Introduction - From Vision to Economics
Bitlayer's purpose-built architecture is an EVM-compatible L2 that settles to Bitcoin via BitVM fraud proofs, coupled with a two-way BTC bridge requiring only one honest actor to prevent theft. This design represents a significant security advancement over classic multisig bridges. Moving beyond architecture, this report focuses on the economics: how the YBTC Family becomes productive capital, how yield is generated and shared, and what risks and incentives shape institutional adoption.
Why this matters:
Bitcoin's base layer cannot host composable DeFi. To make BTC productive, it must be bridged into a programmable environment without re-centralizing trust. Bitlayer's BitVM-secured rollup and bridge are designed to achieve this, enabling BTC holders to earn transparent, on-chain "real yield" through lending, liquidity provision, and strategy vaults.
What is the YBTC Family (YBTC, YBTC.B)
The YBTC Family refers to two BTC-pegged assets with distinct roles:
- •YBTC: A trust-minimized BTC minted 1:1 via the BitVM Bridge.
- •YBTC.B: The wrapped form of Bitlayer Native BTC, designed for cross-chain liquidity and DeFi integrations.
In this report, "YBTC" denotes the BitVM-minted asset, "YBTC.B" denotes the wrapped Native BTC, and "YBTC Family" is used when both are in scope.
Mint/Redeem (Peg-in/Peg-out) Logic - Operational Flow
- •Wrap/Unwrap (Native BTC ↔ YBTC.B): After bridging BTC to Bitlayer and holding Native BTC, users can wrap it to mint YBTC.B for cross-chain use, and unwrap it to return to Native BTC.
- •Peg-in (BTC → YBTC): Users deposit BTC and mint YBTC 1:1 via the BitVM Bridge.
- •Peg-out (YBTC → BTC): Users burn YBTC and redeem BTC through the BitVM Bridge dispute/verification path. The process also involves brokers fronting exits with later proof-based reclaim under watcher oversight.
Pegging Mechanism & Incentives: Security for YBTC minting relies on BitVM fraud proofs, operating under a trust-minimized, one-honest-actor assumption. YBTC.B maintains its 1:1 peg by wrapping Native BTC and preserving convertibility through wrap/unwrap. Incentive programs, such as BTR campaigns and mainnet-beta mint incentives, are applied where specified by the team.
Collateral Flows & Smart-Contract Structure: Bridge roles including Users, Brokers, the Attesting Committee, and Watchers, along with the front-and-reclaim settlement flow, apply to YBTC bridging and exits. In contrast, YBTC.B relies on its wrapper and integrations with DEXs, lenders, and vaults for circulation.
Stakeholders, How They Earn, Who Secures, Who Bears Risk
BTC Holders / YBTC Family Holders (YBTC and YBTC.B)
- •How they earn: Supply YBTC or YBTC.B to lending markets for interest; provide YBTC or YBTC.B liquidity on AMMs/CLMMs to capture swap fees; deposit either asset into strategy vaults that auto-compound while maintaining BTC exposure.
- •Who secures: YBTC issuance is secured by BitVM fraud proofs; YBTC.B maintains a 1:1 wrap to Native BTC. Venues like lenders, DEXs, and vaults add their own security controls.
- •Key risks: Smart-contract and bridge risk, market volatility, and liquidity or price impact on exit.
Brokers (Liquidity Providers for Exits)
- •How they earn: Spread/fees for instant peg-outs. They front BTC to users and later reclaim via the BitVM proof path.
- •Who secures: Their bonded role in the dispute game, plus watcher oversight.
DEX LPs & AMMs (LFJ, Cetus, Orca, Momentum)
- •How they earn: Trading fees from YBTC or YBTC.B pairs. On CLMMs, tighter ranges increase fee density and capital efficiency.
- •Where this exists: YBTC.B is live on LFJ, with integrations expanding across Cetus (Sui) and Momentum. On Orca (Solana), concentrated-liquidity pools facilitate very low slippage within configured ranges. YBTC can participate as listings become available.
- •Key risks: Impermanent loss and out-of-range risk. Mitigations include active rebalancing and incentives.
Lending Markets/Strategy Vaults (Folks Finance, Navi, Kamino Earn)
- •How they earn: Interest spreads and vault fees. Vaults can auto-compound returns into a growing YBTC or YBTC.B position.
- •Key risks: Venue-level market and liquidity risk, plus smart-contract risk in vault strategies.
Attesting Committee + Watchers
- •Role: Secure peg correctness and state transitions; run challenges during the dispute window.
- •How they earn: Watchers receive challenge rewards when fraud is proven. Attesting Committee members do not earn from the challenge process. Incentives for attesters are planned, and until staking/incentive mechanisms are live, attester participation is by invitation.
- •Theoretical risks: Operational diligence (monitoring, uptime) and bond management for actors that post collateral.
Bitcoin Miners/Mining Pools
- •Role: Inclusion of the bridge’s non-standard transactions during disputes/finality. Partnerships with major pools improve reliability.
- •How they earn: Incremental fees from these transactions as usage grows.
- •Theoretical risks: Network-level throughput/fee dynamics; partnership breadth for redundancy.
Sources of Yield for YBTC Family
1) Lending & Borrowing
YBTC Family assets are supplied to partner money markets to earn interest and can be posted as collateral for borrowing. Current touchpoints include Folks Finance and Navi, with vault launches noted for the near future.
2) LP Fees & AMMs
- Bitlayer: LFJ lists YBTC.B, enabling fee capture on core pairs.
- Sui & Solana: Cetus, Momentum, and Orca integrate YBTC.B into concentrated-liquidity pools. Orca’s CLMM architecture supports near-zero-slippage execution within chosen ranges, boosting fee efficiency for BTC pairs.
3) Incentive Flows
- •BTR programs, such as the 30M BTR Binance Wallet Booster, reward bridging and on-chain activity.
- •Mainnet-beta incentives for minting and cross-chain usage help bootstrap early depth and effective APYs.
4) Strategy Vaults & Auto-Compounding
On Solana, Kamino Earn offers institutional-grade vaults that auto-compound BTC-denominated returns on YBTC.B, converting trading and borrowing yield into a growing principal position.
5) Cross-Chain Composability (Expansion)
Bitlayer’s bridge stack targets both EVM and non-EVM ecosystems, such as Sui and Solana VM via Sonic, widening the venues where the YBTC family can earn. Standardized routing lanes on the EVM side are also in scope as they mature.
Why this is “Native” Yield
Returns accrue on-chain, derived from lending interest, AMM fees, and programmatic strategy carry, rather than off-chain rehypothecation. This enhances transparency, auditability, and risk control for BTC holders while keeping the asset fully composable across chains.
Comparative Analysis - YBTC Family vs. Legacy Wrapped BTC
Trust & Security Model
YBTC Family is designed for multi-chain use across Bitlayer, EVM L2s, and non-EVM networks like Sui/Solana. It serves as a "BTC-Fi Gateway," with YBTC expanding into DEX, lending, and staking across various chains.
Yield Surface
Legacy wrapped BTC inherits yields only where it is listed. The YBTC Family's model is to proactively integrate across chains and vaults, with incentive programs to amplify early returns.
Risk Framework (and Mitigations)
Smart-Contract / Protocol Risk: The BitVM rollup and bridge utilize optimistic verification with fraud proofs. Watchers can challenge invalid claims, and brokers face slashing if they attempt fraud. This collapses trust to a one-honest-actor assumption in the dispute game. Mitigation includes audits, conservative parameterization, and robust watcher incentives.
Bridge/Peg Risk: Security relies on the BitVM dispute path being mined on Bitcoin. Bitlayer has onboarded mining pools covering approximately one-third or more of the hashrate for reliable inclusion of necessary non-standard transactions, with plans to expand pool coverage as needed.
Liquidity & Slippage Risk: Early liquidity can be patchy across venues. Bitlayer's approach uses DEX CLMMs and targeted incentives to deepen pools and compress slippage around core pairs. Mitigation involves routing liquidity to high-throughput venues (Sui/Solana) and concentrating emissions to deepen YBTC Family/majors pools.
Regulatory/Custodial Considerations for Institutions: YBTC.B uses trusted MPC custody (Coinbase, Sinohope) for BTC↔Bitlayer transfers. YBTC migrates to trust-minimized BitVM custody with on-chain verifiability. Institutional operations can adopt either lane based on policy requirements.
Existing Adoption and Ecosystem Traction
Network Growth Snapshots (Bitlayer)
- •July 2025: TVL $435.24M, 787,608 cumulative addresses, 69.32M tx (+22% MoM).
- •August 2025: TVL $668.68M, 784,379 addresses, 77.19M tx (+11% MoM).
Protocol Integrations (Cross-Chain)
- •YBTC has established strategic partnerships with Solana, Sui, Base, Arbitrum, Starknet, Sonic, and Monad.
- •Cross-chain support extends to Sui, Ethereum, BSC, Avalanche, Starknet, Solana, and Plume.
Listings/Liquidity Venues
- •YBTC Family is listed on LFJ, Balancer, Cetus, Curve, Momentum, Blackhole, Pancake, and Uniswap.
- •Daily trading volume on LFJ exceeds $1M; Momentum liquidity is expected to surpass $100M.
Lending & Yield Vaults
- •Strategic collaborations with Morpho, Navi, Kamino, and Folks Finance.
- •Folks Finance YBTC vault TVL exceeds $5.6M; Plume TVL surpasses $55M; Navi launched with a $5M vault.
User Metrics
- •The Binance Wallet Booster campaign attracted over 181,000 users.
- •TVL in YBTC.B-related pools reaches $88M.
Market Position (Bitlayer DEXs)
- •YBTC dominates wrapped BTC on Bitlayer with approximately 82% market share.
- •Achieves less than 0.3% slippage for large BTC swaps.
Macro Traction (from Prior Phase)
- •Peak Bitlayer V1 TVL was approximately $850M, with over 3M unique addresses and over 88M total transactions, plus top mining-pool partnerships.
GTM and Ecosystem Strategy
Ecosystem Integration Priorities
The Bitlayer team is executing a multi-chain expansion using BitVM/MPC to enable trust-minimized YBTC transfers across both EVM and non-EVM networks. On each destination chain, they prioritize integrations with major DeFi protocols (DEXs, lenders, and vaults) to ensure YBTC circulates seamlessly and its yield surface expands. For institutions, Bitlayer will provide white-label solutions built on BitVM fraud-proof mechanisms with end-to-end verifiability, including reporting, proofs, and auditability.
Incentive-Driven Adoption
Bitlayer plans BTR special subsidies to launch YBTC lending markets and a leveraged-loan accelerator. In partnership with DEXs, the team will roll out automated LP yield rebalancing that converts LP earnings into compounding YBTC positions. Early institutional users will receive fee subsidies, such as 0% borrowing fees for the first 90 days. Bitlayer will also partner with leading exchange wallets to run YBTC yield campaigns.
Developer Ecosystem
The team will fund builders through grants for protocols built on YBTC.B, including yield aggregators, option vaults, and structured products. They will also ship SDKs that enable seamless YBTC integration, such as mint/redeem hooks, peg-aware accounting, and cross-chain routing.
Institutional On-Ramps
Enterprises will receive white-label bridging endpoints with fraud-proof verifiability and proof-of-reserves/flows. Operational toggles between MPC (V1) and BitVM (V2) custody will be available to satisfy policy constraints while keeping assets portable across chains.
Risk-Adjusted Return View
- •Return Side: Composability of on-chain fee capture (lending/AMM/vaults) plus targeted emissions (BTR, campaign rewards). Auto-compounding and chain selection (Solana/Sui) improve capital efficiency.
- •Risk Side: Protocol/bridge risk is mitigated by BitVM fraud proofs and a 1-of-n assumption. Operational risk around non-standard transaction inclusion is mitigated by mining-pool partnerships (covering 31.5–36% of hashrate) and ongoing expansion plans.
Compared to legacy wrapped BTC (custodial multisig), YBTC.B shifts the curve toward lower trust and higher composability, offering a more desirable risk-adjusted profile for institutions seeking verifiable exposure. The three-generation bridge slide illustrates this progression: moving from majority-honest to minority-honest assumptions while expanding programmability.
YBTC Family Roadmap Q4 2025 and 2026
This roadmap outlines key milestones and strategic initiatives for the YBTC Family ecosystem in Q4 2025 and 2026, focusing on scalable growth, enhanced yield mechanisms, and institutional adoption. By achieving these objectives, YBTC aims to solidify its position as a premier BTCFi asset, bridging DeFi accessibility with institutional-grade reliability.
1. YBTC Family Growth
Drive explosive adoption through expanded minting, multi-chain deployment, and deep DeFi integrations to unlock liquidity and user engagement.
- •Surpass Key Adoption Thresholds: Achieve over 10,000 BTC in total minted supply, with daily trading volume exceeding $1 million USD across supported platforms, reflecting robust community and market demand.
- •Multi-Chain Expansion: Deploy YBTC Family tokens across 6–8 leading public blockchains, including Sui, Ethereum, Solana, Avalanche, Polygon, Starknet, Plume, and Plasma, enabling seamless cross-chain bridging and reduced fragmentation for users.
- •DeFi Protocol Integrations: Forge partnerships with 15–20 premier DeFi protocols spanning lending, decentralized exchanges, derivatives, and yield aggregators. This will position YBTC Family as eligible collateral for borrowing stable assets like USDC and USDT, unlocking billions in potential liquidity.
2. YBTC Family Yield Upgrade
Introduce diversified and tiered yield strategies to cater to retail, advanced, and institutional investors, maximizing returns while minimizing risk through innovative product segmentation.
- •Yield Diversification: Offer a comprehensive suite of yields tailored to investor profiles, including traditional DeFi base yields, exclusive partnership incentives from integrated protocols, and advanced quantitative strategy yields powered by algorithmic optimization.
Segmented Yield Products:
- DeFi Vault: A user-friendly, on-chain vault delivering baseline yields of 6–15% annualized returns, supplemented by BTR token incentives to encourage long-term holding and participation.
- CeDeFi Vault: An institutional-caliber product featuring white-label solutions and API access for seamless integration. It enables enhanced yields through proprietary quantitative strategies, targeting sophisticated users with customizable risk-adjusted performance.
3. YBTC Family Institutional Expansion
Elevate YBTC Family to the gold standard for institutional BTCFi by forging elite partnerships, tailored financial products, and compliance-focused infrastructure.
Strategic Institutional Partnerships: Secure collaborations with top-tier custodians and asset managers, including Franklin Templeton and BitGo, to co-develop BTC-backed financial products and leverage their distribution networks for accelerated onboarding.
Tailored Lending Solutions: Launch low-interest lending programs collateralized by BTC, exclusively available to verified institutional clients, providing efficient capital access with competitive rates (e.g., 4–5% APR) and real-time risk monitoring.
Compliant Infrastructure Buildout: Develop a fully auditable, regulatory-aligned framework to establish YBTC Family as the de facto institutional-grade BTCFi asset, ensuring scalability and trust for enterprise-scale deployments.
Conclusion
Bitlayer transforms Bitcoin from a passive store of value into productive, composable collateral. Within the YBTC Family, YBTC.B channels native BTC into lending markets, AMMs, and vaults, while YBTC, minted trust-minimally through the BitVM Bridge, extends this liquidity across chains. Security relies on fraud proofs under a one-honest-actor assumption, with brokers providing instant exits and settlement finalized directly on Bitcoin.
Together, these mechanics create a compounding flywheel: BTC enters as collateral, is wrapped or minted into YBTC Family assets, circulates through DeFi venues, generates yield, deepens liquidity, and attracts institutional adoption. Portability across EVM and non-EVM networks ensures execution flows to the most efficient venues, without ever reverting to a custodial trust model.
The result is a BTC-denominated base layer for yield: transparent, verifiable, and secured by Bitcoin itself.
Report 3 will delve into the technical foundation of these guarantees: the BitVM dispute system, on-Bitcoin verification, and the upcoming upgrades that anchor Bitlayer’s roadmap.