But the challenge that we're facing on the Bitcoin Defy side is that there's technical limitations. You have Bitcoin and Defy 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 to 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 the biggest gap 2 gaps here are UX to making Bitcoin more accessible.
Because honestly, if you're an ETH user and you want to use theorem and defy, it's super easy, right? Use the protocol, you have aggregators. If all the tools are there, if you want to use Bitcoin, you have to 1st pick a bridge, understand the risks you have to deposit your Bitcoin from Bitcoin O1 into that bridge and then like all the interfaces look different. So you have this hurdle. So that is like the key concept of bit VM. There is no like virtual machine
per SE involved. It's a way to defro proof some Bitcoin for the ever now. And that allows us to make this gigantic jump from the multi state bridge where if three out of five Cyanus collude, your assets are gone to bit VM. It's a bit more sophisticated in terms of how to describe security, but let's say we're 50 operators in bit VM. Even if all of them colludes, they cannot steal.
As long as somewhere in the network there's one person to trigger a challenge, makes a transaction and says wait a second, these guys are trying to steal, your assets are safe. Welcome to Epicenter, the show which talks about the technologies, projects and people driving decentralization and the blockchain revolution. I'm Brian Crane and today I'm speaking with Alex A, who is the Co founder of Bob.
Bob stands for Building on Bitcoin and it's you know, it's one of the most most far advanced and most interesting Bitcoin layer 2 Bitcoin defy projects. So I'm excited to speak with Alex A today to talk about Bob and talk about Bitcoin and Bitcoin Defy. Now just before we start the conversation with Alex say we'd like to share a few words from our sponsors this week. If you're looking to stake your crypto with confidence, look no
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Gnosis Dow forum today. Deploy on the EVM compatible Gnosis Chain or secure the network with just one GNO and affordable hardware. Start your decentralization journey today at gnosis dot IO. Cool. Well, thanks so much Alexei for 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 have?
Yeah, absolutely. So it's been 10 years for me since I kind of, you know, went down the rabbit hole with Bitcoin research. I started with Namecoin and that was kind of my first love in the space. And I got really excited, not just about, you know, Bitcoin, the sense of, 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 Namecoin was the 1st blockchain that inherited Bitcoin security at the same like at the same time and spent like a lot of time looking and into kind of these kind of designs.
Wrote the 1st paper on merge mining and like the good things and the bad things about it. I 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 all, 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 is no 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 D5 or like more use cases for Bitcoin without changing the core protocol. 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 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 defy has always been driven by the fact that look, Bitcoin started this whole thing, right? It it's, it's the thing that kicked off this revolution in finance that we have the centralization. We are trying to build a better, more transparent financial system. But to do anything with Bitcoin other than payments, you are forced to go back to centralized providers, right?
We we have centralized exchanges dominates 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 D5, but it it's all backed by centralized bridges, which is fine because we didn't have to better technology so far. But what always bugged me about this is it just makes no sense,
right? Bitcoin is is the biggest digital asset out that has the biggest community, the best distribution. But what we're 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 ETFs, 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 they know pension funds and like it's great. But at the others, 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 it and define it as centralized matter, unlock use cases like trading, borrowing, lending more advanced products, be it even micro payments, be micro loans against Bitcoin to borrow stables.
But that should be possible without asking permission of a centralized provider, because it is possible on Etherium and Salon 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 like why Bitcoin Defy 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, is working in his life today. Well, I mean, there's there's multiple challenges with D Phi, right? Even D Phi, Ethereum is still hard to use. I mean, we saw CZ from Pine admit that's totally fun. So I admit that they've never used D Phi before. Etherium Foundation is using D Phi for the first time, right.
So you can see that it's still, you know, a process and D Phi has not yet reached mass adoption. Bitcoin has, however, as an asset. So I like, you know, and then the subset of people who are Bitcoin holders and use D5 is actually quite big. I would argue everybody who is using D5, right, also has Bitcoin. But the challenge that we're facing on the Bitcoin D5 side is that there's technical limitations, right? You have Bitcoin and D5 today,
right? But since Bitcoin only exists on Bitcoin, and if you want to use it in another chain that has D5, 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 safekeep 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, doesn't matter. You have a set of users that controls your Bitcoin and that means that you're 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 D5 market for Bitcoin, right? If you look at WBDCCBTC growing quickly, you have Bitcoin LS, DS 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, but then still make it usable. So I think so far it's been these two things, right? D5 is still early per SE. The UX isn't great. Bitcoin's user base is huge, right? 300 million plus users.
Not all of them know D5. Most of them actually probably don't know what D5 is. They probably don't know what an EMM is. They probably don't know how if it works and then but how like so if you look at from like from that angle, OK, yes, like not, not like the percentage of Bitcoin holders that actually use D5 is probably not as high as it should be. But then if you look at the D5 user base and compare like that to like, if you basically look
at, OK, how many of them actually have Bitcoin or how many of them have used Bitcoin in D5 using one of these wrappers, that percentage is actually going to be very, very high because the 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 that the biggest gap, 2 gaps here are UX and making
Bitcoin more accessible. Because honestly, if you're an ETH user and you want to use Ethereum and D5, it's super easy, right? You just you use the protocol, you have aggregators. If all the tools are there, if you want to use Bitcoin, you have to 1st pick a bridge, understand the risks you have to deposit your Bitcoin from
Bitcoin O1 into that bridge. OK, Most bridges, like especially on the rapid EC side, the biggest of the ones you either, you know, if you want to actually mint the Bitcoin yourself, you have to go to a merchant, they'll KYC you, there'll be a minimum deposit. It's there's going to be fees. And then like all the interfaces look different.
So you have this hurdle of like, OK, it's actually not easy to just get your Bitcoin into Defy. And then that's also something we've been working to fix, just like make it super easy for an existing Defy user to access their Bitcoin that's maybe in the Ledger and they haven't used so far, but not 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 at what I think first of all is probably held on Ethereum. And then of that, the vast majority is in WBTC, which is big Go version of Bitcoin and then Coinbase's version of Bitcoin, CBBTC. So but let's let's ignore that part for a moment. I'm curious about the other part, right?
That's more in, 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, is perceived, right? There is no, it's subjective. It's it's user by user. Everybody has a different notion of trust. And that's also something Bitcoiners have learned.
If you look at lightning, for example, right, 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 little set up. 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 stepping us like
taking a step back, as mentioned, right, if you want to use Bitcoin on another platform, whether it's a centralized 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 what I've sent it to you, Brian, and then you want to unwrap and get you a get the Bitcoin back that you've purchased on Bitcoin O1. How do we enforce that? And then 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, whereas you're burning this on Bob, here's your Bikram backlack 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 that. And what you then had is you were, we were emulating this smart contract logic that you could build let's say on Ethereum or in Cosmos shades or in Polka dot and other ecosystems with smart contract logic on Bitcoin went to emulated using a trusted third party. And they were trying to distribute that trust as much as possible, where Bitcoin totally 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. And it's, but the model is always the same. If the majority is honest, everything's fine. But if the majority is dishonest, they can steal 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 the Bivate attack today doesn't mean that somebody's malicious. These attacks are very sophisticated and they could just be executed. And if you know who to target, you just hack a few devices that the fewer devices you need them, 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 struggle to get more adoption? I mean, we've worked with the TBTC team very closely on the Bob side as well.
And the feedback we received from many OG Bitcoin holders for a lot of them are institutionalized big institutions funds for them, the security upgrade between a trusted multi CIG where you have a company behind it's like Pitco's rapid TC or corn misses to OK, it's it's a multi CIG, 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 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 as bridges, unless there's a big improvement to a multi SEC controlled by a custodian, they're not going to you're not going to budget. And that's where bit VM comes into play. That's where basically we're looking at. There's like light at the end of
the tunnel. We now have a way to move away from multi sig 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 2. And with bit VM you have this model that it, it's basically for those of you who are not super familiar, a good comparison is arbitrary money theorem rights or optimism money theorem. 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 thefts. So that is like the key concept of bit VM. There is no like virtual machine
per SE involved. It's a way to defrob proof some Bitcoin for the first time ever now, and that allows us to make this gigantic jump from OK, you have a multi sick bridge where if three or five signers colludio assets are gone to OK in bits VM, 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 bit VM.
Even if all of them colludes, they cannot steal as long as somewhere in the network this there's one person. This could be you, 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 7 days, makes a transaction and says, wait a second, these guys are trying to steal. Your assets are safe.
And even if all fifty of them collude, the worst thing they could do is, 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 the other if like 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 not attack the system, they'll kick out everybody else and penalize them. And, and to actually make money off this. So that from game three perspective, makes it very, very hard to even run a coordinate
attack to freeze funds. And then of course, stealing is just almost impossible. And that is such a huge security upgrade that we think, OK, that is something where over time people will transition over as we build trust in bit VM because it's just such a jump from OK, three to five can steal 2, right? As long as one person's online, my assets are safe. I want to understand a little bit better, you know, bit VM and what bit BM is.
I mean, you mentioned 50 operators here, so but bit VM, first of all, it's not an upgrade to Bitcoin. No, there's no changes to Bitcoin itself. Correct. But the beauty of bit VM is that it it works with Bitcoin as it is today. Of course like any additional upper up codes on Bitcoin make it easier and help us, but you don't need to change Bitcoin and that I think is is what makes it so exciting like it works as of
today. And and then bit VM is, is what it's some kind of standard for how you write scripts that and and have them verified on Bitcoin or or like or how does it work bit VM? So, so if we a very good example of explaining bit VM is, is let's say we want to run like a multiplication program in Bitcoin and right, 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 what the first thing we have to clear up is what many people don't know is that using bit conscript, you can write any program, you can do universal computation in bit conscript, but it's very inefficient.
And the way to think about it is something that is maybe fine lines of code in Solidity is is going to be like 1000 lines of code using bit conscript. And that means that you know, with these like, it's just so much bigger. So if, for example, if you want to write like multiply to numbers in on the theorem, you just write a multiply 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 3 multiplications in a single Bitcoin block if you write them out all yourself, which is right. So I mean, you can think about is that 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 bit VM is we, we take a program and we basically we, you know, let's say this multiplication program, we split it up as we would in bit conscript. So let's say like while on solidity in solidity and the theorem, it's like one line in Bitcoin, it's like you just add, add, add, add, add, add, add. So let's say we're we're multiplying 2 * 10.
So in Bitcoin script, you'd basically, and again, I'm oversimplifying this to visualize it, but you'd be like, OK, 2 + 2 + 2 + 2 + 2 + 2 + 2. And what we do in bit like. 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, OK, we're actually very fine.
If you burn something like the wrapped acid 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 4 megabytes in size. Like we've really optimized that.
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 subprograms that if you run them all after the other, you get the same results. And then what we do in BITS VM is we say, OK, you will. Now as an operator, you're going to commit using on stream commitments that, and this is what we actually do in script, that you're going to run exactly this program. Like you and I will agree, you're going to run exactly this
program. Let's say it's this like a multiplication example. You and I agree that you're going to run this multiplication on, on, on off chain and then you're going to give me the results and post it on chain. And then as an operator, you're going to run it. So you've multiplied 2 * 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 this like I ran it off chain on my machine. I know that this is this is wrong. Now I just need to find out where you modified 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 bit VM deposit.
And let's assume like I put some money in and if you give me the right answer, you're going to 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 7 days or whatever if 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 0246 because you're always adding two, right? 246810 and then let's say at some point you say 11 and then it's 3015. So you clearly that's that's wrong, like like 10 + 2 is not 11, right? But I will see that I will see that in this step that's exactly where you've tried to cheat. And then I'll, what I'll do is I'll take that subprogram
exactly. Only this piece that takes us input tenant adds 2 and I'm going to run it in a Bitcoin transaction and I'm going to link it back to the commitments you've made using Bitcoin script and like Lamport signatures, which is a cool concept, but we don't have to go into that in detail. But what, 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 cheat and 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 this, 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, right? 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 and you're 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 2 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's every bit control 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
megabytes. So like you would break it into like, I don't know, I, I mean 400 parts of one MB or something or. Actually I, I got it wrong. So it's one GB in size and just in current practice writes where it's currently the sizing is 1 gigabyte after with optimizations. And what we're doing is we're breaking into chunks of 400 kilobytes, but the 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 to to challenge you and to prove you wrong or to make it cheaper for the operator to respond. Like there's some like parameters that you can move back and forth, but that's basically the idea. If that challenge happens, 400 kilobyte, OK, that's like a 10th of a Bitcoin block size. So, OK, probably pretty expensive or 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 fee 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 pre depositing some amount of Bitcoin, let's say 0.1 to one BTC, right, Could be less.
But that is used to, if you misbehave, that we take that money and that's used to reimburse like, or to cover the costs of somebody challenging you or like there's some cost to the operator for like also not like misbehaving. But the, the, the main point here is that the, 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 my, the
costs myself. All of this is completely independent to the TDL to the amount of Bitcoin deposited. So sure, if you have only like 10 BTC in the system paying zero like 0.1 percent, 0.1 BTC and like cost of challenging is quite high. If you have 100,000 Bitcoin deposited, it's nothing, right? And so bit VM, it's like security is always, you know, there's no perfect security. You always have to balance the like cost versus benefit.
And if you have a small system that has no TBL, then using bit VM as an overkill. If you're a big Bitcoin L2 that is getting a lot of TBL, then yes, you should definitely use it because there is some costs associated. But if you have a lot of TBL, your chin is making fees. You can have a pot that will offset any operational challenging costs for people to who actually enforcing safety.
Right. So the economics can be modelled and it it basically scales with size, the bigger the cheaper it gets. Yeah, Yeah. I mean, I guess it's it's like with all these fraud systems, right. In the end, you're trying to create incentives such that 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, or like maybe maybe you'd even struggle to get it in at all, you know? So I guess that that is still a scenario you have to worry about. Oh, absolutely. I mean, there is no like perfect safety in that there's always risk associated.
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 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 pots like, if you're willing to, you can crowd from this transaction.
First of all, you can multiple users can come together, provide the the inputs of the fees or 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 pots, here's a bounty for you to actually, you know, reclaim actually make 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 what we have bug bounties and what not to
invest in audits. And if you look at this, 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 over the last two years to buy a full Bitcoin block in terms of fees was 0.120.3 BTC. So again, it's not cheap, but it's also not the end of the world when it's actually doable, especially if you think that this could be securing a multibillion dollar ecosystem.
If it's securing $10, OK, then no, that doesn't make sense. So yeah, but we're talking about, again, about unlocking Bitcoin Defy, you have 2050 to 20 billion depending on the price. And like how much moves in and out of BDC wrapped into Defy 5 1/2 billion dollars 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 Defy that using bit VM, it's like we're past this kind of hurdle of are we sure that people want to use Bitcoin and Defy, are there enough people are going to bridge in? So what's the status with bit VM? So today there's no bridge life, right, that leverages bit VM. But are there like a bunch of different people building bridges and what's the what's the timeline here?
So bit VM 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, OK, 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 bit VM 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 launched with training wheels and then gradually remove all the additional safety mechanisms. So you fully rely on this Prover verifier 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 minimize Bitcoin bridging and roll ups.
It took Ethereum 5 plus years to get to that. Bitcoin is moving much faster cause a lot of the ZK stuff is already there, right? A lot of the infrastructure's there. So we don't have to reinvent it from scratch. This, like the interesting part is the ZK roll up thing or the ZK component within Bitcoin. The L2 is like within bit VM. It's different that it's not a
ZK roll up, right? We actually just using it as a preprocessing step instead of I could plug in the whole computation right from the EVM into into the bit VM part, but it's just going to be always, it's going to be huge and inefficient. And with the with the snark, we just standardize it, right? You always get the same thing, which is constant in size and that allows you just to kind of
plug in different computations. So for anything where you can generate a star proof, it works with bit VM, 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 to volunteer one to throw money
at this. Oh, I'm going to bridge in without using bit VM. There are some UX components that need to be fine-tuned and people need to build trusts. 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, OK, this is safe, I'm going to use it.
And then you start, you have the D Jins coming in because they they're excited about it. And though our approach is also here working with institutional partners from day one. In fact, we're really working with a big group of institutional partners to a educate them about bit VM, but also understand how could this bit VM system fit into their current setup. Like my personal view is, you know, there's a lot of people like building bit VM and like
trust minimized bridges. And what they do is they attack, they say PICO, see, rapid DC is bad, CBBTC 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. And 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 back end, you could use bit VM. Complexity wise it's pretty similar, but bit VM is just so much better and and that's the approach we're taking. So I honestly think bit VM will
be commoditizing. The only segue 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 between our maintenance in 2025 for sure. OK, OK. And so, so I get one approach is to try to convince, I don't know, Coinbase bit and bit go and stuff to maybe use this now for Bob.
So do you guys, because you mentioned also, OK, 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 bit VM. And then, I don't know, some other roll up will have their own or like, because I, 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 bridge in different ways that, you know, maybe kind of similar security underneath, but maybe not exactly identical. Or like how do you see that?
You see like lots of versions or I think can there be like one version of bit VM 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 1000 standards and we say, oh, let's make a standard to unite these standards and we have 1001 standards. So 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 L twos is actually making different 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 finality and build a Bitfame bridge that relies on Bitcoin stakers being honest. If you want to build a full Bitcoin roller 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, right? So there's different like some chains of merch mind on Bitcoin like to inherit Bitcoin security. Others don't even inherit
Bitcoin security at all, right? There's teams trying to bridge to Ethereum Cardano using Bitcoin, which in my opinion will not properly work just because these systems don't have secure live clients. So the designs will differ. I think what will be similar is the core.
But even from the core, right, you have bit VM2, which is the design that that I work with, with where Robin and I and a bunch of other researchers work together to kind of, you know, put together a full speck of how this bit VM system can be used to build a bridge and how it actually can be built in production. But there was bit VM like the version of Robin first wrote. And then you had a bunch of other teams like fork off that's to have their custom designs.
So it's bit VMX. There is other versions rights of of this and the some teams have been abandoned theirs and come back to build a bit VM 2. So I think what you'll see is a completely new kind of set of the 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 that 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, they integrate staking on different chains and they have to understand the nuances. And of course, that's why we're talking with, with all of them already because we want to understand like what are the things we should avoid to make sure it's easy to integrate.
But in terms of liquidity fragmentation, I, I can definitely see challenges there. But on the other hands, again, since every from a picking user's perspective, if you're bridging to Bob, you have a different trust assumption than if you're bridging to another L2, right?
There's trade-offs. These two bit conversions, there's no benefit for them being fungible because you, if you want to. So let's say I've deposited Bitcoin into Bob. So I have Bob BTC which is secured by bit VM and that's the 1:00 we, we build and operate. Now I want to bridge another bit. So that also has a bit VM bridge, right?
It's similar security models, but they have fine tune like they're using, let's say merge mining or or something else or like they're like use they posting 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 bit VM that will allow an operator to actually use like like plug into multiple Bitcoin L twos 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 bitum instances with like different parameters based on different chains. And I just like act as a liquidity bridge. Like in 10 bridge operator.
We see this on Ethel twos. That's already happening, right? If you're going between different Ethel twos, you're using an 10 base or like liquidity or like Burnham in bridges. 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 ones who deposit into Binance. So when it's not like we're introducing new UX problems, they just exist already, right?
Your dollars in bank one are not the same dollars in bank 2 until you withdraw them. OK, cool, cool. So let's go a bit more into Bob. So you mentioned Bitcoin staking, so and 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 big ground at the center of
define. So it has multiple components. The first and foremost is Bitcoin security 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 I will have Bitcoin security, we'll use bit VM for the Bitcoin bridge and then there's two additional components. We have the EVM server OP stack compatible. We're a super team member, right? Super easy for you to onboard
and deploy their contracts. And they only need to think about the Bitcoin side of things. And we're actually connected to Etherium, So we have a native bridge to Ether and we can have native bridges 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 Etherium on to Bob, how do you know that Bob is
secure, right? Well, because Bob is Bitcoin security, you actually go look at Bitcoin and you look, you say, OK, is like Bob a 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, an optimism arbitrum. It will check for ETH FROB proofs. Has it been a FROB 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 ETH FROB 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 then we'll just look at, OK, Bob, at the block above, block 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, OK, 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 bit VM for that in the future with fro proofs, you can also check, OK, there's no fro 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 very fine 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 TBT CS using such a live client. So that, 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, EF maxi, Selenomaxi, 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 like perspective, every day we go to work and build in this, in this ecosystem. If Bikram breaks, we're all gone like this. This will not survive. So it's a very easy kind of sell to make to people like instead of, you know, trusting another like interpretability layer or like, you know, another blockchain that is supposed to do interpretability. OK, just trust Bitcoin.
That's the one thing we're already trusting. And since Bitcoin is so easy to verify, every smart country capable blockchain beat ETH, polka dot cosmos, Avalanche, Sui, Aptos move better doesn't matter. They can all verify Bitcoin and that means we can have native bridges to all of these chains secure by Bitcoin. So what does that mean? This means that an ETH user can deposit their ETH into Bob, trade against Bitcoin, but also trade it against to 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 OK, so Bitcoin's taking is it full Bitcoin roll upright, 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 sole against ETH or sole against bearer, 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 L twos like Bob and just do it there because you can deposit, swap, withdraw without having to worry about trusting Binance or trusting Bitcoin security. And then at the same time, from Bitcoin user's perspective, and that's what we're focusing on right now is, OK, I have Bitcoin, I want to use it in D5I can one click deploy it into Bob because Bob has like one click Bitcoin staking products, We 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, OK, I actually want to use it on Etherium or on Salon, Like there's an opportunity for me to earn yield on my Bitcoin on if you, of course, do your own research, be cautious. There's always risks if you're bridging to Etherium, your trust in ETH, right? That needs to be clear, but that deposit process are from Bob to ETH that's secure by Bitcoin.
So I don't have to trust another bridge for me to able to access Etherium from Bitcoin. So I Bob has the most secure version of BTC bridged using bit VM and that can be then accessed on etherium and then you can. The cool thing is you can manage this all from within Bob. So you can have vaults that, you know, deposit this into Etherium D5 products like Avid, Morpho, Pendol, same with Solana, same with Vera.
But these the connection like the actual process of OK, you have Bitcoin on Bob and now we're moving it to ETH. That part is secured again by Bitcoin because the we're using this bridge that is native that use that verifies that OK, everything that's going on on Bob is locked is secured by Bitcoin. So we just check that. And so your trust is now Bitcoin security and Ethereum or Bitcoin and Solana and like, 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, or Ben, you say Bitcoin. I mean, because you're saying like, OK, 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 we're like, well, that's a
different. So there's trade-offs, right? And and basically these trade-offs 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 in ETH roll up and we focused on building out this tech with bit VM and like integrating Bitcoin security.
And but on the product side, we focused on like one click deployments like you improving the Bitcoin D5UX, working with tier 1D5 protocols from Etherium 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 that's 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, are they and and more for and all of these kind of D5 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, two kind of verticals like the Cortec with a Bitcoin security and bit VM, which is now hitting test net and like we're entering this phase two in 25. But so far, we focus then on the product side of, OK, building the Bob default ecosystem, having the best default
primitives, right? We have Unispot, for example, working with the top lending markets to build like a base default layer on Bob. But then also with we're releasing a new product, these vaults that I mentioned, that's a new thing. And depending when 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, let's say selling like, you know, APY from bitcoins, taking LSDS on pendulum for fixed yield, getting it back. And then you can use them in Bob again to use it in Bob as collateral to trade it to lever up whatever. So you basically we you get these yield bearing presentations of bitcoins so that Bitcoin is staked on Ethereum and you cannot do something with it.
And it could also the same can be in LSD that's also staked in Babylon. So you can build different layers on top, which of course incurs risk without question, but there is clearly demand for it and people have to, you know, 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 DC and Bitcoin LLC
providers. And in phase two, because they were correctly, like you pointed out earlier, like Bitcoin staking is not the same as Bitcoin LL1 security. That is true, almost true. There is a trade off in Bitcoin security, right? So in phase two, 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 TBL of Bob doesn't exceed that, we're fine,
right? Because then if you're stealing, if you, if these takers try to misbehave, they will lose their Bitcoin. Like the private keys are revealed if you double sign, if you're trying to create a Bob fork, you're creating, you're signing twice for the same block. The way Babylon staking works is it has a cool trick where your private key will be revealed on bitcoins, your Bitcoin are lost. And what we do with Bob then is
as an ETH roll up right? We first of so it it's actually a bigger upgrade that's happening, but we become AZK roll up, right? We transition to a full ZK roll up on Ethereum as well. So for ETH users, we're AZK roll up right in phase two. But for Bitcoin users, we add this Bitcoin staking component. So then the Bitcoin stakers, they verify that what the sequencer is doing.
So when the sequencer is producing the proof that we send it first to the stakers of that have Bitcoin stake, they verify it and then they sign off. And only if 2/3 of the Bitcoin staked has signed off, we can then post it to Etherium. And Etherium will actually check that. It's not only that's valid proof, but it's been approved by the Bitcoin stakers 'cause we're merging like the Bitcoin security and the E security in this model.
And we do that. We have the Bitcoin security for OK Bitcoin finale faster withdrawals, but also because that's how we can build a bit VM bridge because in bit VM, what we verify on the bit VM side in on the Bitcoin end, when you are very verifying whether OK, I'm withdrawing from Bob is you're verifying the ZK proof, but you're also checking like you need to know like 'cause I can give you 2 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 with as an operator send, you know, somebody with withdrawing and I as an operator correctly process 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 do kind of submit the fake states. But the proof could still be valid, right? It could be like the rules could be fine, but 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 stakers check whether I'm actually as an opera, as a sequencer, 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's is seeing in public? And that ensures that it's very hard to attack because now to attack the system, you not only have to fit, you know, generate a fake ZK proof, you also have to think corrupt a sequence. You have to attack the majority of the Bikras takers.
And then for the ETH user, you also have to for the Etherium users, you also have to attack Ethereum to prevent the fraud for Zika proof from being submitted. So this just makes Bob in Phase 2 the most secure L2 in practice because you have these two security models merged into one into one kind of layer. But yes, in Bitcoin staking the big, 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 of nodes and everybody can participate, right? Everybody can run a node and become a staker, but not every phone node is participating. There's like 1 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 the like the proving like we turn off the Zeke proofs on Etherium. You on my theorem, we no longer check anything except Bitcoin,
right? In phase two, we still check the Zeke proofs on Etherium 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 of on Bitcoin where we post the proofs specifically using bit VM. We have been frog proofs on Bitcoin. So we kind of go from ZK, full ZK proofs, state validity proofs on Etherium 2. OK, we now plug it into Bitcoin where we only can do frog 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 1000 X more in fees just because the cost on Bitcoin will be so high to keep posting the data. So you can then generate the frog proof. But in phase three, once Bob is big enough, we can make that transition.
And then we have this bit VM security model where as long as there's one user in Bitcoin that is online, I can't. This user, which can be you or me or anyone, can enforce that all the Bitcoin full 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 of the assumption that needs to be one person online
somewhere. But arguably in practice, the difference is very minimum, is very, very small because if you're running a wallet for on your phone, you're actually not downloading the full blockchain. You're already trusting that somewhat there. There's a 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 costs.
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 frog 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 and phase two, look, honestly, it's more secure than any other Bitcoin L2, any other El two.
It's good enough. And then as the system grows and we exceed the TBL limits, deposit limits of like what Bitcoin's taking can ensure, then we can add this full Bitcoin security through bit VM on top. So not only use bit VM for the bridge, but for the entire state. Like if you think about it, when we use bit VM for the bridge in Phase 2, when do you run the checks? You only run it when somebody's withdrawing, right? You then you check, OK, is everything right on Bob? Is it fine?
Can I accept the withdrawal? Is it, is it correct in the full roll up? You do this continuously, every minute, every block, every few blocks, you continuously have to just revalidate, which makes it very expensive. And like 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 then 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 Etheria 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 LBTC.
With all due 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 what I'm I'm so 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 Lombard Bitcoin that OK, now it's like reached 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 it 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 which Bitcoin or you think that you're like, how do you think about this? So I mean absolutely, I mean LSD. So the way that I mean, and it's quite relevant for Bob because again, as, when, as we're becoming a bit concentrate network, we actually are the
source of these fees, right? Like the fees generated on Bob are the fees that the LBTC 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 rewards come from. They come from our chain having enough like generating like getting like, and that's where LSDS are so powerful because it created this powerful liquidity flywheel. Cause like people stake Bitcoin, they mint LSDS 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 Etherium, but in this case on Bitcoin. And then you put them on Bob and in D5, this creates volumes that generates fees, which pays the staking rewards. The more fee volume, the more fees, the more yield, like staking rewards 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, the, 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 LST that is staked into Babylon, which can be used on Bob.
The more TDL, the more fees go back and again that attracts more liquidity, basically starts cycling the liquidity. So the LSD is a version of a Bitcoin because the Bitcoin is custody, it's staking to Babylon, but it is also custody because it's not the users managing their own staking
deposits. You're basically what the way it works, you, you would delegate, you're delegating to the LSD provider who then has either their own finality providers or they delegate to other finality providers in partnership. And then basically it's your, it's like delegated staking, but and then they give you the LSD. So it's basically like lider, right? And then you can use that on Bob
as well and in the future. And I like, like that's something that people are looking at and we're actually looking at. And I know there's like interest also from LSD providers to then you can do this with bit VM, right? Like you can basically you get the custody component of like, how is a Bitcoin kept? Like, yes, it's taken to Babylon, but like who makes a
stake? Who actually has the Bitcoin and it stakes it. That component can be again in bit VM, you can actually have this reflected in bit VM. So in Bob's bit VM bridge, what you can do in the future is you can say, oh, I'm just getting like native rap Bitcoin, It's
secure, but bit VM it's safe. Or I can opt into another version where OK, when I'm stick, when I'm bridging it at the same time, it's being staked into deposited into Babylon because you can verify any like you can actually have this step in the bit VM program, like, OK, the Bitcoin goes in, it's deposited to Babylon and you're earning staking rewards and you're getting an LST version of bit V MB TC.
So that definitely works. And in fact is, as you said, a very powerful interesting use case. So it's kind of it's, it's not an alternative a bit VM can also help improve the security of these systems. Yeah. OK, very cool. I would say maybe as a sort of like last topic to touch on sort of where 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, you know, some sort of defy activity. I, I guess it's probably a pretty significant percentage. But what's your and and you mentioned also institutions in the beginning. So what's your expectations for how Bitcoin D5 ecosystem is going to develop in the next, you know, few years?
I honestly think that Bitcoin D5 right now is one of the large, if not the largest opportunity in in crypto and like Fintech of the decade because as you said, like it's such a huge market and only 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 D5. So with like, and then we debated at the beginning of this, of this kind of podcast, right? Like why have people deployed it
yet? It's the UX, it's the security. It's also just like the, the adoption of, of, of D5 products like these D5 chains, the adoption of Ethereum and Solana is nothing compared to the adoption of Bitcoin globally. And so if, and there's of course, there's always a big effort, if we can convert more users, more Picanos from exchanges, from their Ledger devices, right? And give them a choice, like if you want to do something, do it in Defy. That could be major unlock.
And the the tools and the things that need to happen is of course, on one hand, the more secure ways of using Bitcoin in Defy because people are concerned about losing their BDC, but also building more, 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 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 get this LSD and then you have to put it into a lending market to get a receipt token that you can activate as collateral. Then you can that just yes, for you and me, we use D Phi. That's clear for you to like, no, it's that way too complex.
So what you need to basically do and that's how the cool thing is that D Phi 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 5 years is that Bitcoin defy is going to become one of the biggest catalysts in like liquidity sources in the entire ecosystem. And it's just going to, it's
going to grow. I mean, I don't know how much it will grow in practice. It there's, you know, also a lot of factors, but it could grow by like 100 to 300 X in size. Because if you look at Etherium's TBL to market cap ratio, we're 30% on Bitcoin where at what 0.10.3 something like this. So we have like this huge potential to unlock a completely new kind of ecosystem of, of D5.
And what we, what you can see in practice is that every chain, every major protocol in the D5 space has a big time strategy where has been working on it. When we work with a bunch of top tier D5 teams on building Defy products, whether directly and Bob are working with them together for these like high BDC vaults. And you see a lot of chains announced like, oh, we're going to now, like Starknitz is also announcing, Oh, they're going to also be connected to Bitcoin.
You see Tron, for example, made 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 also that's connected to Bitcoin and Tron. So like Cardano, right, you name it, like everybody is now looking to try to get access to Bitcoin.
And the beautiful thing here is that Bitcoin L twos are just uniquely positioned to to capture that market because again, all of this thing, all the things were just discussed about you better secure deposits and and so on. These things only really work well with Bitcoin secured networks. So Bitcoin layer twos. So I think not only will Bitcoin DFI grow and the institutional
interest is definitely present. You've seen like institutions with Babylon and like Bitcoin DFI, they've started, you've had bullets move Bitcoin in that haven't done anything with a Bitcoin for like 5 to 10 years. People have tasted blood like they've tasted like, oh, I can 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 like how they want to use it.
But it's not certainly possible. And it's a combination of, you know, with bit VM being making progress, Bitcoin staking defy experiencing a renaissance as a whole, Defy UX making this huge leap to, oh, I need to note down my seed phrase too. 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 D Phi and it's giving them a better option than
centralized exchanges. So I 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, I so this makes me think of one of the last episodes I did the last episode that it which was with SC from Turtle Club. You know, we talked a lot about D Phi on a high level and, and just how amazingly efficient and composable and dynamic the D Phi
ecosystem must become. And it's really amazing also how how high yield you can earn on dollars and how you can use the thing in, you know, 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, of hyper bitcoinisation or the idea that, you know, Bitcoin can be this, you know, global reserve asset, then maybe replace gold or, you know, you have, you know, really achieved this enormous role in in the financial system in the world. And, you know, right now it's basically really just this coin you buy. And I hope it goes out 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 there's 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 the at becoming this crucial building block of the financial world. And then of course, I think you're totally right. It it does, it does just represent a huge opportunity,
right? I mean I think I think total value in D5 locked is 100 billion. Is that right? I I I might be wrong? You mean like Bitcoin locked or in total? No, no in total total D5. Yeah, I'm looking at D5. It's 107 billion. Right, exactly. Right. So then you're basically, yeah. So if you're certainly 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 the numbers and the, the, the, the dimensions here, right. Like The thing is, yes, like Bitcoin is, is so fascinating because yes, it's a hard market. It's hard to to 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 kind of 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 it was 3/4 teams working in stealth and like trying to take it. Have another shot at Bitcoin L twos. Now you have over 75 Bitcoin L twos, 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 out quickly. That's not how Bitcoin works.
Like if you're trying to come in, just pump the numbers and then, you know, expect this to scale from zero to 1 within a month, Bitcoin's going to chew you up and spit you out like he Bitcoin is is a you're playing at the high stakes table A but if you win in Bitcoin, you win the entire market just because of its sheer size, global adoption dominance. I mean, I don't the brand itself alone, right? If the news talks about crypto, they talk about Bitcoin
acceptable. They specifically mentioned the ETF. Otherwise, it's always Bitcoin price is going up, Bitcoin price is going down or 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 D5 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 more useful, but it's probably the best way to actually take D5 mainstream using Bitcoin rails in the trust that Bitcoin brings with it and just the global adoption and the recognizability to just get more users into D5, 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 to learn a bit learn more about bit VM and just the power there regarding preaching. I think that sounds sounds very cool. And I also really enjoyed hearing kind of like the vision of how you see Bob play, you know, Bob 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, I couldn't agree more that there's going to be enormous opportunities and growth here in the, in the coming years. Cool, amazing. Thank you for having me. Really enjoyed this one. Bye bye.