Bitcoin DeFi (also known as BTCFi) is a segment of the DeFi industry where users can make yield on their BTC by staking, lending, borrowing, trading, or minting stablecoins. Layer 2 networks, sidechains and trust‑minimised bridges allow BTC to be used with smart contracts, turning idle Bitcoin into productive on‑chain capital.
Introduction to Bitcoin DeFi
Bitcoin DeFi has experienced a staggering 2,000% surge in total value locked (TVL) over the past year, jumping from US$305 million at the start of 2024 to US$6.5 billion today. With still only 0.3% of Bitcoin’s total market cap being used in decentralized finance, this recent influx highlights immense potential for DeFi on Bitcoin.
To put things into perspective, approximately 30% of Ethereum is currently used in DeFi, which means if the same percentage of Bitcoin was used for DeFi, it would create over $750 billion in TVL - a more than 100x growth opportunity.
Why Bitcoin Needs DeFi
Bitcoin is by far and away the most important cryptocurrency today, boasting the largest market cap of over $2 trillion, and the second highest volume behind USDT. Yet for all the volume it attracts, BTC has relatively little use beyond transfers and being a store of value.
Over 99% of BTC is idle and unproductive
The majority of Bitcoin sits idle on exchanges and in cold wallets, so BTC is currently functioning more as digital gold rather than an asset with utility. This can be highlighted by the fact that only $6.5 billion USD out of 2.2 trillion USD is held in smart contracts, showing that most Bitcoin holders are simply hodling rather than making yield on their assets.
Bitcoin's store-of-value role limits financial utility
Historically, the intended function of Bitcoin was to act as a decentralized medium of exchange and store of value that was free from the control of central banks or governments. But with limited use cases still being an issue in 2025, some critics have started to question Bitcoin’s real-world value outside of being a speculative asset.
Lack of BTC programmability has restricted DeFi use cases
What primarily holds Bitcoin back from achieving its full potential is constraints with its programmability. Unlike Ethereum which was designed with strong smart contract capabilities, Bitcoin was designed with a more focused objective, resulting in limitations with its scripting language. Its UTXO structure lacks computational power, making building on top of Bitcoin more difficult.
For example, Bitcoin scripts can't determine if unlocking conditions are met, which is a barrier for collateralized lending and staking dapps. In other words, security and reliability has been actively prioritized over flexibility for the Layer 1. This has created demand for Bitcoin DeFi solutions like Layer 2 networks and bridges that add external programmability to unlock lending, staking, and other use cases.
DeFi Opportunities on Bitcoin
Since 2018, various projects have been working on merging Bitcoin's unmatched security with DeFi's functionality, and this has led to the emergence of innovative Layer 2 networks, sidechains and interoperability protocols.
Bitcoin hybrid chains & layer 2s: BOB, Rootstock, Stacks
Although there are numerous Bitcoin DeFi projects building programmable environments that leverage Bitcoin's security, only a few can be considered as pioneers.
One of the networks leading the charge is BOB, which is the Gateway to Bitcoin DeFi. BOB’s unique hybrid chain model combines the strengths of Bitcoin and Ethereum - with hybrid ZK proofs and billions of dollars of staked Bitcoin securing all apps, assets and transactions in BOB’s DeFi ecosystem. Through BOB’s multichain gateway, users will be able to access BTC yield opportunities across all major chains with 1-click simplicity, while BOB's Bitcoin intents system enables seamless swaps between native BTC, wrapped BTC, and BTC-backed DeFi positions in a single transaction.
According to L2BEAT, BOB ranks as the #3 rollup in BTC liquidity, behind only Base and Arbitrum, demonstrating its rapid emergence as one of the leading Bitcoin DeFi platforms.
There is also Rootstock, the oldest BTC sidechain, which uses merged mining and a federated PowPeg two‑way peg to keep RBTC redeemable 1:1 for BTC; and Stacks, which issues sBTC via its Proof‑of‑Transfer consensus and runs contracts in Clarity.
BitVM and trust-minimized bridges
BitVM is a revolutionary technology that enables trust‑minimised BTC bridges by executing computations off‑chain and sorting disputes on Bitcoin. Each deposit creates a presigned BitVM program that any honest participant can challenge with fraud proofs, which marks a significant improvement on traditional bridging which relies on custodians or multisigs.
BOB is currently testing this design ahead of mainnet release in Q4, enabling native BTC to enter into its EVM environment and back under these guarantees, and also recently launched bitvm/acc - the leading institutional working group dedicated to taking BitVM from research to reality, and in line with the business needs of both Bitcoin users and operators. BOB is also a member of the BitVM Alliance, which is a Research and Development group comprising all the leading protocols working on BitVM.
Babylon and Bitcoin finality
Babylon's non-custodial staking protocol is arguably the leading BTC DeFi infrastructure component, which kick-started the growth of Bitcoin liquid staking tokens (LSTs). Now $6.4 billion worth of BTC is being staked using its technology, which is why projects like BOB are integrating with Babylon to become a Bitcoin Secured Network (BSN) - achieving Bitcoin "finality" where transactions become permanent and irreversible on Bitcoin's network.
As a BSN, DeFi transactions, bridges, and operations on BOB are all backed by billions of dollars of staked Bitcoin. This creates a powerful flywheel effect: staked BTC used in DeFi generates transaction fees, a portion of which flows back to Babylon BTC stakers, encouraging more staking and attracting greater liquidity.
Babylon backs this finality with slashing, which means BTC stakers who try to attack the network risk forfeiting their stake.
Wrapped BTC
Traditionally, many Bitcoiners who wanted to enter into DeFi would do so using Wrapped BTC (wBTC). wBTC relies on BitGo's centralized custody with a 2-out-of-3 multi-signature model, which means that they hold custody of your Bitcoin, and provide you with a synthetic version that can be used in DeFi.
While this model may not appeal to privacy-focused Bitcoiners who prioritize self-custody, it has proven to be both functional and widely adopted, with approximately $14 billion in TVL.
Wrapped BTC has also proven an important access point for institutions in some countries. For example, the USA requires the usage of compliant custodians like BitGo for institutions that want to access Bitcoin.
Key Bitcoin DeFi Use Cases Emerging in 2025
As BTCFi infrastructure advances, several practical applications are now starting to appear within the BTC DeFi landscape which allow Bitcoin holders to put their assets to work.
BTC Liquid Staking tokens (LSTs): LBTC, xSolvBTC, uniBTC
A sizable amount of Bitcoin DeFi's current on-chain activity is made up of Liquid Staking Tokens, otherwise known as LSTs. Their value proposition is simple - Bitcoin holders can earn yield on their assets without sacrificing liquidity.
Prime examples include Lombard Finance's LBTC, Solv Protocol’s xSolvBTC and Bedrock's uniBTC, which all leverage Babylon's BTC staking infrastructure to provide a 1:1 BTC-backed token that allows for liquidity whilst producing staking rewards.
Bitcoin-backed stablecoins: Dollar on Chain (DOC), satUSD, BIMA
Bitcoin‑backed stablecoins have also been gaining traction this year, with various providers offering 1:1 USD pegs that enable holders to stay long on their BTC—but each having differing approaches.
Examples include DOC on Rootstock, which locks pure BTC in a smart contract for a trust‑minimised 1:1 USD peg, River’s satUSD on BOB which mints cross‑chain to share protocol yield with stakers, and BIMA’s USBD, which is over‑collateralised by BTC derivatives (or LSTs) and routes deposits into vault strategies.
What these Bitcoin stablecoins are looking to provide is spendable liquidity without requiring users to part with their Bitcoin.
Lending and borrowing protocols: Aave, Morpho, Euler
Following the success of lending and borrowing on Ethereum, various on-chain markets for Bitcoin have emerged where users can lend out their BTC in return for yield. Two of the largest lending protocols are Aave and Morpho. They both have large wBTC markets on the chains they support. Other notable lending protocols which support Bitcoin markets are:
- Avalon Finance, which offers overcollateralized lending and operates in conjunction with many Bitcoin hybrid chains and L2s such as BOB, Core and Bitlayer.
- Segment Finance, whose advanced money markets cater for BTCFi and the Superchain Eco
- Ethereum-based Euler, which has recently expanded to provide lending, borrowing and looping for BTC-backed assets.
DEXs and AMMs: Uniswap V3 (Oku), Izumi Finance, Sovryn
There have been a number of DEXs and AMMs that have started to cater for Bitcoin-based assets. This includes the likes of Uniswap V3, which has been deployed on various Bitcoin L2s, providing concentrated liquidity pools and advanced trading tools. This has been further streamlined thanks to Oku, a leading decentralized exchange aggregator which provides traders with a streamlined and intuitive interface.
Other notable DEXs catering for Bitcoin DeFi include Izumi Finance, a multi-chain DeFi protocol providing one-stop DEX-as-a-Service, and Sovryn, a decentralized platform for Bitcoin trading and lending.
Restaking and yield aggregation strategies: Pell, SatLayer
Restaking is another new yield generation model that is being implemented into BTCFi, where users can stake their tokens on multiple protocols at the same time. Not only does this improve capital efficiency, but this also supports the security of multiple networks. In return, users can acquire additional rewards for native restaking or liquid restaking.
Notable projects offering Bitcoin restaking include Pell Network and SatLayer, which allow BTC holders to restake wrapped BTC or LSTs (like SolvBTC or uniBTC) to secure services like DVSs or BVSs, earning layered yields through base staking rewards plus extra points, tokens, or multipliers.
The Future of BTCFi: Trends and Institutional Adoption
Several trends are expected to play an important role in the acceleration of Bitcoin DeFi in 2025 and beyond, and this includes interoperability, real-world assets (RWA) and institutional interest.
Interoperability
Interoperability has been at the heart of recent BTCFi developments and discussions, and will continue to be so moving forward.
This can be highlighted by the many Bitcoin DeFi offerings being released on different chains like Solana (Zeus Network), Cardano (Cardinal) and Aptos (Echo), while there has also been an increase in cross-chain solutions like Stargate, Across, Synapse and Li.Fi catering for BTCFi. Leading chains like BOB have also adopted industry standards such as LayerZero's OFT and Chainlink's CCIP to streamline cross-chain asset transfers.
What this demonstrates is that an increasing number of builders from different chains are seeing the immense potential of leveraging Bitcoin for DeFi, and it is these combined interoperability efforts which are likely to unlock further liquidity.
Real-World Assets (RWA)
Real-world assets (RWAs) are bridging the gap between DeFi and traditional finance, creating fresh opportunities for liquidity and efficiency that may shape the evolution of Bitcoin DeFi moving forward.
For example, when it comes to lending, tokenized RWAs enable flexible collateral for products such as real estate loans, commodity derivatives, and investment funds. This in turn can bring the real-world value needed to reduce exposure to crypto swings, and more compelling collateral for yield-generation.
Blending everyday value with on-chain finance through RWAs has been projected to release substantial growth in the DeFi space.
Institutional DeFi interest
Institutional involvement in crypto is surging in 2025, with an EY-Parthenon and Coinbase survey showing 83% of investors are set to increase their crypto holdings. Although only 24% currently have exposure to DeFi, this is set to triple to 75%, with institutions citing interest in derivatives, staking, lending, yield farming and stablecoins.
But some concerns were also shared in this survey, with regulatory outlook being cited as the top concern by 52% of investors, followed by volatility (47%) and secure custody (33%). Trust-minimized Bitcoin DeFi, therefore, could be a compelling draw for institutions given its unmatched security and liquidity.
Conclusion: DeFi on Bitcoin is the opportunity of the decade
As the DeFi industry continues to gain mainstream interest, the infrastructure that enables BTCFi to flourish in a trust-minimized, multichain environment is set to power the 100x growth opportunity ahead.
BOB is uniquely positioned as the Gateway to Bitcoin DeFi, which means it's not just another L2, but a unified entry point for accessing BTC yield across all chains. Through its hybrid chain with Bitcoin finality, BitVM-powered native BTC deposits, and multichain BOB Gateway with 1-click Bitcoin intents, BOB is solving both the trust and UX challenges holding Bitcoin DeFi back. Combined with the emergence of Bitcoin LSTs and stablecoins, the foundation is set for Bitcoin to become productive capital at scale.
There will be many hurdles that will need to be overcome in order to ensure Bitcoin DeFi thrives, but if the progress of the last two years is anything to go by, expect big things from BTCFi in 2025 and beyond.
