Source: Cointelegraph
Original: “Bitcoin (BTC) Decentralized Finance (DeFi) Takes Center Stage”
Author: Darius Moukhtarzadeh, Researcher
A wave of new projects and innovations is adding practical value to the Bitcoin (BTC) ecosystem, expanding its applications beyond static value storage.
Bitcoin is the oldest, most well-known, and secure blockchain and asset in the crypto space. Recently, it set new historical highs, breaking the significant psychological barrier of $100,000, and continues to reach new peaks, strongly refuting critics' doubts. Despite a steady increase in its adoption rate, its primary use case has changed significantly over the 15 years since its inception. Bitcoin was originally designed as a peer-to-peer digital currency but has now evolved into a presence regarded as digital gold.
While the positioning of digital gold is attracting more and more institutional and retail investors—evident from the record inflows of funds since the launch of Bitcoin exchange-traded funds in January 2024 and the recent new historical highs—the vast majority of Bitcoin remains idle in wallets without generating returns. With a market capitalization exceeding $2 trillion, the enormous potential for Bitcoin liquidity remains to be tapped.
Fortunately, the rapidly developing Bitcoin decentralized finance (DeFi) applications and layer two networks are unlocking Bitcoin's liquidity, building a native DeFi ecosystem that is set to become one of the hottest emerging sectors in the crypto space by 2025.
The key to making Bitcoin DeFi a reality lies in Bitcoin L2 solutions, as Bitcoin's own smart contract capabilities are limited. Over the past three years, the number of L2 projects has grown to over 75. Various L2s are gaining attention and maturing, such as Mezo, supported by Pantera Capital, which recently launched its testnet and plans to launch its mainnet in the first quarter of 2025. Similarly, BOB, which supports Bitcoin DeFi in an Ethereum Virtual Machine-compatible environment, has attracted over 300,000 independent users since its launch in May 2024.
Recently: __What is the development direction of DeFi in 2025?
As one of the most mature Bitcoin L2s, Stacks implemented the Nakamoto upgrade in the fourth quarter of 2024. This upgrade introduced performance improvements, including faster block generation times and full Bitcoin finality. Stacks also plans to launch sBTC in mid-December—a decentralized, programmable version of Bitcoin pegged to BTC at a 1:1 ratio. This will enable the transfer of BTC between layer one and layer two networks. This innovation will open up new possibilities for using Bitcoin in DeFi without relying on centralized solutions like Wrapped Bitcoin (WBTC) on Ethereum.
The world's largest cryptocurrency exchange, Binance, is expanding its Bitcoin DeFi product line, nominating three top Runes (fungible tokens on Bitcoin) for futures listings. Binance also announced the provision of Bitcoin staking services through the Babylon protocol as part of Binance Earn, achieving on-chain yields.
The growing interest in Bitcoin DeFi is clearly reflected in the Total Value Locked (TVL) data for Bitcoin. This metric reached a record high of $7.48 billion on December 16 (excluding the TVL of layer two networks like Mezo or BOB). This figure showed significant growth in the fourth quarter of 2024, with most of the value concentrated in high-staking protocols like Babylon and Lombard. Although as of January 17, the TVL of Bitcoin DeFi remains relatively small compared to Ethereum's $68.35 billion, it clearly demonstrates that market interest in Bitcoin DeFi applications is rapidly rising. As more projects mature, mainnets launch, and native tokens are issued (with multiple Token Generation Events expected in 2025), this figure is set to show significant growth momentum in the coming months and even years.
The political and regulatory landscape in the U.S. has shifted. With crypto-friendly figures like Paul Atkins leading the Securities and Exchange Commission and David Sacks serving as the government's "AI and cryptocurrency czar," the U.S. seems to be gradually moving towards a more supportive stance on cryptocurrencies under the Trump administration.
A clearer legal framework and regulatory guidelines will enhance investors' confidence in deploying crypto assets into DeFi applications. This shift in policy and regulatory attitude comes at a timely moment, as the emerging Bitcoin DeFi space is poised to thrive in a more accommodating regulatory environment than in the past.
Some critics argue that Bitcoin whales oppose increasing utility features because they view Bitcoin as already perfect. The debate surrounding Ordinals and Inscriptions indicates that not everyone welcomes new features for Bitcoin. However, it remains unclear whether these voices represent the majority opinion of the Bitcoin community. Even if most holders choose to hold Bitcoin unchanged, a small portion flowing into the DeFi space would still represent a considerable market size.
Analysis by Messari research analyst Kinji Steimetz suggests that if Bitcoin achieves the same utility penetration rate as WBTC (2.87% of its total addressable market), it could bring approximately $47 billion in market size to the DeFi space. This calculation highlights the immense potential of Bitcoin DeFi, as even a lower market penetration rate can create a substantial emerging sector. This scale is sufficient to place it among the top ten projects by crypto market capitalization, further driving innovation and market participation.
Unlocking Bitcoin's liquidity through DeFi will significantly enhance its practical value, transforming it from merely a store of value. With the emergence of advanced infrastructure, innovative applications, and favorable policies, Bitcoin will shift from a passive asset to a productive asset, providing yield opportunities and fostering a more dynamic and participatory ecosystem built on this most mature blockchain.
These developments may, in turn, enhance the security of the Bitcoin network. As more use cases generate fees and revenue, miners will have stronger incentives to continue maintaining and securing the network even after the last Bitcoin is mined in 2140. This will effectively ensure the long-term security and sustainability of the Bitcoin network.
Darius Moukhtarzadeh is a Web3 researcher focused on Bitcoin DeFi and consumer/social applications. He previously worked as a researcher at Sygnum, engaged in blockchain consulting at Ernst & Young, and worked at several startups in Switzerland's Crypto Valley.
Related: As the British embrace cryptocurrency, businesses must catch up to establish a foothold
This article is for general reference only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。
