BadgerDAO, a leading entity in the decentralized finance (defi) arena of Bitcoin (BTC), has recently announced an alliance with Lido, a distinguished provider of liquid staking solutions within the Ethereum network.
The mechanism of the protocol revolves around leveraging Ethereum collateral, staked via Lido, to yield staking rewards, thereby potentially presenting a more economically viable borrowing avenue.
The core objective of the protocol lies in the augmentation of existing wrapped Bitcoin assets by harnessing staked ETH (stETH) from Lido, concurrently introducing a collateralization approach that eliminates the necessity of cross-chain bridges.
Beyond mitigating the associated risks tied to bridges, eBTC proffers customizable collateralization ratios while incorporating mechanisms to liquidate positions in the event of collateral value depreciation below the stipulated threshold, set conservatively at a minimum of 110%.
Under the ambit of this partnership, Lido’s Liquidity Observation Lab (LOL) rolls out an incentive program, offering additional stETH rewards to early adopters of eBTC, as per the press release. These incentives are structured to be disbursed sans fees, thereby incentivizing proactive involvement from the outset.
Lido commands prominence within the staking domain on Ethereum, reigning as the foremost liquid staking protocol, boasting a Total Value Locked (TVL) of $35.12 billion, per DeFi Llama data. Concurrently, BadgerDAO, flaunting $3.5 billion in BTC deposits, spearheads the Bitcoin defi sector.
However, notwithstanding the innovative stride, users are confronted with inherent challenges and risks intrinsic to synthetic stablecoins and the broader defi ecosystem. Regulatory ambiguity, counterparty risk, and market volatility persist as critical factors necessitating meticulous consideration.
The defi landscape has witnessed vulnerabilities such as smart contract exploits and market manipulations, posing threats to the stability and security of protocols. Notable incidents include SushiSwap’s $3.3 million loss attributed to a smart contract mishap in April of the previous year. In 2022, the defi sector collectively incurred losses totaling $2.7 billion from smart contract hacks.
