Bitcoin Defi – Releases Huge Liquidity Historically, the development of the financial market has been closely related to the generation of credit. In the past, financial activities were limited to small communities, but in the colonial era, this changed dramatically with the emergence of partial reserve systems and joint-stock companies. In the 17th century, institutions such as the Swedish Central Bank and the Bank of England adopted a partial reserve system. By holding only a small portion of the deposit as reserve and the rest is used for loans and investments, they promote credit creation and stimulate economic growth. This innovation played a key role in establishing Britain as a global financial power at the time. The same principle applies to today's financial markets. Banks provide loans based on customer deposits, companies raise funds through issuing stocks and bonds, and complex financial instruments such as derivatives improve market efficiency. These mechanisms increase the money supply, make capital flows smoother, and drive growth in financial markets. By January 2025, the number of tokenized Bitcoins used in centralized bridge systems within the smart contract network will be approximately 160,000 BTC. In addition, the amount of Bitcoin staked locally through networks such as Babylon is about 56,000 BTC. Total accounts for a little more than 1% of Bitcoin's circulation supply. This means that Bitcoin is an asset, but has a very low usage rate relative to its size. This inefficiency suggests that the Bitcoin network is similar to a financially underdeveloped market, with assets not being effectively utilized. The inherent limitations of the Bitcoin network make it extremely challenging to use Bitcoin locally without the assumption of trust. These trust requirements are a significant reason why most Bitcoin holders are reluctant to use their assets in decentralized finance. On the other hand, this highlights the huge unexplored potential of Bitcoin DeFi. If Bitcoin can be used locally without relying on trust-based systems, a large amount of unused BTC liquidity could be released, potentially ushering in a second golden age for the Bitcoin network. Unlike ETH or SOL, using BTC in DeFi faces obvious challenges. This stems from Satoshi's intentional design decisions to limit the functionality of Bitcoin's stack-based scripting language to prevent potential security breaches. For years, people have been working hard to unleash the huge liquidity of Bitcoin. The most famous method is to use centralized custodian providers such as WBTC and cbBTC, which hold BTC reserves and issue equal amounts of packaged BTC tokens on chains that support smart contracts. While this is a simple and widely used approach, it creates a single point of failure due to relying on a custodian provider, and is not ideal for truly freeing up the liquidity of Bitcoin. While the Bitcoin ecosystem seems to be developing slower than ecosystems like Ethereum or Solana, the approval of Bitcoin spot ETFs has sparked a wave of new projects aimed at taking advantage of Bitcoin’s huge liquidity. Bitcoin Layer 2 solution is designed to solve the shortcomings of Bitcoin while allowing BTC to be effectively utilized. As mentioned earlier, the main limitations of Bitcoin are: it is difficult to implement complex smart contracts and low scalability. These problems can be solved if an EVM-compatible network that relies on Bitcoin security can be implemented. A key point is that many projects claiming to be Bitcoin L2 solutions are actually more similar to sidechains. Sidechain is an independent chain with its own consensus algorithm and security assumptions. While they may write data to the Bitcoin network periodically, they run independently. So, they cannot be classified as real Bitcoin L2. The total value locked in the DeFi protocol (TVL) is approximately $120 billion. In contrast, the total issuance of stablecoins exceeds US$200 billion, highlighting the key role of stablecoins in the blockchain ecosystem. Yala @yalaorg Named after Nepal's Yala Peak, reflects the ambition to release the huge liquidity of Bitcoin. Yala can use native BTC to issue stablecoins securely and seamlessly on smart contract networks, eliminating the centralized risk of bridging and packaging tokens, thereby enhancing security and reducing dependence on non-native assets, enabling more efficient portfolio management. The Yala team consists of alumni from well-known companies such as Alchemy Pay, Binance Labs, Circle, Sky (MakerDAO), Microsoft and Lido. Yala has successfully raised $800W of seed funding, led by Polychain Capital, Ethereal Ventures, Galaxy, Amber and Anagram. Yala utilizes Cubist services to manage BTC deposits, withdrawals and transaction verification. Users deposit BTC on the Bitcoin network and mint YBTC on target chains such as Ethereum. The user destroys YBTC on the target chain and withdraws BTC on the Bitcoin network. Users who mint YBTC can create vaults on the Ethereum network, deposit YBTC as collateral, and issue YU stablecoins within the collateral ratio allowed by the agreement. YU stablecoin can be used in various DeFi strategies on the Ethereum network to generate additional benefits. Alternatively, users can deposit them into Yala's YSR or stable pool to receive rewards from the protocol operation and liquidation process YSR is similar to MakerD and Dai Savings Rates, a special module that allows DAI holders to deposit their tokens and receive a portion of MakerDAO revenue as a benefit. Similarly, in Yala, when a user deposits YBTC and issues YU, interest income flows into the YSR, providing YU holders with sustainable real benefits. How does YU maintain its peg to the US dollar? In fact, YU is an over-solidated stablecoin backed by YBTC. If the collateral value drops, the system will maintain health through collateral liquidation. Users must also pay a stability fee as interest on issuing stablecoins. If YU's price falls below $1The stability fee will increase, which incentivizes users to repay YU and push up the price. On the contrary, if the price of YU rises above $1, the stability fee will be reduced, encouraging users to issue more YUs, thereby lowering the price. Let me talk about how it is liquidated. Suppose the user deposits $1,000 worth of BTC and issues 666% of BTC through its YBTC, with a collateral ratio of 150%. If the price of Bitcoin falls and the collateral value drops to $800, the collateral ratio of the vault becomes 800/666 = approximately 120%, making it eligible for liquidation. A character called the custodian recognizes this and triggers the liquidation process. The liquidation is carried out through the stable pool. The $666 debt is fully repaid by YU deposited by the stable pool participant, and the participant will receive collateral of the same value as the repayment of the debt. In this example, $666 of $800 BTC is distributed prorated to YU depositors and the remaining collateral surplus ($800 - $666 = $134) will be returned to the original vault owner. If the stability pool lacks enough YU to repay the debt, the remaining debt and collateral will be redistributed proportionally to other vaults, thus maintaining the stability of the system. Yala aims to encourage ecosystem participants through the use of YALA tokens, enhance system stability, and develop into a community-driven platform. Stable pools are liquidity pools in the Yala protocol designed to prevent bad debts. Because it has a significant contribution to system stability, YU stablecoin depositors in the stable pool will receive incentives from YALA tokens. In the future, YALA tokens will be used for staking to enhance system security. For example, a user can stake YALA tokens in a Yala bridge, a liquidity solution, or a LayerZero-based DVN to obtain YU. The staker will contribute to system stability and receive rewards. YALA token holders can participate in key protocol decisions, including collateral ratios, fees, collateral types and protocol upgrades. Although Yala is still in its infancy, it seeks to strengthen its services and expand the practicality of its stablecoin through collaboration with major projects. In addition to the projects listed below, Yala plans to establish partnerships with Plume, Lombard and Stakestone. Yala has achieved remarkable results on its testnet, including over 510,000 BTC deposits, over $20 billion in YU issuance and over 1.5 million active users. While incentives may have contributed to these numbers, they also reflect a huge interest in the potential of Bitcoin-backed stablecoins in the blockchain ecosystem. The stablecoin market is huge. The Bitcoin market is even bigger. The combination of these two markets may introduce a completely new mechanism for stablecoins with far-reaching impact. This innovation could inject new vitality into the Bitcoin network, which has traditionally been limited in credit creation. With its intuitive applications and powerful infrastructure