BTCFi on the rise: Bitcoin enters the DeFi era
For a long time, Bitcoin in DeFi existed only in the form of BTC-pegged tokens on other blockchains. However, the first cryptocurrency is also evolving, and now the Bitcoin DeFi segment — known as BTCFi — is one of the fastest-growing in the market.
Record growth of BTCFi
The BTC blockchain had long been completely unsuitable for DeFi due to its minimal, smart contract functionality. A breakthrough came with the Taproot upgrade, released in 2021. With Taproot, Bitcoin's smart contract capabilities have moved closer to those of Ethereum and other popular DeFi blockchains, such as Binance Smart Chain and Solana.
By 2021, altcoin blockchains had already established themselves in the DeFi market, built ecosystems of numerous products, and earned the trust of users. So BTCFi found itself in a catch-up position.
However, it is worth acknowledging that the BTCFi segment is growing at an impressive pace. In 2024 alone, the total value locked (TVL) in Bitcoin DeFi rose from $0.3 billion to $7.47 billion — a 25x increase. So, while the BTCFi ecosystem is still in its infancy, it has already entered the Top 5 of the DeFi Llama rankings by TVL.
DeFi growth on Bitcoin won't continue at such a breakneck pace — as TVL increases, a slowdown in relative growth is inevitable — but the outlook for BTCFi remains very optimistic. As of the first half of 2025, it's already clear that capital is flowing into BTCFi faster than into all other DeFi ecosystems combined.
At the same time, only about 0.79% of the total mined Bitcoin is currently locked in decentralized finance products. On the one hand, this might suggest relatively low interest among Bitcoin holders in using it directly in DeFi. But on the other hand, it also means BTCFi has enormous growth potential.
What does BTCFi offer?
Products in the Bitcoin-DeFi ecosystem essentially replicate the concepts and functionality of DeFi products in other networks. The leading categories in BTCFi are lending protocols and staking platforms.
Lending platforms operate similarly to their counterparts on other chains, but staking on Bitcoin requires additional explanation.
Staking is usually associated with PoS blockchains, but the rise of Layer 2 solutions has made adequate staking and restaking possible on the BTC network. That said, there is currently no dominant L2 solution in the ecosystem. The largest one — Core — holds only a 25% share. Rootstock and BitLayer currently provide solid competition, each with a 13% share.
Interestingly, out of the Top 5 BTCFi products by TVL, the top four spots are occupied by restaking protocols: Babylon, Lombard, SolvBTC, and exSat Credit Staking. The fifth position goes to the Lightning Network payment system.
Conclusion
The crypto market does not tolerate stagnation. The explosive development of BTCFi, on the one hand, gives new momentum to the DeFi sector, which has somewhat "cooled down" and slowed in recent times. On the other hand, Bitcoin's active role in DeFi provides it with an opportunity to break the trend of gradually becoming a passive store-of-value asset. So, BTCFi has every chance of becoming the focal point of the crypto community shortly.