What sets BounceBit apart is our dedication to innovation, highlighted by our introduction of liquid custody. This approach not only ensures that assets are securely held but also remain easily accessible or ‘liquid,’ opening up opportunities for tokens that were previously unavailable.
CeFi and Illiquidity
When you decide to utilize your assets in any type of CeFi strategies, you lose the direct control of your assets. This is true for any exchange yield offerings and third-party fund managers. Even if you utilize off-exchange settlement solutions that have on-chain proof, you are still limited in your ability to transfer and liquidate your positions. It deters participation in CeFi given that users sacrifice any possibility to further utilize their assets in lucrative DeFi activities like staking and liquidity provision.
This presents an interesting dilemma for assets like Bitcoin, Ethereum and Stablecoins. Do you fully commit your assets to CeFi yield opportunities or do you just let it sit in your cold wallet. Alternatively you fully commit to DeFi, but in the process lose out on the opportunities CeFi can provide.
CeFi’s Entry to Barrier
While most centralized exchanges offer financial products to a certain level of complexity, it stops at structured products like Dual Investment or even Trading Bots. Usual trading on CEXs comes with high counter-party risks, the funds are lost in case of default as we have seen in recent years with FTX and other exchanges. Off-exchange Settlement (OES) solutions like Ceffu or Copper lower this risk, but they are limited to selected institutions and not available to the average crypto trader. Higher-level strategies like Funding Rate Arbitrage that require large capital & liquidity and are enabled by OES, are reserved for whales and large-scale investment funds. These problems are addressed by Liquid Custody.
Liquid Custody
BounceBit introduces the Liquid Custody solution to solve these problems, backed by prominent regulated custody providers and fund managers. It makes CeFi assets liquid and lowers the barrier to entry drastically.
The concept of Liquid Custody is named after Liquid Staking, a mechanism first introduced by Lido on Ethereum, a smart solution to overcome the illiquidity of staked Ethereum. It is similar to liquid staking in the sense that a commitment to a yield generating activity that would lock your assets is offset by generating a derivative bound to the value of the underlying asset.
The parallels to Liquid Staking are very apparent, instead of staking to a protocol for network security, you are committing your assets to centralized custody. Then you are returned a voucher-like token, which allows you to withdraw whatever you staked or committed.
The Process
When users deposit their assets (BTC, USD, ETH,…) on BounceBit, they will receive a token (BBTC, BBUSD, BBETH), which represents their assets in regulated custody on a 1:1 basis, we call them Liquid Custody Tokens (LCT). These tokens can be bridged to BounceBit and be further utilized, e.g. BBTC can be staked to the dual-token PoS to receive stBBTC, which then can be restaked. Or you directly participate in the usual yield farming through the DApps within the BounceClub ecosystem.
Additionally, you have now earned the right to participate in delta-neutral Funding Rate Arbitrage strategies, with your assets in custody. You still get your Liquid Custody Derivative (LCD), but to prevent double spending, the LCTs have to be locked for this. Importantly, this feature is optional and not required. For more information about this feature, check out our articles on BounceBit’s integration of Centralized Custody and Funding Rate Arbitrage strategies.
To withdraw your funds out of custody (not Premium Yield Generation), you naturally have to match the asset with its LCD. For example to withdraw 1 BTC, you have to unstake by depositing 1 BBTC back to BounceBit. Liquid Custody as mechanism is chain agnostic, meaning we plan on supporting many different blockchains, currently supporting Ethereum and BNB Smart Chain assets. Liquid Custody is not yet available during BounceBit’s Early Access phase but is expected to go live with Mainnet.
We believe Liquid Custody is a concept that redefines CeDeFi, democratizing the access to institutional-grade custody and yield generating opportunities. It follows the spirit of liquid staking, freeing up otherwise locked assets.
About BounceBit
BounceBit is building a BTC restaking infrastructure that provides a foundational layer for different restaking products, secured by the regulated custody of Mainnet Digital and Ceffu. The BounceBit chain, designed as a showcase of a restaking product within the BounceBit ecosystem, is a PoS Layer 1 secured by validators staking both BTC and BounceBit’s native token — A dual-token system leveraging native Bitcoin’s security with full EVM compatibility. Critical ecosystem infrastructure like bridges and oracles are secured by restaked BTC. Through an innovative CeFi + DeFi framework, BounceBit empowers BTC holders to earn yield across multiple networks.
