Avalon Labs Analysis: Full-Stack Bitcoin DeFi Platform and USDa Stablecoin Innovation

The Wave of Bitcoin Financialization Behind YZi Labs’ Strategic Investment

On May 26, 2025, YZi Labs, a former Binance-affiliated investment firm, announced a strategic investment in Avalon Labs, driving the latter to become the first fully regulated on-chain Bitcoin financial institution. This investment marks the acceleration of Bitcoin’s transformation from “digital gold” to a “productive asset.” Avalon Labs has surpassed $500 million in TVL, serves over 300,000 active users, and manages over 20,000 BTC in assets. Its flagship product, the USDa stablecoin, ranks second among CDP projects on DeFiLlama, with a TVL of $613 million, demonstrating the market potential of native Bitcoin financial tools.

This market insight discusses how Avalon Labs activates Bitcoin liquidity through the USDa stablecoin and full-stack financial products, analyzing its strategic layout in compliance and cross-chain ecosystems.

USDa Stablecoin: A Bitcoin-Collateralized Liquidity Solution

USDa is the core innovation of the Avalon Labs ecosystem. It is minted via over-collateralization with Bitcoin (collateral ratio ≥130%) and pegged 1:1 to the US dollar. Its unique design offers four major competitive advantages:

• Fixed Interest Rate Advantage: An 8% fixed lending rate—an industry first—solves DeFi’s interest rate volatility, appealing particularly to institutional capital for long-term positions.

• Yield Stacking Mechanism: Savings accounts offer up to 15% APY, derived from lending spreads and protocol fees, creating a “hold-to-earn” model.

• Cross-Chain Liquidity: Enabled by LayerZero technology, it supports multi-chain compatibility (Ethereum, BNB Chain, Mantle), with over $2.7 billion monthly transfer volume.

• Peg Stability: Backed by a $200 million institutional credit line to ensure 1:1 USDa/USDT conversion even during market stress, minimizing depeg risk.

This model not only unlocks Bitcoin holders’ liquidity but also reshapes the stablecoin market—USDa currently holds a 0.28% share of the global stablecoin market. However, its “Bitcoin-collateral + fixed yield” feature may divert users from USDT and USDC.

Full-Stack Financial Product Suite and Compliance Strategy

Avalon Labs has built a Bitcoin financial tools ecosystem for both individuals and institutions:

• Collateralized Loans: Users can instantly collateralize BTC to obtain USDa at a fixed 8% interest rate, avoiding high borrowing costs during bull markets.

• Crypto Credit Card: Enables direct USDa spending, bridging on-chain assets with real-world payments.

• Institutional Services: In partnership with Bybit, they offer fixed-income products allowing institutions to access BTC-collateralized borrowing.

On the compliance front, Avalon adopts a CeDeFi (centralized + decentralized) model and has initiated licensing applications under EU MiCA, Canada MSB, and is exploring SEC Regulation A exemption. The goal is full compliance coverage across major jurisdictions by 2026. Investors can track progress in real time via JuCoin’s compliance monitoring tools.

Risk Challenges: Tech, Market, and Regulatory Uncertainty

Despite rapid growth, Avalon Labs faces three major risks:

• Liquidation Risk: Extreme BTC volatility could trigger cascading liquidations if collateral value drops below threshold.

• Token Dependency: USDa’s circulation is heavily dependent on DeFi protocols. Liquidity withdrawal from major platforms (e.g., Uniswap) may threaten peg stability.

• Regulatory Uncertainty: The U.S. SEC is evaluating whether “collateralized stablecoins” fall under securities law, potentially requiring a token model restructure.

Additionally, competitors like MakerDAO (DAI TVL $4.7B) maintain first-mover advantage despite lacking native BTC support. Algorithmic stablecoins like Ethena may also compress market space for collateralized stablecoins.

A New Paradigm for Bitcoin DeFi Ecosystem

Avalon Labs’ innovations reveal three key trends in Bitcoin financialization:

• Asset Utility Expansion: Through borrowing and yield products, Bitcoin evolves from a store of value into a yield-generating asset. The market size may reach $200 billion by 2030.

• Compliance Integration: CeDeFi balances on-chain transparency with traditional financial compliance, attracting institutional capital.

• Cross-Chain Interoperability: Multi-chain deployment reduces transaction costs, with planned expansion to Solana and Base chains further enhancing ecosystem connectivity.

If the institutional repo product launching in Q3 2025 succeeds, Bitcoin could become a core collateral asset bridging into traditional capital markets as an RWA (Real-World Asset).