he rise of Ethereum scaling solutions like Optimism and Arbitrum over the last year has shown there is considerable appetite for layer 2 applications. However, Bitcoin, as the original blockchain, has largely been left out of the burgeoning decentralized finance (DeFi) trend. Merlin Chain aims to change that by providing a scalable layer 2 solution tailored for Bitcoin. In just over three months since launching its mainnet, Merlin has exploded in growth and now supports an entire Bitcoin DeFi (BTCFi) ecosystem with over $3.8 billion total value locked (TVL). 

Among the most prominent projects pioneering new primitives on Merlin Chain are Surf Protocol and Solv Protocol. In this article, we will take a deeper look at how these two platforms are reimagining derivatives trading and unlocking Bitcoin's potential through native yield generation.

Solv and Surf Protocol logo in green and purple colour, with green background
DeFi Protocols on the Merlin Chain

Surf Protocol

Surf Protocol is a decentralized exchange that allows users to trade derivatives on over 10,000 digital assets with up to 50x leverage. Unlike traditional exchanges that rely on centralized order books and market makers, Surf introduces an innovative model for bootstrapping liquidity. 

At the core of Surf's design is its liquidity pool framework. Traders can directly interact with five distinct fee pools per trading pair populated by liquidity providers (LPs). Each pool charges a different trading fee proportional to the risk taken on by LPs. This flexible model accommodates a wide range of risk tolerances and trading sizes. The fee structure also naturally balances pools from becoming too large or too small through LP incentives.

By providing limitless asset coverage, Surf has the potential to amass far deeper liquidity than concentrated competitors. The protocol's liquidity curve resembles how order sizes are accommodated in traditional markets. Advanced tools like its profit-sharing mechanism further entice LPs to create new pools and compete. Surf Protocol represents a paradigm shift that unlocks derivatives for any coin.

Surf Protocol differentiates itself from existing derivative protocols like GMX in several key ways. While GMX focuses primarily on BTC and ETH futures trading through its Global Liquidity Program (GLP), Surf enables leveraged trading across over 10,000 crypto assets utilizing its innovative multi-fee pool model.

This vast scope of supported assets far surpasses GMX's capabilities. Additionally, Surf's varied fee pools ranging from 0.1-3% according to liquidity levels allow it to optimize trading costs more efficiently across different trade sizes. In contrast, GMX operates its GLP pool as a single entity, which limits its ability to scale liquidity and tailor costs effectively. 

Checkout Slurf's X Profile for more!

Solv Protocol and SolvBTC

While Surf Protocol expands access to derivatives, Solv Protocol is building the underlying rails for Bitcoin DeFi. Its flagship product, SolvBTC, functions as the first "Legos" of the Bitcoin financial ecosystem - a tokenized version of Bitcoin that earns yield.

Through multi-strategy yield generation, SolvBTC aims for an estimated 5-10% annual percentage yield while maintaining exposure to Bitcoin's price. As a building block for BTC-backed lending, borrowing, and more, SolvBTC serves as crucial liquidity by design. It also represents a major milestone - unlocking passive income possibilities long absent in native Bitcoin.

The integration between Surf and Solv Protocols illustrates their complementary roles in the Merlin ecosystem. Surf enables bitcoin-backed derivatives trading while Solv generates liquidity and yields. Users can now supply SolvBTC to Surf's pools, earning fees on trades settled using their collateral.

As TVL on Merlin surpasses $3.8 billion in just over three months, it is clear capital continues migrating to the chain. Projects like Surf and Solv choosing to deploy innovative primitives focused on Bitcoin will compound this effect. Their integration highlights Merlin's potent compounding flywheel-attracting volumes that further expand the landscape of feasible BTC applications. 

Over the long run, this positive feedback loop positions Merlin to become a dominant layer 2 blockchain and realize Bitcoin's potential as a programmable asset. The future of Bitcoin and all of cryptocurrency hinges on successful layer 2 scaling. Merlin Chain is emerging as a leader in this pursuit by focusing squarely on Bitcoin.

Checkout Solv's X Profile for more!

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