David Seroy 🏔️@david_seroy
🌶️ Change My Mind: Bitcoin & On-Chain Repo Is All That Matters 🌶️.
If you’re trying to win onchain lending: BTC, ETH, RWAs, whatever...none of it matters unless you win the top of the stack.
Credit isn’t flat. It’s hierarchical.
There’s always one dominant source of liquidity underneath everything.
(and no, it’s probably not going to be @aave)
Most lenders, whether in Aave, Morpho or TradFi, are just borrowers with a spread. They lend higher than they borrow, pocket the difference, repeat.
Follow this daisy-chain of liquidity far enough and everything converges to one source:
repo.
Repo in TradFi is simple:
Post the best collateral, borrow against it at high LTV. Get the cheapest capital in the system. Use that capital to fund higher yielding, riskier activities.
That’s it.
Trillions of dollars run through repo. Everything else, mortgages, RWAs, DeFi, auto-loans, infrastructure, prices downstream of repo.
So if you win repo, you don’t just win lending.
You become the base funding layer for everything.
Repo has two ingredients:
• apex collateral
• a financing engine around it
1. Apex collateral is whatever commands:
• the highest LTV, lowest borrowing cost,
• deepest secondary markets,
• least hidden risk.
The market treats it as essentially risk-free. For ~50 years, that’s been Treasuries issued by US Government.
Now bring this onchain.
What (if anything) can become better apex collateral than Treasuries?
Today, the US government wins because it can absorb near infinite demand for dollars and issue Treasuries against it.
Size + safety = dominance.
Onchain, there’s really only one product that even comes close to challenging the low risk and the exorbitant size of US debt issuance:
Bitcoin-backed loans.
Bitcoin has the largest pool of savings. Insatiable demand to borrow against it, deepest liquidity for liquidations, lowest counterparty risk.
Nothing else is even in the same conversation.
However, current on-chain BTC-backed borrowing has problems preventing it from being apex collateral.
In Aave you can't isolate a position to only have BTC credit risk, your exposure is pooled with everything.
In @Morpho V1 you can isolate risk, but yields are low as there's no duration. You can only do variable rates and not fixed maturities (which are higher yielding without adding new risk).
The solution here is Morpho V2, which introduces:
• fixed maturities
• standardized claims
In Morpho V2, curators' (like @gauntlet_xyz and @SteakhouseFi) can (and I expect they will) deploy vaults backed exclusively by a mix duration of BTC-backed loans.
These vaults will issue Receipt Tokens, effectively representing a BTC-collateralized loan obligations ("bCLO's) which likely earn between 5% - 10% at current rates.
Those claims can then further be:
• traded
• borrowed against
• looped
Now, instead of the US government manufacturing Treasuries as apex collateral, Morpho V2 lets the market manufacture a superior BTC-backed apex collateral.
I expect bCLO's as collateral to be higher yielding, lower risk, and more financeable than any other collateral, including tokenized RWA's.
They will become apex collateral.
The next question is what funding engine can best use bCLO's as collateral themselves.
2. Apex funding engine is whatever gets lowest variable rates with highest leverage.
You could use bCLO's in Aave, Morpho, Euler, etc. However, @0xfluid may have structural advantage here.
Fluid is especially interesting because it pairs a borrowing and DEX protocol together.
Smart Debt is a genuine 0 to 1 innovation which no one else has. It allows for Fluid to:
→ offset borrow costs with fees earned on stable swaps (without IL!)
→ have highest LTVs (95% - 98%)
→ create extremely deep DEX pairs (like a bCLO/USDC secondary market) and without incentives.
I expect this to give the lowest variable borrowing costs possible, with the highest LTV, deepest secondary market against the best collateral.
--
3. Bitcoin ZK Verification
The only missing component here is the trust assumptions around BTC in programmable ecosystems.
BitGo, Coinbase, and others are excellent custodians. I genuinely trust them. But when the goal is collateral underpinning the entire onchain economy, trust-minimized BTC that functions as a neutral open standard is what I expect to win.
We now have efficient ZK verification for Bitcoin that makes this technically possible -- a bridge with the highest security and lowest trust assumptions achievable without a soft fork.
--
That's the full stack. Apex collateral. Lowest-cost financing engine. Trust-minimized BTC underneath it all.
This is my #1 conviction across Bitcoin, DeFi and crypto.
I challenge anyone to tell me what's better:
What beats bCLOs in Morpho V2 as apex collateral
What beats Fluid + DEX V2 as a financing engine
What beats a Bitcoin ZK rollup for trust-minimized BTC programmability
Tell me why I'm wrong.
