The What & Why of Arqos
Tl;dr: Bitcoin is evolving from SoV to an economic system. At the heart of this evolution is staking — a tool to cryptographically share and align value. Arqos is building staking middleware to move BTC from Sats to Systems.
There is a lot happening in BTC.
Headlines from the last 90 days
And there is even more brewing in Bitcoin.
30% of the wild west projects/BIPs on our radar; intern drew this — we are hiring designers
Chains like Rootstock, Merlin, and Bob are creating mechanisms to settle transactions back to Bitcoin. Rollups such as BitVM and Citrea are enabling transaction batching and posting back to Bitcoin. Networks like Lightning, Babylon, and Arch act as state channels or networks where data is stored and updated off-chain and settled its state on Bitcoin. Meanwhile, a mixed bag of experiments, such as OP_CAT, Drivechain, and Discreet Log Contracts (DLCs), are exploring innovative features but remain reliant on BIPs, soft forks, etc for full implementation.
For details on classification ref note 1.
Among all these innovations, we believe that staking represents the most transformative opportunity for Bitcoin.
Why?
Because staking unlocks key primitives for ‘game’ design.
Staking is a mechanism where players lock assets as a commitment to participate in a system, aligning their incentives with the rules of the game.
Slashing enforces system rules and deters malicious behavior. By enabling punishment for bad actors, slashing creates trust and alignment among participants.
With trustless BTC staking (and hence slashing), we can design everything from simple payment solutions to complex financial systems. BTC already embodies the fundamental qualities of “effective money” (discussed below). However, its programmability gives BTC an additional dimension rarely seen in traditional money.
This programmability positions Bitcoin as the base layer for a global economy.
In this Genesis article, we explain why we believe this opportunity is massive and how Arqos aims to become the innovation layer for Bitcoin.
Bitcoin is a PoW network, so it does not have staking for consensus. Babylon used time-lock scripts & EOTS to allow trustless staking of BTC on the Bitcoin Network. Users can now stake their BTC and delegate its security value to other networks — all of this in a non-custodial set-up.
This, is, massive.
Before we proceed further, we need to fully appreciate why native & non-custodial staking of BTC is a big deal. (isn’t it copy pasta from ETH?)
Staking of BTC is a big deal because it enables an economic system to be developed atop BTC. This asset is uniquely equipped to serve as the base layer of a modern, digital economy.
Why should we build an economy on top of Bitcoin?
Because Bitcoin embodies the fundamental qualities of effective money (see diag below).
BTC is effective money
While point 5 is WIP, BTC has clearly demonstrated its capacity to function as a medium of exchange, a unit of account, and a store of value. These qualities make it well-suited for its traditional monetary roles.
However, its programmability — enabled through blockchain — gives it an additional dimension rarely seen in traditional money. Programmability allows Bitcoin to enforce contracts, execute conditional transactions, and facilitate multi-party agreements without intermediaries. This lowers transaction costs and enhances trust.
These capabilities accelerate the velocity of money, reduce reliance on centralized institutions, and enable previously unfeasible economic games/systems.
This programmability allows BTC to serve as a base layer for a global economic system, supporting everything from payments to complex financial instruments. Thus, native & non-custodial staking of BTC unlocks true BTCfi.
Staking introduces the ability to cryptographically share and align value within the ecosystem.
It enables BTC to be deployed across a range of use cases. Whether securing Layer 2s or providing liquidity in deFi, BTC can now be utilized in ways that align incentives across system/application borders.
At Arqos, our thesis is built on the belief that Bitcoin is poised to evolve from a SoV into an active asset. We see Bitcoin’s future not just as ‘digital gold’, but as an instrument of cryptographically sharing and aligning value across systems. We are on ground 0.
println(”Hello Arqos!”);
There are loads and loads experiments to be done. Wave 1 of these experiments is emerging in the form of a multi-BTC world — Coinbase has launched cbBTC — reg-focused, base native, Kraken, closely followed with kBTC. Mantle, deployed FBTC — with great excitement in the East.
Arqos is a sandbox for experiments in BTCfi. We believe there is a lot of tinkering to be done while building out simple payments or complex financial products on top of BTC. Here is a discussion of our build with a major focus on stakeholders who build up Arqos.
The Bitcoin Innovation Layer
Arqos is building the middleware for liquid staking primitives on Bitcoin.
We offer staking as a core primitive for innovation on Bitcoin. We simplify staking by abstracting away its complexities, making it user-friendly for both developers and stakers. This flexible design allows us to serve as an adaptable middleware that allows for heavy customization needed to accommodate the diverse needs of different stakeholders.
Why build ANOTHER LST infra?
Others have tried, these are the problems we’ve seen
As long-term operators, investors, and advisors in the DeFi space we have seen the creation and growth of the liquid staking sector from the ground up, here are the top 5 problems we see in the LST infra space:
Liquidity Fragmentation from excessive DeFi integrations, leaving assets vulnerable to liquidation cascades.
Indiscriminate AVS/BSN Integration leads to inefficient allocation of security resources.
Yield Distribution Ambiguity creates misaligned incentives and reduces trust.
User Fatigue from prolonged points farming campaigns undermines long-term engagement.
Centralization Risks arise from over-reliance on a small number of validators, threatening decentralization.
Solution Space
There are too many variables for an LST to become successful & sustainable. Thus, we believe that it is crucial that the middleware remains flexible and adaptable. Rather than enshrining rigid rules at the protocol level, the middleware must allow for heavy customization to accommodate the diverse needs of different stakeholders.
This approach is different from the current LST infrastructure providers who are (largely) focused on issuing their own version of BTC. This leads to biasing of the protocol which will be hard to undo. As operators, we are also pragmatic about the need to try many, many different forms of LSTs and hence, we propose Arqos — the middleware for liquid staking primitives on Bitcoin.
What distinguishes the Arqos approach is our focus on building foundational infrastructure enabling others to innovate. Whether it’s LST operators seeking flexible delegation pools or DeFi protocols building new Bitcoin-denominated products, our platform provides the tools and flexibility they need to succeed.
Before diving into the architecture, let’s talk fundamentals: Bitcoin is transitioning into a programmable economic layer, and Arqos is positioned as the connective tissue enabling this transformation. Rather than reinventing the wheel, we focus on providing flexible integrations and adaptive solutions tailored to the evolving needs of Bitcoin’s expanding ecosystem.
The 30,000 ft view of Arqos
Value flow & interactions across Arqos
Our framework allows vault curators and operators to offer more than risk management or yield optimization. Each player in this system — whether dApps, infrastructure providers, or external platforms — can contribute unique value to the BSNs(Bitcoin Secured Networks), aligning their resources with the security and growth of the network.
We categorize our stakeholders into the following key categories:
Base Staking Protocols: Such as Babylon, Avail Fusion, Spiderchain, and other upcoming experiments which provide the core staking infrastructure.
Curators/Value Aggregators: Responsible for creating and managing vaults. Curators define which assets to accept, which chains to mint LSTs and lead the governance for their respective LST and the wider Arqos ecosystem.
Validators/Operators/Risk Curators: Infrastructure and security partners responsible for securing vaults and managing associated risks.
AVSs or BSNs: These networks collaborate with Vault Curators to borrow security, resources, and expertise (such as community engagement, liquidity, or technical expertise), compensating for these services through yield as part of their cost of security and alignment.
Users: Participants who deposit Bitcoin into vaults on the Arqos platform, seeking to generate yield and make their sats non-static.
DeFi and Infrastructure Partners: Yield is a net-sum of value creation in DeFi. Unlocking Billions in Bitcoin Liquidity, by building new primitives and integrating this new liquidity(AqLSTs) into existing businesses(CEXs, DEXs, Payments, etc.) is a ballet of partnerships, synergies and incentives. In feedback from our early partners, an important takeaway has been that Bitcoin holders are eager to participate in BTCfi and are looking for interesting ways to use their BTC.
By structuring clear roles and aligning incentives, this design creates a self-reinforcing system where Bitcoin holders, curators, and infrastructure partners collectively contribute/expirement in BTCfi.
We’ll soon be launching our Gitbook and pairing it with explanatory blogs that dive into the technical and strategic layers. Check out the notes at the end of this article for a quick look at some of our early documentation.
The v1 of the protocol is go-live in Q1 25.
Our three genesis vaults will focus on infrastructure excellence by partner 1, deep deFi risk curation by partner 2 and strong BSNs support by partner 3.
Token before Q5 2025.
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Note 1: We adopted the definitions written by team Hiro to classify Bitcoin projects into chains, rollups, networks, and mixed bag.
Sidechains & indep blockchains use diff consensus mech than Bitcoin’s PoW but ultimately settle or connect to the main chain. Rollups process txns off Bitcoin and then batch them back to the main chain.
Networks like state channels store data/update off-chain and settle back final state to the main chain. Mixed bag projects depend on changes to the main chain itself or innovations on how to use data from the main chain.
Note 2: WIP is real; BTC volatility will drop further — Bitcoin Sussie (https://files.bitcoinsuisse.com/assets/pdf/BitcoinSuisse_CryptoOutlook2025.pdf)
Note 3: There are loads of cool things happening in the Bitcoin network — most reports/logo clusters don’t do justice to the ecosystem; our notion table is tracking 65+ projects and promising BIPs — DM to join our monthly discussion call
Note 4: There are loads of excalidraws in our notion. Happy to share zoomed in stakeholder charting for Chadchain — case study.
Note 5: There is loads to be said about trust minimization on protocol borders. Caaan you lose your BTC in a poorly designed BSN consensus — interesting question; a trustless component is easy to build but a trustless economy is utopic. Arqos is the pragmatic layer for building BitcoinFi.