Rise of the “Bitcoin DeFi” SolvBTC.BBN, LBTC and other bitcoin-backed derivatives have been the main source of new networks seeking to scale Bitcoin. Babylon rewards these derivatives with staking, allowing them to be a new source of liquidity and yield. Bitcoiners have raised concerns over the lack of transparency in these platforms. This is especially true when it comes to how they manage bitcoin reserves.
Hans, a co-founder at Nubit who is known on the internet as Hans, wrote a recent article that raised concerns about the possibility of unbacked reserve and the inflationary effect of TVL in platforms such as Solv. This raises concerns about the broader risks of bitcoin-backed derivatives, particularly as volatility continues.
SolvBTC can be minted either by depositing BTC or different flavors of bitcoin wrapped so that the solvBTC coins mirror the BTC reserves in value 1:1.
It is difficult to trace TVL after that. It led to claims of double counting.
Ryan Chow, co-founder of Solv, called out the claims “a smear campaign, coordinated and orchestrated” Solv competitors.
A hack on the protocol’s X-account has resulted in a 7% discount for SolvBTC.BBN.
Solv pledged to refund user funds as a consequence of the hack.
Solv is no different from other platforms that offer bitcoin-backed derivatives. They all add additional trust layers. The reliance of bitcoin derivatives on central mechanisms, while some improvements in transparency are made, adds additional risk to users. @0xTindorr argued in a X thread defending the Solv that bitcoin liquid staking (LST) tokens carry an inherent risk.
To maintain trust in the market and reduce risks, users must ensure these platforms have reserves backing them up. Users should be wary, as the promises of high yield and liquidity can often hide hidden risks.
Solv Protocol’s native token SOLV is scheduled to be listed on Binance Thursday with a supply total of 9,66 billion. The initial supply circulating at the time of listing was approximately 1,48 billion. This token launch follows a point campaign and adds another layer to the ecosystem of derivatives that are backed by bitcoin. The performance of Solv in the space will be interesting to watch, especially in light with potential risks.
Some bitcoin derivatives issuers have used points programs in order to attract deposits. These are often the prelude to issuing a token.
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