Representation of Bitcoin cryptocurrency in this illustration photo taken in Krakow, Poland in … (+)
For years, DEFI is synonymous with Ethereum and other intelligent contract platforms. But Bitcoin, the largest and secure blockchain, is now emerging as an important player. This has immense potential for the whole cryptographic space.
According to Defillama, the total value locked in the BTCFI protocols increased from $ 307 million in January 2024 to $ 6.6 billion in February 2025, an amazing increase of 2,050%.
BTCFI allows users to gain yield, trade and to take advantage of their parts without relying on centralized intermediaries. Many BTCFI protocols already allow you to reappear, to force loans and tokenization of assets on Bitcoin. The latter includes stablecoins, the vital element of Defi. The recent news concerning the integration of the USDT with the Lightning network mark an important step, potentially disturbing massive liquidity for the sector.
How BTCFI works
The main way to put Bitcoin in Defi has long been through the packaged BTC. This method consists in locking BTC on Bitcoin and emitting a tokenized version on Ethereum and other chains. However, this approach has risks. The wrapped active ingredients are based on guardian or semi-centralized bridges, which are subject to hacks and governance failures.
An alternative approach is the threshold signature scheme. This cryptographic method allows multipartite control on a Bitcoin portfolio without exposing private keys. TSS allows the native BTC guard without a single failure point, making it a reliable solution for non -guardian cross -applications and yield protocols.
Beyond TSS, Bitcoin Layer-2 solutions such as lightning, liquid or rootstock provide additional avenues for BTCFI applications. These networks allow smart contracts advanced on Bitcoin.
Win the yield on Bitcoin
Bitcoins have long been proud to bang. With the emergence of BTCFI, they can put their inactive pieces at work, while keeping control of them.
The two most promising yield strategies are restocking and borrowing loans.
The use of bitcoin is a new concept that allows BTC holders to lock their assets in smart contracts that secure other networks or specialized protocols. In doing so, users provide security or usefulness for additional diapers and DAPPs. In return, they receive awards for their participation. Babylon, the largest BTCFI protocol with $ 5.4 billion on TVL, uses Multi-Signating TSS and portfolios to facilitate replenishment through the blockchain layers.
Loan supply protocols allow users to gain interest by lending their BTC. They can also borrow BTC against guarantees, generally exceeding the loan amount. Traditional DEFI loans borrowing protocols, such as Aave, Makerdao or Curve, use wrapped bitcoin. BTCFI loan protocols using native Bitcoin work mainly on Bitcoin Sidechains, like Sovryn, built on Rootstock (RSK).
Bitcoin trading on Dexs
Currently, most decentralized exchanges use wrapped bitcoin. However, some DEXs have made it possible to use the native BTC, allowing users to maintain control of their parts.
The most popular is Thorchain (rune), which uses the TSS method, allowing native BTC exchanges without centralized bridge. Thorchain is built on the cosmos software development kit and supports eight blockchains.
Other BTCFI Dexs include Stackswap, built on Bitcoin Layer-2 batteries, and Bisq, a de-to-to-peer de-chain dex which uses a multi-signature whole process.
Bitcoin active ingredients
Although Bitcoin was not originally designed for the emits issuing, new technologies and standards have made this possible.
The Ordinal Protocol, launched in January 2023, quickly gained popularity by allowing the creation of chain tokens. To date, the Bitcoin network records an average of 117,000 ordinary transactions (BTC-20) and 5,000 non-tumbled transactions (NFT) daily, according to Dune Analytics. However, ordinals may not be the best way to Bitcoin tokenization. They are at high intensity of the space and can hardly be incorporated into the DEFI protocols.
Bitcoin Layer-2 such as RGB, Liquid and the Lightning network (with tapot assets) offer a more scalable and effective means of tokenizing assets on Bitcoin.
On January 30, Tether, the head of Stablecoin, and Lightning Labs, the team behind the Tapot assets, made an important announcement. TETHER will integrate into the Lightning network, with chain transactions and care for the Lightning network. This marks a paradigm shift. Until now, Stablecoin’s offer has concentrated on Ethereum ($ 138 billion, or 59%) and Tron ($ 63 billion, or 27%), according to Dune Analytics. This is due to the DEFI sector developed by the first and low costs of the last. With USDT moving to Bitcoin, BTCFI could capture an important part or create an additional stablecoin diet.
This could unlock new liquidity flows and create an important activity on Bitcoin. Currently, $ 150 billion in USDT generates more than $ 1 billion of monthly trading volume between the channels, according to Coingecko. The current monthly volume of Bitcoin on the chain is around 2.1 billions of dollars. If it were to claim its market share of 59% of the USDT volume, this would mean a 28% increase in blockchain activity. Consequently, this could also change the dynamics of costs for the benefit of minors.
BTCFI is gaining ground. Despite certain Bitcoingers concerns concerning a potential increase in costs (both in chain and on the lightning network), the BTCFI potential is immense. As the BTC ETFs gain ground, BTCFI offers a decentralized and non -guardian way to actively use Bitcoin, stay faithful to the adage: “Not your keys, not your parts.”
