Bitcoin Decentralized Finance ecosystem is rising

Decentralized Finance on Bitcoin ( DeFi ) is no longer just a theoretical concept. Despite encountering some setbacks during its development, the momentum surrounding the release of Bitcoin as a potential digital gold is continuously strengthening.

For a long time, Bitcoin has been regarded as merely digital gold, and the lack of DeFi smart contracts and decentralized packaging/bridging functionalities has limited the development of its ecosystem. However, this situation is changing.

With a batch of new protocols launched on and around Bitcoin, we have seen the embryonic form of true BTC native Decentralized Finance infrastructure. Some projects are leading in technology and total locked value (TVL), each addressing different aspects of the DeFi ecosystem.

Bitcoin Staking Layer

A certain protocol can be likened to Ethereum's Beacon Chain, but is designed specifically for Bitcoin. It is a native Bitcoin staking protocol with over $5 billion in TVL, ranking first among its peers.

The uniqueness of this protocol lies in its ability to allow users to stake BTC directly on the Bitcoin mainnet, without the need for bridging or wrapping. The coins remain in place, stored in a non-custodial manner.

But this protocol is not just for staking for the sake of staking. Its main innovation is extending the security of Bitcoin to other blockchains, whether they are EVM chains, Rollups, or application chains. Bitcoin holders can now help secure the network by locking their coins and earn rewards from the chains they are protecting.

Bitcoin's Liquidity Staking

Another protocol can be seen as the Bitcoin version of Lido. If the previous protocol is responsible for staking, then this protocol makes it composable. It has a Bitcoin-related TVL of $1.9 billion, built on top of the previous protocol. It allows users to stake BTC and receive liquid staking tokens that represent their staked positions.

This protocol addresses the issue of staking BTC not being usable in DeFi. Now, users can obtain liquid-staked BTC and start trading, lending, mining, and other operations. The protocol earns returns by delegating BTC to validators, who in turn protect the external network and receive rewards. These rewards are shared with the token holders.

The protocol is active in multiple ecosystems and collaborates with several Decentralized Finance protocols, demonstrating its composability.

Bitcoin's Re-Staking Layer

The third protocol introduces a new re-staking model. While the first protocol locks BTC to protect external networks at the consensus layer, this protocol allows users to re-stake liquidity tokens to protect the application layer.

This opens the door to a revenue market obtained directly from protected applications, such as oracle payments to restakers to ensure data integrity, or Rollup payments to restakers to ensure transaction validity, or bridge payments to avoid slashing or fraud. The protocol supports restaking on EVM and Sui networks.

BTC Reserves and DeFi Vault

There is another protocol that adopts a different approach. It provides liquidity staking for BTC without relying on other protocols and focuses on building its own Bitcoin reserve strategy and other Decentralized Finance products.

The tokens of this protocol are the liquidity representatives of its BTC reserve strategy, where users deposit a wrapped version of BTC, and then the protocol converts most of it to native BTC through institutional channels and stores it via centralized custody. Although it does not rely on other protocols, it benefits from related assets. In turn, thanks to its Decentralized Finance vault, it offers higher composability.

Conclusion

DeFi on Bitcoin is no longer just a dream. With the emergence of new protocols and the increase in liquidity, we may be witnessing a new era of decentralized yields on Bitcoin. This is no longer just about wrapping BTC on Ethereum, but about unlocking native BTC DeFi.

As more Bitcoin blockchain projects compatible with EVM are launched, the composability and potential value of these layers may soar. Billions of idle BTC could soon become active collateral, helping to validate networks, secure applications, and generate real yields. Institutional investors are flocking to Bitcoin, showing strong interest in this yield prospect.