The Bitcoin network is experiencing rapid evolution, with activities resembling those of Ethereum during the peak of decentralized application (Dapp) projects. The emergence of Bitcoin Runes and BRC-20 tokens during the fourth Bitcoin halving event has led to the rise of Bitcoin-native decentralized finance (DeFi). Rena Shah, VP of Products at Trust Machines, highlighted that just two years ago, Bitcoin DeFi was not a significant topic of discussion in the ecosystem. However, the emergence of staking platforms and lending protocols on the Bitcoin network has piqued investor interest in transitioning assets from a store of value to a source of value.
Institutions are starting to take notice of Bitcoin DeFi, as data from DeFiLlama shows that Bitcoin’s total value locked (TVL) is approximately $1.2 billion. Shah noted that nearly $1 trillion in capital is locked on the Bitcoin blockchain, indicating significant potential for growth in the Bitcoin DeFi sector. With the recent approval of spot Bitcoin exchange-traded funds (ETFs) in the United States, the appeal of Bitcoin DeFi applications is expected to increase for both institutional and retail investors.
Several projects are working towards enabling and advancing Bitcoin DeFi, including Zest Protocol, which is creating a lending protocol specifically for Bitcoin. The goal of these platforms is to provide a permissionless financial infrastructure for Bitcoin lending markets, allowing users to earn yield on their BTC assets. Additionally, ALEX is developing a new finance layer for the Bitcoin network, integrating Bitcoin with layer-2 (L2) solutions and the Ethereum Virtual Machine (EVM) world to expand the Bitcoin economy and create yield-generating assets for investors.
Despite its uniqueness, Bitcoin DeFi applications often bear resemblance to projects on Ethereum, where institutions have shown increasing interest in various DeFi platforms. The growth of institutional DeFi activity on platforms like Fireblocks indicates a shift towards utilizing decentralized finance services. Projects like Surf, SolvBTC, and Unicross are emerging as innovative Bitcoin DeFi applications, offering derivatives trading, yield protocols, and trading protocols on Bitcoin L2 networks.
Bitcoin DeFi applications are poised to bring about significant changes in the cryptocurrency ecosystem, with the potential to surpass Ethereum in terms of decentralized finance activity. Solutions like Botanix Labs’ Spiderchain are facilitating the integration of Ethereum Dapps onto the Bitcoin network, combining the strengths of the EVM and Bitcoin technologies. However, challenges such as liquidity fragmentation and the difficulty of implementing DeFi on an L1 network could slow down the adoption of Bitcoin DeFi. Overcoming these challenges will be crucial for the success of Bitcoin DeFi in the long run.
