{"id":22332,"date":"2025-03-24T10:32:32","date_gmt":"2025-03-24T08:32:32","guid":{"rendered":"https:\/\/forklog.com\/en\/will-btcfi-fuel-bitcoins-next-leg-up\/"},"modified":"2025-03-24T10:32:32","modified_gmt":"2025-03-24T08:32:32","slug":"will-btcfi-fuel-bitcoins-next-leg-up","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/will-btcfi-fuel-bitcoins-next-leg-up\/","title":{"rendered":"Will BTCFi fuel bitcoin\u2019s next leg up?"},"content":{"rendered":"

Decentralised finance on bitcoin (BTCFi) no longer looks like an enthusiasts\u2019 fantasy \u2014 it is a fast-developing, promising segment.<\/p>\n

Over the past year the segment\u2019s TVL<\/span> has surged by roughly 2,400%<\/a>, from $0.3bn to a peak of $7.47bn (December 2024), putting the nascent ecosystem in the top five on DeFi Llama<\/a> rankings.<\/p>\n

BTCFi signals a shift in how \u201cdigital gold\u201d is used. If bitcoin was once chiefly a savings vehicle, it is now edging into DeFi proper with use cases from staking and crypto lending to yield farming. Today BTCFi may be one of crypto\u2019s most underrated niches, given bitcoin\u2019s trillion\u2011dollar market capitalisation, vast stores of \u201csleeping\u201d liquidity and an as\u2011yet untapped L2 potential.<\/p>\n

A real \u201cEthereum killer\u201d?<\/h2>\n

In this cycle bitcoin\u2019s dominance index has been climbing steadily: capital is flowing into the first cryptocurrency faster than into the rest of the market combined.<\/p>\n

\"1-BTC_Dom\"
Bitcoin dominance has topped 60% \u2014 the highest level in four years. Source: TradingView<\/a>.<\/figcaption><\/figure>\n

This reflects active accumulation by hodlers and retail investors, tighter integration of the first cryptocurrency with TradFi<\/span>, and a Lindy effect at work.<\/p>\n

A successful debut<\/a> of spot bitcoin ETFs in the United States has given asset-management giants such as BlackRock direct access to digital gold; companies<\/a> and even states<\/a> increasingly see crypto as a dependable financial reserve.<\/p>\n

\n\u201cAs the amount of BTC across different market segments grows, the desire to make these assets more productive will only intensify \u2014 similar to how traditional financial instruments like Treasuries and gold are used in financial markets,\u201d said analysts at Binance Research<\/a>.<\/cite><\/p><\/blockquote>\n

They reckon regulatory change could speed the trend. As a positive example, the experts cited the repeal of SAB 121<\/a> in the United States, which had effectively barred banks from holding digital assets.<\/p>\n

Simpler paperwork and further build\u2011out of financial plumbing could unlock more of bitcoin\u2019s potential \u2014 from everyday payments to use as collateral and components of structured products.<\/p>\n

How good is HODL, really?<\/h3>\n

There is a flip side to whale demand, active accumulation and maximalists\u2019 gospel of \u201cHODL forever\u201d: a large share of coins drops out of circulation, ceasing to function as a medium of exchange and earning their owners no yield.<\/p>\n

The chart below shows that more than 60% of bitcoins have not left their wallets for over a year \u2014 and the share keeps growing. The trend points to more long\u2011term holders following a passive accumulation strategy.<\/p>\n

\"2-percentage-of-btc-idle-at-least-1-year\"
Share of bitcoins, from total supply, that have not moved for over a year. Sources: Bitcoin Magazine Pro, Binance Research.<\/figcaption><\/figure>\n

\n\u201cThe rise in idle BTC is primarily because bitcoin has already established itself as a store of value. But it also reflects limited avenues for more productive use of coins,\u201d Binance Research observed.<\/cite><\/p><\/blockquote>\n

The experts say the main obstacle to unlocking bitcoin\u2019s potential for years was the \u201clack of accessible financial instruments\u201d.<\/p>\n

\n\u201cWhen users lack native ways to earn yield on BTC, they simply have no incentive to put coins into economic circulation,\u201d the specialists noted.<\/cite><\/p><\/blockquote>\n

In their view, \u201cunlocking even a small fraction of underused coins\u201d could materially lift bitcoin\u2019s capital efficiency \u2014 turning it from a passive store of value into a more active financial instrument and opening new avenues for \u201cvalue generation\u201d.<\/p>\n

BTCFi\u2019s untapped field<\/h3>\n

Bitcoin\u2019s penetration into DeFi remains low. By Binance Research\u2019s count, only 0.79% of total supply is locked in smart contracts of decentralised applications.<\/p>\n

\n\u201cA significant portion of assets remains under centralised control \u2014 via ETFs, sovereign reserves or corporate treasuries,\u201d the researchers stressed.<\/cite><\/p><\/blockquote>\n

\"3-percent-of-BTC-holdings-are-being-put-to-work-and-locked-in-DeFi\"
Just 0.79% of total bitcoin supply is used in DeFi. Sources: Bitcoin Treasuries, Binance Research.<\/figcaption><\/figure>\n

One big reason: bitcoin was not designed for complex financial applications. Unlike platforms such as Ethereum, the first cryptocurrency lacked built\u2011in programmability.<\/p>\n

Hodlers were left with a narrow menu of \u201cadvanced\u201d use cases, such as borrowing against digital gold at custodial services or using wrapped tokens on other chains. Each option carries risks, including meagre yields, centralisation and security concerns.<\/p>\n

That contrasts with Ethereum, where ETH and ERC\u201120 holders can seamlessly and non\u2011custodially stake, lend, provide liquidity and use a wide range of intricate \u201cfinancial LEGO\u201d tools.<\/p>\n

\"4-BTC-ETH-comparison\"
Comparing the bitcoin and Ethereum ecosystems. Source: Binance Research.<\/figcaption><\/figure>\n

Despite a market value north of $1trn, bitcoin remains among the least active blockchains. The chart below, comparing TVL-to-market\u2011cap ratios across leading platforms, shows as much.<\/p>\n

\"5-TVL-Mcap\"
TVL-to-market\u2011cap ratios across popular ecosystems. Sources: DeFi Llama, CoinMarketCap, Binance Research as of March 11.<\/figcaption><\/figure>\n

For digital gold the figure is about 0.32% (with TVL of $5.65bn<\/a> and a market cap of $1.7trn<\/a> as of March 20). The corresponding value for Ethereum is 48.6%, for Solana 23.8%, BNB Chain 9.5% and TON about 5.9%.<\/p>\n

\n\u201cIf just 10% of bitcoin\u2019s market capitalisation were activated, it would add over $150bn to TVL \u2014 more than the combined value of the entire DeFi ecosystem across all blockchains today,\u201d the Binance Research team emphasised.<\/cite><\/p><\/blockquote>\n

The lay of the land<\/h2>\n

The BTCFi sector is gathering pace, yet most BTC deployed in DeFi still takes the form of wrapped tokens on other blockchains.<\/p>\n

\n\n\n\n\n\n\n
BTC in DeFi<\/strong><\/td>\nNumber of BTC<\/strong><\/td>\nTVL<\/strong><\/td>\n<\/tr>\n
Wrapped BTC in DeFi protocols\u2019 smart contracts<\/td>\n253,234<\/td>\n$21bn<\/td>\n<\/tr>\n
Native BTC in staking protocols<\/td>\n59,252<\/td>\n$4.9bn<\/td>\n<\/tr>\n
BTC in DeFi via L2<\/td>\n44,559<\/td>\n$3.7bn<\/td>\n<\/tr>\n<\/tbody>\n<\/table>
How bitcoin is used in DeFi. Sources: Bitcoin Layers, DeFi Llama, Binance Research as of March 12.<\/figcaption><\/figure>\n

A large share of the first cryptocurrency is used as collateral in lending protocols or for yield farming.<\/p>\n

\n\u201cYet BTCFi\u2019s native infrastructure is still at an early stage: most activity clusters around staking protocols such as Babylon,\u201d Binance Research noted.<\/cite><\/p><\/blockquote>\n

The screenshot below shows the top five bitcoin\u2011based protocols by TVL, per DeFi Llama. The first four spots are taken by restaking projects led by Babylon.<\/p>\n

\"6-btc_protocols_tvl_defillama\"
Babylon leads BTCFi by a wide margin. Source: DeFi Llama<\/a> as of March 21.<\/figcaption><\/figure>\n

According to Binance Research, user activity in BTCFi closely tracks bitcoin\u2019s market cycles and prevailing conditions.<\/p>\n

In strong upswings demand rises for bitcoin\u2011based financial services \u2014 especially lending and staking \u2014 as participants seek yield without parting with their coins.<\/p>\n

Native bitcoin applications add further momentum: both active BTCFi wallets and on\u2011chain transaction volumes are increasing.<\/p>\n

The researchers stressed that the race to become the dominant execution layer is still on \u2014 no L2 platform has yet secured broad backing.<\/p>\n

\n\u201cAn analysis of activity distribution across networks shows Core currently leads BTCFi, accounting for 25.2% of all active projects. [\u2026] Rootstock and Bitlayer are second and third, with 13% each. They are followed by Merlin Chain with a 9.9% share,\u201d Binance Research said.<\/cite><\/p><\/blockquote>\n

Among other notable participants, the experts highlighted:<\/p>\n