view is, you know, there's a lot of people like building BITVM and like trust minimized bridges. And what they do is the attack.

They say BICO C, RAPTC is bad. CBATC is bad. is bad. It will all get hacked. All your money is lost. If you're using this, you're guilty. You're basically ignoring your safety. I think that's just a long approach. Nobody of these rapid DC providers wants to steal your money. They're trying to build the most secure system with the technology that's currently available. I think the approach we should be taking is working with them and saying, hey, like, here's an upgrade. Instead of using MPC in your backend, you could use BitVM complexity-wise. It's pretty similar, but BitVM is just so much better. And that's the

approach we're taking. So I honestly think BitVM will be commoditized and the only the way that we get this adopted properly in a reasonable amount of time is by working with partners and bridge providers as they are today and help upgrade the entire ecosystem to a better security standard. That will take some time, but we'll see BitVM on main nets in 2025 for sure. Okay, okay. And so I get one approach is to try to convince, I don't know, CoinVis and BitGo and stuff to maybe use this. Now, for Bob, so do you guys, because you mentioned also,

okay, there's different operators. So will those be specific to Bob? And you're going to have like the Bob Bitcoin, which is a version that's like bridged over with BitVM. And then I don't know, some other roll up will have their own. Or like, because I think like one challenge you end up here, right, is you could end up with like a whole bunch of different, you know, Bitcoin versions that are kind of rich in different ways that, you know, maybe kind of similar

security underneath, but maybe not exactly identical? Or like, how do you see that? Do you see, like, lots of versions or I think can there be like one version of BitVM that's like, you know, one token that really gets a lot of traction? There's going to be lots of versions. I mean, you know how things are? Like, you have a thousand standards and we say, oh, let's make a standard to unite these standards and we have a thousand and one standards. So, um, plus. Plus, with bridging, it's not just about the standard, but it's actually about the bridge design itself. A lot of the design of the bridge

depends on the security model of the L2. And each of these L2s is actually making different trade of jitters and assumptions, right? Like in our case, for example, with Bob we're building a hybrid, we're using Bitcoin staking as Bitcoin finality, and then we're using that, like, and that's what we're doing right now

because that's what currently is already possible. Like, this will be possible in 2025. You can use Bitcoin staking for a finality and build a bitfium bridge that relies on Bitcoin's takers being honest. If you want to build a full Bitcoin rule of where you post all the data to Bitcoin, that design is different. That design is still very early.

It's very expensive to do right now. We haven't seen this in production even close. So there's different, like some chains are merge-mined on Bitcoin, like to inherit Bitcoin security. Others don't even inherit Bitcoin security at all. There's teams trying to bridge to Ethereum Cardana using Bitfam, which, in my opinion, will not properly work just because these systems don't have secure-I clients. So the designs will differ. I think what will be similar is the core, but even from the core, right?

You have BitVM2, which is the design that I work with where Robin and I and a bunch of other researchers work together to kind of put together a full spec of how this BitVM system can be used to build a bridge and how it actually can be built in production. But there was BitVM like the version of Robin first wrote. And then you had a bunch of other teams like Fork off that to have their custom designs. So BitVMX, there is other versions, right, of this. and some teams have been abandoned theirs and come back to build a bit VM2.

So I think what you'll see is a completely new kind of set of approaches that try to achieve the same, but for an operator, it's going to be similar to staking, so proof of stake, right? There's so many proof of stake chains, and they have nuances. The concept is the same, but they're all nuanced.

I don't know if this is really going to be a blocker for operators because I think staking providers and, like, custodians, that's their bread and butter, right? They integrate staking and different chains in the half of to understand the nuances. And of course, that's why we're talking with all of them already because we want to understand what are the things we should avoid to make sure it's easy to integrate. But in terms of liquidity fragmentation, I can definitely see challenges there. But on the other hand, again, since every, from a ubiquitous perspective,

if you're bridging to Bob, you have a different trust assumption than if you're bridging to another L2, right? There's tradeoffs. These two bit conversions, there's no benefit for them being fungible because if you want to, so let's say I have deposited. Bitcoin into Bob. So I have Bob BTC, which is secured by BitVM. And that's the one we build and operate. Now, I want to breach another Bitcoin that also has a BitVM bridge. Right.

It's similar security models, but they have fine-tune. Like they're using, let's say, merge mining or something else. Or they're like using all the data to Bitcoin. It's more expensive, but they're doing that. I still have to bridge over my assets somehow. And that's where it gets interesting. Like, there is optimizations already being developed in BitVM that will allow an operator to actually use like plug into multiple bit binel-2s

and act actually as a cross-chain router. So even if the individual versions are different, the Bitcoin that's locked in is like similar. So like I can manage multiple like Bitcoin instances with like different parameters based on different chains. And I just like act as a liquidity bridge, like intent bridge operator. We see this on ethel-2s. That's already happening, right?

If you're going between different ethel-2s, you're using intent-based or like liquidity or like Burnham Impriches. same here. So I honestly don't see this as a big problem. I know it's annoying. But again, if you're depositing into Coinbase, that Bitcoin is different to the one you deposit into Binance. So it's not like we're introducing new UX problems. They just exist already, right? Your dollars in Bank 1 are not the same dollars in in Bank 2 until he withdraw them. Okay, cool, cool. So let's go a bit more into Bob. So you mentioned Bitcoin staking.

So, and, you know, I understand, you know, Big Bob is basically a roll-up, like EVM roll-up. So, yeah, explain to us a bit more about the architecture of Bob. Absolutely. So with Bob, our vision is to create a hybrid L2. And this is a new kind of approach to putting Bitcoin at the center of Defi. So it has multiple components. The first and foremost is Bitcoin security. You're like, Bob will inherit Bitcoin security.

There's multiple ways of doing that. And I'll talk about, like, we're rolling out this in three phases. But we'll probably have Bitcoin security. We'll use BitVM for the Bitcoin bridge. And then there's two additional components. We have the EVM server, OPE stack compatible. We're a super true member, right? Super easy for use to onboard and deploy their contracts.

And they only need to think about the Bitcoin side of things. And we're actually connected to Ethereum. So we have a native bridge to ETH. And we can have native bridge. to other chains as well. And the way this works is, you have Bitcoin security on Bob. So that means that

if you want to deposit from Ethereum onto Bob, how do you know that Bob is secure, right? Well, because Bob is Bitcoin security, you actually go look at Bitcoin and you say, okay, is like Bob at Block 10,000 has this like finalized, is that state correct? Specifically, also for withdrawals, like the ETH smart contract that has handling withdrawals, similar to how it's done with optimism, right?

Right now, in optimism arbitram, it will check for etheproops. Has it been a frapp proof on Ethereum within the last seven days to prove that the optimism chain has failed? If no, you're good, take your assets out. Back to Ethereum. Now, what we do there instead of looking at etheproop proofs, we modify the contract to run a Bitcoin like client. And that like client on Bitcoin, what it does, it looks at the Bitcoin blockchain and

can track what's going on there. And they will just look at, okay, Bob, at the Blotrofts. block, above lock 10,000, we can see that it's finalized on Bitcoin. You can see a Bitcoin transaction. And for example, in the case of staking, you'll see that, okay, it's been signed off by the majority of the Bitcoin stakers. And they can track and see how much Bitcoin stake is committing to that. And if you're using BitVM for that in the future with fraud proofs, you can also check, okay, there's no fraud proof on Bitcoin. But the cool thing is you're doing this all from within the ETH smart contract. So on the Ethereum side, you're verifying Bitcoin. And that's been possible

since 2016. Super easy to do. It's been running in production for ages. Bob has one and like TBTC is using such a like client. And that means as an ETH user, when you're bridging into Bob, you're trusting Bob's Bitcoin security model. And if there's one thing that we're as a Bitcoin Maxi, Eith Maxi, Selina Maxi, we can all agree on. If there's one thing, it's that Bitcoin is secure. If Bitcoin goes belly up, we all go home, right? That's the assumption we make just from practical perspective. Every day we go to work and build in this ecosystem. If Bitcoin breaks, we're all gone. Like, this will not survive. So it's a very easy kind of cell to make to people. Like, instead of, you know, trusting another, like, interoperability

or like, you know, another blockchain that is supposed to do interoperability, okay, just trust Bitcoin. That's the one thing we're already trusting. And since Bitcoin is so easy to verify, every smart country capable of blockchain, be it ETH, Polka dot, Cosmos, Avalanche, Sui, Aptos, move, bear it doesn't matter. They can all verify Bitcoin. And that means, we can have native bridges to all of these chains secured by Bitcoin. So what does that mean? This means that an ETH user can deposit their ETH into Bob, trade it against Bitcoin, but also trade it against a buy, let's say, Seoul.

And then you can always withdraw back to the underlying layer one as long as Bitcoin works. And yes, you have like some levels of, okay, is it Bitcoin staking? Is it full Bitcoin roll up, right? But ultimately, you're trusting that, you know, this Bitcoin security model is operational. So that's one thing. So you can basically, instead of, like, if you think about how do people trade soul against ETH or soul against Behram, they'll go to Binance. There is no other really efficient way to do that.

In the future, they'll be able to go to these hybrid L2s like Bob and just do it there because you can deposit, swap, withdraw without having to worry about trusting Binancey, trusting Bitcoin security. And then at the same time, from Bitcoin users' perspective, and that's what we're focusing on right now is, okay, I have. I have Bitcoin. I want to use it in Defy. I can one click deployed into Bob because Bob has like one click Bitcoin's taking products where you can one click deploy into different Bitcoin strategies. That's independent from the bridge that's built on top. But then I can also say, okay,

I actually want to use it on Ethereum or on Salaam. Like there's an opportunity for me to earn yield on my Bitcoin on Ethereum. Of course, do your own research. Be cautious. There's always risks. If you're bridging to Ethereum, you're trusting ETH, right? That needs to be clear. But that deposit process from Bob to ETH, that's secure by Bitcoin. So I don't have to trust another bridge for me to be able to access Ethereum from Bitcoin. So Bob has the most secure version of BTC bridged using BitVM, and that can be then accessed on Ethereum. And then the cool thing is you can manage this all from within Bob.

So you can have volts that, you know, deposit this into Ethereum, DefyPy products like Avimorpho, Pendle, same with Solana, same with Berra. But these, the connection, like the actual process of, okay, you have Bitcoin and Bob, and now we're moving into that part is secured again by Bitcoin because the, we're using this bridge that is native, that verifies that, okay, everything that's going on on Bob is secure by Bitcoin, so we just check that. And so your trust is now Bitcoin security

and Ethereum, or Bitcoin and Solana, which is arguably better than anything else. So, but just to clarify this a bit, right? Because in the end, so you guys are planning to use Babylon, right? Or when you say Bitcoin, I mean, because you're saying like, okay, Bitcoin security, but I mean, it's not, it's not comparable, right, in the security properties to, you know, I send a Bitcoin transaction to you and it's just a normal Bitcoin transaction. It's the same chain and it's in the block. And now it's six blocks deep. And you're like, well, that's a different. So there's tradeoffs, right? And basically these tradeoffs are also economical. So the way that Bob is approaching this is right now in phase one, we don't have Bitcoin security. We're an Etherrollup and we focused on building out this tech with BitVM and like integrating Bitcoin security.

And but on the product side, we focused on like one-click deployments, like you are improving the Bitcoin DFi UX working with Tier 1D4 protocols from Ethereum to actually make it easier for them to accept L1 deposits from Bitcoin. So instead of you going to five different bridges, no one-click and you can go into any strategy. So that's been the focus. And that's basically, so the idea that I put my Bitcoin. into, I don't know, some vault or something on Bob. I mean, do you guys then try to deploy, you know, Rave and Morphor and all of these kind of defy protocols on Bob itself? Or like you're trying to somehow give people access to defy on other chains via Bob?

Both. So in this phase one, right, it's like while the tech is being developed, we focus on product, like the two kind of verticals, like the core tech with Epicwyn security and BitVM, which is now hitting TestNet and like we're entering this phase two in 25. But so far we focus then on the product side of, okay, building the Bob, defy ecosystem, having the best defer primitives, right? We have Uniswap, for example, working with the top lending markets to build like a base defile your own Bob. But then also with, we're releasing a new product these vaults that I mentioned. That's a new thing. And depending on this podcast, I mean, actually, yeah,

We're releasing it today tomorrow. So it's called hybrid BDC. And these vaults allow you then to deploy a Bitcoin from Bob into positions that say selling like APII from Bitcoin staking LSTs on Pendle for fixed yield, getting it back. And then you can use them on Bob again to use it in Bob as collateral, to trade it to lever up, whatever. So you basically get this yield-bearing presentations of Bitcoin. So that Bitcoin is staked on Ethereum and you cannot do something with it.

And it could also the same company in LSD that's also stake in Babylon. So you can build different layers on top, which of course incurs risk without question. But there is clearly demand for and people have to make an assessment of like what they want to do with it. That's phase one, right? That doesn't have Bitcoin security. That's just pure product validation. Do people do that? And it works with all the big rapid E-C and Bitcoin LLC providers.

And in phase two, because you're correctly like you pointed out earlier, like Bitcoin staking is not the same as Bitcoin, Lil1 security. That is true. Almost true. So there is a trade-off in Bitcoin security, right? So in face to what we add is Bitcoin staking, we're working with Babylon, and this means that you have a couple of billion worth dollars worth of Bitcoin that is staked and securing that system. So as long as the TVL of Bob doesn't exceed that, we're fine, right?

Because then if you're stealing, if these stakers try to misbehave, they will lose their Bitcoin. Like the privacy is a reveal. If you double sign, if you're trying to create a Bob Fork, you're signing twice for the same block. the way Babylon's staking works is, it has a cool trick where your private key will be revealed on Bitcoin through Bitcoin are lost.

And what we do with Bob then is as an Etherolup, right? We first of, so it's actually a bigger upgrade that's happening, but we become a ZK rollup, right? We transition to a full ZK rollup on Ethereum as well. So for ETH users, we're a ZK roll up, right, in phase two. But for Bitcoin users, we add this Bitcoin staking component. So then the Bitcoin stakers, they verify that, the sequencer is doing. So when the sequencer is producing the proof, we send it first to

the stakers that have Bitcoin stake, they verify it and then they sign off. And only two-thirds of the Bitcoin staked has signed off. We can then post it to Ethereum. And Ethereum will actually check that it's not only that's valid proof, but it's been approved by the Bitcoin Stakers. Because we're merging like the Bitcoin security and the E-security in this model. And we do that, we add the Bitcoin security for, OK, Bitcoin finale, Fasto withdrawals, but also because that's how can build a BitVM bridge. Because in BitVM, what we verify on the BitVM side, on the Bitcoin end, when you are verifying whether, okay, I'm withdrawing from Bob, is you verifying the ZK proof, but you also checking, like, you need to know, like, because I can give you two proofs

for different states and they're all both valid, right? But I have two different transactions in them, but might be conflicting. So you cannot detect, like, you can, I can give you a valid proof, but you won't know if that's the actual chain of Bob. And to determine whether, like, when I'm telling you, oh, I've correctly, as an operator, sent, you know, somebody with withdrawing and I as an operator correctly processed that. And here's a proof that I did this correctly. We need to know that this is actually the Bob L2 state that that's visible to everyone, not just I'm trying to kind of submit a fake state. But the proof could still be valid, right? It could be all, like the rules could be fine, for I'm pretending that it's not you withdrawing,

but me. And for this, that's where the Bitcoin Stakers need to sign off. So the Bitcoin seekers check whether I'm actually as a sequence or doing everything correctly. And then we in BitFame, we also check that component. Like, has the majority of Bitcoin state confirmed that this ZK proof is specifically for the actual Bob state that everybody is seeing in the public? And that ensures that it's very hard to attack. Because now to attack the system, you not only have to, you know, generate a fake ZK proof. You also have to encroop the sequence.

You have to attack the majority of the Bitcoin Stakers. And then for the eth user, you also have to, for the Ethereum users, you also have to attack Ethereum to prevent a fraud of a Zika proof from being submitted. So this just makes Bob in phase two the most secure L2 in practice. Because you have these two security models merged into one kind of layer. But yes, in Bitcoin staking, there's a difference between insecurity, right? It's not like every Bitcoin phone node is very fine. It's a subset of nodes that have Bitcoin stake.

It's same with merge mining, right? So there's a subset of nodes, and everybody can participate, right? Everybody can run a node and become a staker, but not every full node is participating. There's, like, one then step to get to this full, almost full Bitcoin security level. And the reason why we, like, in phase three, what will then happen is we take the, like, the proving, like we turn off the Zcuproofs on Ethereum. On Ethereum, we no longer check anything except Bitcoin. In phase two, we still will check the Zcqeproves on Ethereum, and we also,

we check that the stakers have signed off. And then in phase three, what we then do is we switch to full roll-up on Bitcoin, where we post the proofs specifically using BitVM. We have been fraud-proofs on Bitcoin. So we kind of go from full ZK proofs, state validity proofs on Ethereum 2. Okay, we now plug it into Bitcoin where we only can do fraud-proofs. And then we have to post the data on chain, which is very expensive. And that's what's prohibiting us right now from going to phase three directly

because we'd be paying, as a user, you'd be paying 100 to 1,000 X more in fees, just because the costs on Bitcoin be so high to keep posting the data so you can then generate the fraud proof. But in phase three, once Bob is big enough, we can make that transition. And then we have this Bitfem security model where as long as there's one user in Bitcoin that is online, this user, which can be you or me or anyone, can enforce that all the Bitcoin phone modes will see that there's a fraud going on and prevent it. So that's the final stage, and that is where you get very close to full Bitcoin security, right?

It's still not quite the same because you're the assumption there needs to be one person online somewhere, but arguably in practice, the difference is very minimal, is very, very small. Because if you're running a wallet on your phone, you're actually not downloading the full blockchain, you're already trusting that there's an honest node that's going to give you the honest data. Like, hey, did you get paid or not? So in practice, that's almost the same as having full Bitcoin security. But the only limitation here is the cost. For this to work, we have to keep posting the state updates.

Like we need to keep posting commitments to Bitcoin so that you can create a fraud proof. So you as a user can see, oh, I have the data to then show that you're misbehaving. And that would introduce way too high fees right now. And that's why we have this gradual release. In phase two, look, honestly, it's more secure than any other Bitcoin L2, any other Ethel 2. It's good enough. And then as the system grows and we, exceed the TVL limits, deposit limits of what Bitcoin is taking can ensure, then we can add

this full Bitcoin security through BitVM on top. So not only use BitVM for the bridge, but for the entire state. Like if you think about it, when we use BitVM for the bridge in phase two, when do you run the checks? You only run it when somebody is withdrawing, right? Then you check, okay, is everything right on Bob? Is it fine? Can I accept the withdrawal? Is it correct? In a full roll-up, you do this continuously, every minute, every boy. block every few blocks you continuously have to just revalidate, which makes it very expensive. And so that really only works at a certain size of the roll-up when you have millions of users so that the difference in fees per users may be a cent. And I think it's quite important to think

pragmatically here because we don't want to end up with another lightning, which is secure but unusable. One thing I'm curious about, I mean, today actually one of the largest Bitcoin versions on Ethereum or like outside of Bitcoin is and I guess it's the largest one that's not like custodial really is like Lombard Bitcoin. So LVTCC. With all your respect to the Lombard team, they're a great team to work with Lombards, but it is custodial. So I think it's very important to clarify everything today is still, it's still a multi-sig, it's institutional custody and you can do it in a very secure manner. but you still have this custodial aspect behind it.

Like, that is always present. So, but I'm still curious, basically, whether you think, like, I mean, I think you are working on decentralizing this as well, or like, like, if you have some kind of basically LRT-type token, you know, like a Lombar Bitcoin, that, okay, now it's, like, bridged somewhere else, but it's also, you know, accrues some Babylon points and Lombard points or tokens, and maybe it's used, you know, it's kind of like, it can be yield-bearing, you know, even before it's being used in those other chains. So that seems pretty compelling, probably, I imagine, for a lot of users. So do you think of something like LBTC also as like a version of Bich Bitcoin or you think that, like, how do you think about this? So, I mean, absolutely, I mean, LSTs, so the way that, I mean, and it's quite relevant for Bob because, again, as when, as we're becoming a Bitcoin Situed network, we actually are the source of these fees, right?

Like the fees generated on Bob are the fees that the LBT stakers, that's what they're actually making money on in the future, right? That's where the fees come. That's where the staking awards come from. They come from our chain having enough, like getting liquid. And that's where LSDs are so powerful because it created this powerful liquidity fly realistic. People stake Bitcoin, they mint LSD so they can move it around. It's a yield-bearing asset, right, that's getting fees for being, like, locked into staking, just like on Ethereum, but in this case on Bitcoin.

And then you put them on Bob. And in defy, this creates volumes, this generates fees, which pays the staking awards. The more fee, volume, the more fees, the more yield, like, sticking around for Bitcoin. Bitcoin has no native yield, right, except for mining. And then you have all the risk of, like, managing the equipment. So the bar for, like, how much you have to generate for people to consider staking it is quite low, but there's not much competition. So again, it will attract more Bitcoin to be staked.

And Babylon already has like $5.5 billion, right? So this will keep attracting more BDC that will get minted as an LST using, for example, Lombard is one example of a Bitcoin LSD that is staked into Babylon, which can be used on Bob. The more TVL, the more fees go back. And again, that attracts more liquidity. So it actually starts cycling and liquid it. So the LSD is a version around Bitcoin because the Bitcoin is custodied.

It's staked into Babylon, but it is also custody because it's not the users managing their own staking deposits. Basically, the way it works, you're delegating to the LST provider who then has either their own finality providers or they delegate to other finality providers in partnership. And then basically, it's like delegated staking, and then they give you the LST. So it's basically like LIDO, right? And then you can use that on Bob as well. And in the future, and I think that's something that people are looking at, and we're actually looking at, and I know there's interest also from LSD providers,

to then you can do this with BitVM, right? You can basically, the custody component of like, how is the Bitcoin kept? Yes, it's taken to Babylon, but who makes a stake, who actually has the Bitcoin and then stakes it? That component can be, again, in BitVM. You can actually have this reflected in BitVM. So in Bob's BitVM bridge, which you can do in the future, is you can say, oh, I'm just getting native rap Bitcoin, it's secure by BitVM, it's safe. Or I can opt into another version where, okay, when I'm bridging it at the same time,

it's being staked into Babylon. Because you can verify any, like you can actually have this step in the BitVM program. Like, okay, the Bitcoin goes in, it's deposited to Babylon, and you're earning staking rewards. And you're getting an LST version of BitVM BTC. So that definitely works. And in fact, is, as you said, a very powerful, interesting use case. So it's kind of, it's not an alternative. BitVM can also help improve the security of these systems.

those. Yeah. Okay, very cool. I would say maybe as a sort of like last topic to touch on, sort of where do you see that Bitcoin defy going on, on what time horizon, right? Like, I mean, I think today we have around $2 trillion in Bitcoin market cap or maybe a little bit less. And I think around maybe $20 billion, right, are held in this kind of like wrapped version. So it's like 1%.

I'm not exactly sure how much of that is actually being used in some sort of defy activity. I guess it's probably a pretty significant percentage. But what's your, and you mentioned also institutions in the beginning. So what's your expectations for how Bitcoin defy ecosystem is going to develop in the next few years? I honestly think that Bitcoin Difa right now is one of the large, if not the largest opportunity. in crypto and in like Thimtech of the decade. Because as you said, like, it's such a huge market. And it's less than a percent that has actually been deployed.

Less than a percent. It's like 0.1 to 0.5, depending what you count as like DFI. So with like, and then we debated at the beginning of this kind of podcast, right? Like, why have people deployed yet? It's the U.X. It's the security. It's also just like the adoption of, of defy products, like these defy chains, the adoption of Ethereum and Solana is nothing compared to the adoption of Bitcoin globally.

And so if, of course, there's always a big if, right, if we can convert more users, more Bitcoinals from exchanges from their ledger devices, right, and give them a choice. Like, if you want to do something, do it in Defi, that could be a major unlock. And the tools and the things that need to happen is, of course, on one hand, the more secure ways of using Bitcoin and Defi, because people are concerned about losing their BDC, but also building more defy products and specifically improving distribution, improving the way that you can access. So instead of you having to go and like wrap it, that people like,

if you have to start talking to people about, oh, you have to wrap your Bitcoin and then you can stake it and you get this LST and then you have to put it into a lending market to get a receipt token that you can activate as collateral. And you can, that just, yes, for you and me we use DFI, that's clear. For each way to complex. So what you need to basically do and that's how the cool thing is that DFI is experiencing a renaissance as a whole right now, with UX improving significantly. At the same time, what's happening on Bitcoin is you're unlocking secure ways of doing that.

So what I think will happen in the next five years is that Bitcoin Defi is going to become one of the biggest catalysts in like liquidity sources in the entire ecosystem. And it's just going to grow. I mean, I don't know how much it will grow in practice. There's a lot of factors, but it could grow by like 100 to 3,000 to 3.000. 300x in size because if you look at Ethereum's TVL to market cap ratio, we're at 30%. On Bitcoin, we're at what, 0.1, 0.3, something like this. So we have like this huge potential to unlock a completely new kind of ecosystem of defy. And what you can see in practice is that

every chain, every major protocol in the defy space has a Bitcoin strategy where has been working you and one. We work with a bunch of top-tier DeFi teams on building defa products, whether directly and Bob are working with them together for these like high-bditty C-vults. And you see a lot of chains announced like, oh, we're going to now like StarConnitz is also announcing, oh, they're going to also be connected to Bitcoin. You see Tron, for example, mid if you look at like late last year, like mid last year, they said, oh, we're going to, we want to build a Bitcoin that's connected to Bitcoin and Tron. So like Cardano, right, you name it. Like everybody is now looking to try to

I get access to Bitcoin. And the beautiful thing here is that Bitcoin L2s are just uniquely positioned to capture that market. Because again, all of this thing, all the things were just discussed about, you better secure deposits and so on. These things only really work well with Bitcoin secured networks. So Bitcoin layer 2s. So I think not a little Bitcoin Defi grow and the institutional interest is definitely present. You've seen like institutions with Babylon and like Bitcoin Defi,

they've started, you've had bullets move Bitcoin in that haven't done anything with a Bitcoin for like five to 10 years. People have tasted blood like it. They've tasted like, oh, I can't use this now. There is a way for me to do this. Now, I just need to now get comfortable with the risks and assess how do I want to use it, but it's not certainly possible.

And it's a combination of, you know, BitVM being making progress, Bitcoins taking, Defi experiencing governance as a whole, DefiUX making this huge leap to, oh, I need to note down my seed phrase to us. I can sign in with my Twitter account. this combination, I think, is exactly the recipe that we need to be able to onboard hundreds of millions of retail users that have Bitcoin into Defi and just give them a better option than centralized exchanges. So I'd predict this is going to be the biggest thing over the next five years in terms of growth in the crypto space.

Yeah, I mean, so this makes me think of one of the last episodes I did, the last episode I did, which was with Essie from Turtle Club. You know, we talked a lot about defy on a high level and just how amazingly efficient and composable and dynamic the defy ecosystem must become. And it's really amazing also how high yield you can earn on dollars and how you can use a thing in five different protocols at the same time. The downside certainly is there's a lot of complexity and it's hard to understand the risks. but you can still just see that I think what to me feels very obvious is that this kind of financial system is going to evolve at a such so much higher rate

and it's going to end up being so much more efficient that it will replace the existing financial system. And then of course in Bitcoin, right, people have always been excited about this idea, you know, hyper-bitconization or the idea that, you know, Bitcoin can be this you know, global reserve asset and maybe replace gold or, you know, have, you know, really achieve this enormous role in the financial system in the world. And, you know, right now is

basically really just this coin you buy and that you hope it goes up in value. And that's kind of mostly what it does. Now, of course, it's in ETFs and people can borrow against it in some context and is a bit more going on. But yeah, I do feel like that kind of merger of defy and Bitcoin, I mean, it's first of all crucial for Bitcoin to really have a shot at becoming this crucial building block of the financial world. And then, of course, I think you're totally right. It does it does just represent a huge,

opportunity, right? I mean, I think, I think total value in Defi locked is 100 billion, is that right? I might be wrong. You mean like, in Bitcoin Locked or in total? No, no, in total, total Defi. Yeah, I'm working at Defalama. It's like 107 billion.

Right, exactly, right? So then you're basically, yeah, so if you're certainly very, very feasible, right, that Bitcoin starts to make up a very meaningful percentage of that, you know, within, you know, maybe the next two years or so. Yeah, I fully agree. Like, if you just compare them numbers and the dimensions here, right, like the thing, yes, like Bitcoin is so fascinating because, yes, it's a hard market.

It's hard to grow in that market. You have to spend a lot of time, build a lot of trust. and you have to be in for the long game, right? I've seen like there was when we started Bob and we're one of the first, if not the first to go out and say, look, you know what? We're going to give this another shot. Like I know there was other teams like working in parallel, but at that time maybe like there was three, four teams working in stealth and like trying

to have another shot of Bitcoin L2s. Now you have over 75 Bitcoin L2s, right? And I think there's also, of course, many people who are now see this as a big opportunity and want to come in and say, oh, well, let's make some quick money. Let's build this how quickly. that's not how Bitcoin works. Like if you're trying to come in, just pump the numbers, and then expect this to scale from zero to one within a month,

Bitcoin's going to chew you up and spit you out. Like Bitcoin is, you're playing at the high stakes table. But if you win in Bitcoin, you win the entire market. Just because of its sheer size, global adoption, dominance. I mean, the brand itself alone, right? If the news talks about crypto, they talk about Bitcoin, except where they specifically mentioned the ETH ATF. Otherwise, it's always Bitcoin.

Bitcoin prices going up, Bitcoin prices going down. Something happened with Bitcoin. Nation state adopts Bitcoin Reserve. It's always Bitcoin. And if you just look at the numbers, right, the total, like the entirety of Defi today is merely 5% of Bitcoin's market cap. So I think, you know, if we can get this to work, that is probably the best way to not only, you know, make Bitcoin useful, but it's probably the best way to actually take

defy mainstream, using Bitcoin Rails and the trust that. Bitcoin brings with it and just the global adoption and the recognizability to just get more users into Defi get them on chain. Cool. Well, thank you so much, Alexei, for coming on. I really enjoyed this discussion. I think it was great to learn more about BitVM and just the power there regarding bridging. I think that sounds very cool.

And I also really enjoyed hearing kind of like the vision of how you see Bob playing, you know, but launching and then evolving using Bitcoin security in the future. So yeah, thanks so much for coming on. I'm super excited about this, you know, this part of the crypto space. And I couldn't agree more that there's going to be enormous opportunities and growth here in the coming years. Cool. Amazing. Thank you for having me. Really enjoyed this one. Bye-bye.