Bitcoin has always been the gold standard of crypto—trusted, secure, and battle-tested. But for years, it sat on the sidelines while Ethereum and other chains raced ahead with decentralized finance (DeFi). That’s starting to change. Enter Bitcoin DeFi, or BTCFi—a new movement that’s turning Bitcoin from a dormant store of value into a dynamic financial asset.
With BTCFi, Bitcoin holders no longer need to passively “HODL” and wait. Now, they can put their BTC to work through lending, staking, restaking, and yield-generating DeFi protocols—without compromising on the security that makes Bitcoin so reliable in the first place. Thanks to innovations like wrapped Bitcoin (wBTC), Layer-2 networks, and Bitcoin-native restaking platforms, BTCFi is unlocking entirely new use cases for the world’s most valuable crypto asset.
The Evolution of Bitcoin: From Store of Value to Financial Layer
1. Why Bitcoin Was Always About Security First
When Bitcoin was first introduced in 2009, its goal was simple: become a peer-to-peer electronic cash system that allowed anyone to send value across borders without relying on a middleman. Over time, its role shifted from day-to-day payments to a “digital gold” narrative—an uncorrelated store of value in an increasingly uncertain financial world.
But here’s the thing: Bitcoin’s design was never meant for complex financial applications. It uses a minimal scripting language that’s intentionally restrictive. Why? Because the focus was always on security, decentralization, and immutability. Bitcoin wanted to do one thing—and do it better than anything else.
That design choice made Bitcoin nearly bulletproof, but it also meant developers had limited tools for building on it. So while Ethereum and other smart contract platforms flourished with apps like Uniswap, Aave, and Compound, Bitcoin stayed largely isolated.
2. Why DeFi Skipped Bitcoin—Until Now
During the early days of DeFi, Bitcoin was admired—but not used. Developers gravitated toward Ethereum’s flexibility and developer-friendly tooling, which let them quickly launch lending platforms, yield farms, and synthetic assets. Bitcoin, with its conservative scripting and slower block times, wasn’t exactly DeFi-friendly.
But now, the tides are turning.
Bitcoin’s unmatched security and massive liquidity are too valuable to ignore. New protocols are finding clever ways to bring DeFi to Bitcoin—not by changing its base layer, but by building around it. Solutions like sidechains, Layer 2s, and wrapped BTC on EVM chains are enabling developers to tap into Bitcoin’s trust while gaining the programmability needed to unlock full DeFi functionality.
The result? BTCFi—a hybrid model where Bitcoin remains the secure base, and DeFi is layered on top or adjacent to it. It’s the best of both worlds, and it’s reshaping how we think about Bitcoin’s place in the crypto economy.
What Is BTCFi and Why It Matters in 2025
1. BTCFi Defined: DeFi Built on the Bitcoin Standard
Bitcoin DeFi (BTCFi) refers to a new class of decentralized finance protocols that enable financial services such as lending, staking, trading, and restaking using Bitcoin as the core asset. These protocols operate through a combination of wrapped tokens, sidechains, and Layer 2 solutions to bring programmability and capital efficiency to the Bitcoin ecosystem.
Unlike Ethereum-based DeFi, which runs natively on a smart contract-enabled chain, BTCFi expands Bitcoin’s utility through adjacent layers while maintaining the asset’s original security model. The Bitcoin blockchain remains unchanged, while these auxiliary systems extend its capabilities to support more complex applications.
BTCFi protocols aim to keep users in control of their assets by prioritizing decentralization and non-custodial access. Instead of requiring trust in centralized platforms, many BTCFi applications offer transparent smart contract systems with self-custody features that align with Bitcoin’s foundational principles.
2. Why Investors Should Pay Attention
BTCFi introduces meaningful opportunities for Bitcoin holders who want to maximize the value of their assets without selling or converting them. Several compelling benefits are driving attention toward this sector:
- Earning Passive Income from BTC
BTCFi allows users to deploy their Bitcoin into lending platforms, liquidity pools, or staking protocols to generate steady returns over time. - Preserving Ownership While Accessing Liquidity
Bitcoin can be used as collateral to borrow stablecoins or other digital assets. This provides liquidity without needing to liquidate holdings. - Improving Portfolio Utility Without Exiting Bitcoin
By engaging in BTCFi, users can take part in DeFi strategies like farming, trading, or synthetic asset exposure—using BTC as the base asset—while retaining long-term investment positions. - Enhancing Security Through Decentralized Design
Many BTCFi protocols emphasize non-custodial frameworks, meaning users retain control of their private keys throughout the process. This reduces counterparty risk compared to traditional CeFi platforms.
Core Components Powering Bitcoin DeFi
1. Sidechains: Enabling Smart Contract Functionality
Sidechains are independent blockchains that are pegged to Bitcoin, allowing BTC to be moved between chains while gaining access to advanced features such as smart contracts. These chains operate with their own consensus mechanisms but maintain a connection to the Bitcoin mainnet, often through a two-way peg.
Protocols like Rootstock (RSK) and Stacks are prominent examples. RSK brings EVM compatibility to Bitcoin, allowing Ethereum-like applications to run with Bitcoin as the underlying asset. Stacks uses a unique consensus model that anchors to Bitcoin blocks, enabling smart contract execution without altering the base chain.
Sidechains provide the flexibility needed to build DeFi apps while leveraging Bitcoin’s security. Developers gain programmability, and users gain access to decentralized financial tools—without compromising the integrity of the Bitcoin network.
2. Layer 2 Solutions: Scaling Transactions for DeFi Activity
Layer 2 (L2) solutions are built on top of the Bitcoin base layer to improve transaction throughput and reduce fees. These solutions process transactions off-chain and post summaries or proofs back to the Bitcoin network, maintaining its security guarantees while boosting performance.
Projects like Lightning Network are designed for micropayments and fast transfers, but newer L2s focused on DeFi are emerging. Babylon and others are introducing staking and restaking layers that align with Bitcoin’s decentralization ethos while providing smart contract utility.
L2 solutions expand the capabilities of BTCFi by making it feasible to conduct high-volume DeFi activity with minimal delay or cost.
3. Wrapped Bitcoin: Bridging BTC to Other Chains
Wrapped Bitcoin (wBTC) and other tokenized versions of BTC allow Bitcoin liquidity to flow into ecosystems like Ethereum, Avalanche, or Solana. These tokens are backed 1:1 by BTC held in custody and minted on smart contract platforms.
By holding wBTC, users can access existing DeFi protocols such as Aave, Curve, or Uniswap—without selling their Bitcoin. Other variations, like SolvBTC or cBTC, serve a similar purpose but may integrate with different blockchains or offer different custodial models.
Wrapped assets play a critical role in BTCFi by enhancing interoperability and bringing Bitcoin into environments where DeFi infrastructure is already mature.
4. Cross-Chain Bridges: Enabling Multi-Chain Access
Cross-chain bridges enable Bitcoin or its representations to move between different blockchains. This increases liquidity and allows BTC holders to access DeFi services across multiple ecosystems.
Bridges must balance usability with security. Centralized custodians offer convenience but pose risks, while decentralized bridging protocols focus on trust minimization. BTCFi platforms are increasingly exploring bridgeless approaches that rely on cryptographic proofs or anchor mechanisms to reduce attack surfaces.
By integrating bridges, BTCFi protocols make Bitcoin more flexible, allowing capital to flow wherever opportunity exists in the broader Web3 ecosystem.
BTCFi in Action: What You Can Actually Do With It
1. Lending and Borrowing With Bitcoin
BTCFi platforms now allow users to lend their Bitcoin and earn interest over time. Alternatively, BTC can be locked as collateral to borrow stablecoins or other crypto assets. This enables holders to unlock liquidity while maintaining exposure to Bitcoin’s long-term value.
Protocols such as Lombard Finance or Coffer Network specialize in lending markets tailored to Bitcoin. These platforms offer self-custodial lending models, yield-bearing vaults, and multi-chain integrations that extend Bitcoin’s reach into decentralized finance.
Whether generating passive income or accessing capital without selling, BTCFi lending services deliver financial flexibility rooted in the world’s most secure asset.
2. Yield Farming and Liquidity Pools
BTCFi introduces opportunities for yield farming by allowing users to contribute their BTC or BTC-pegged assets to liquidity pools. These pools facilitate decentralized trading and lending, and users are rewarded with fees, governance tokens, or other incentives.
Platforms such as ALEX on Stacks or Lombard’s DeFi Vaults provide structured strategies where users can deposit assets like LBTC, wBTC, or cBTC to earn optimized returns. These strategies may involve liquidity provision on decentralized exchanges, lending protocols, or automated yield strategies.
Unlike traditional farming on Ethereum or BNB Chain, BTCFi farming often emphasizes self-custody and Bitcoin-first values, giving users access to returns while maintaining a higher degree of asset control.
3. Real-World Asset Exposure Without Selling Bitcoin
BTCFi allows Bitcoin holders to gain exposure to real-world assets (RWAs)—such as stocks, commodities, or fiat currencies—through synthetic or tokenized instruments. These digital assets are structured to mimic the price behavior of traditional assets, giving BTC users access to broader financial markets.
Synthetic protocols integrated with BTCFi frameworks enable users to mint or trade assets backed by BTC collateral. This unlocks portfolio diversification without requiring users to convert their BTC into fiat or other cryptocurrencies.
Through this mechanism, Bitcoin functions as more than a store of value—it becomes a bridge to the global economy.
4. Derivatives and Structured Products
BTCFi also extends into derivatives markets, offering users tools to trade futures, options, and leveraged tokens with Bitcoin as the base asset. These instruments allow for more sophisticated trading strategies, including hedging and speculation, without owning the underlying asset directly.
Protocols working on Bitcoin-native derivatives or offering cross-chain access to such products are helping to build this segment. These tools provide additional layers of market participation for both institutional and retail users who prefer to stay in the Bitcoin ecosystem.
5. Restaking Models Using BTC
Restaking allows users to deploy the same BTC collateral across multiple protocols to generate layered yield. For example, BTC may be staked on a base protocol like Babylon, which then enables liquid staking tokens (like LBTC or SolvBTC) to be reused in other DeFi applications.
This approach increases capital efficiency by stacking multiple revenue streams on a single BTC position. Instead of earning yield from one source, users can participate in several protocols, often compounding rewards.
Projects like Lombard, Solv, and b14g are actively innovating in this area, providing modular frameworks that support restaking across multiple chains and layers—while preserving the underlying trust in Bitcoin.
Ready to build in the Bitcoin DeFi space?
Why BTCFi Is Good for Bitcoin’s Future
BTCFi is more than a new use case—it represents a significant upgrade to how Bitcoin functions in the evolving financial landscape. Instead of letting Bitcoin remain a dormant asset, BTCFi introduces new economic incentives and utility layers that benefit both individual holders and the broader ecosystem.
Unlocking Idle Liquidity
Bitcoin’s market cap exceeds a trillion dollars, yet most of it remains untouched in wallets. BTCFi helps unlock this capital by allowing users to earn from lending, farming, or restaking. This shift improves capital efficiency and aligns Bitcoin with the activity-driven dynamics of DeFi.
Driving Ecosystem Growth and Activity
Protocols that integrate BTC into financial applications drive on-chain volume, increase demand for infrastructure, and create new business models. This activity supports miners through higher transaction fees and rewards developers building on sidechains or Layer 2s.
Maintaining Trust Through Decentralized Design
BTCFi is being built with Bitcoin’s ethos in mind—self-custody, transparency, and decentralization. Many BTCFi protocols use cryptographic systems or multi-signature setups that reduce reliance on centralized custodians. This preserves Bitcoin’s core principles while expanding its utility.
Expanding Use Cases Without Altering Bitcoin’s Base Layer
BTCFi extends Bitcoin’s capabilities without changing its core architecture. Through wrapped tokens, sidechains, and L2s, developers can offer new services while the main chain remains optimized for security and immutability.
Improving Bitcoin’s Cross-Chain Reach
BTCFi connects Bitcoin to other ecosystems like Ethereum, Avalanche, and Sui. This interoperability allows BTC holders to participate in DeFi strategies globally, fostering cross-chain liquidity and innovation without compromising Bitcoin’s underlying value proposition.
Top Protocols Driving the BTCFi Revolution
Several protocols are leading the charge in Bitcoin DeFi, each contributing a unique layer to the ecosystem. Based on recent TVL data, these platforms are establishing the foundations of BTCFi in 2025.
Babylon Protocol – Bitcoin-Native Restaking Infrastructure
Babylon enables BTC holders to stake their assets on Proof-of-Stake blockchains without leaving the Bitcoin network. It uses self-custody vaults and finality staking, offering yield while maintaining control. With over $4.9 billion in TVL, Babylon accounts for nearly 80% of the BTCFi market share and is considered the anchor for Bitcoin-native staking.
Lombard Finance – Liquid Staking and Cross-Chain Yield
Lombard builds on Babylon’s foundation by issuing LBTC, a liquid staking token that can be used across multiple DeFi ecosystems. Its DeFi Vaults integrate with protocols like Morpho and Pendle, allowing users to earn layered yields. As of June 2025, Lombard holds over $2.0 billion in TVL, with integrations across Ethereum, Sui, and Berachain.
Solv Protocol – Multi-Chain Bitcoin Liquidity and Abstraction
SolvBTC provides a pegged BTC token with staking abstraction and yield routing. Solv’s Liquid Staking Tokens (SolvBTC.LSTs) can be used across multiple blockchains, with TVL reaching $1.8 billion. The protocol is backed by strong institutional support and security audits, making it a key player in cross-chain BTC utility.
Coffer Network – Self-Custodial DeFi Access
Coffer offers CoBTC, a non-custodial Bitcoin product designed for decentralized automation. Through smart accounts and permissionless exits, it enables leveraged yield generation while preserving user control. Coffer has grown to $295.7 million in TVL, reflecting increased demand for non-custodial Bitcoin DeFi options.
b14g – Modular Dual-Staking for BTCFi Protocols
b14g introduces a dual-staking model that requires users to stake both BTC and the protocol’s native token. This design reduces token sell pressure and allows other protocols to plug into its modular architecture. Launched in late 2024, b14g has already surpassed $214.5 million in TVL and continues to expand.
Conclusion
Bitcoin DeFi (BTCFi) is transforming how the world’s most trusted digital asset is used—evolving it from a passive store of value into a dynamic tool for decentralized finance. With innovations like sidechains, Layer 2 solutions, wrapped tokens, and restaking protocols, BTC holders can now earn yield, access liquidity, and engage in advanced DeFi strategies without leaving the Bitcoin ecosystem. As this movement grows, BTCFi is set to redefine financial participation around Bitcoin with greater efficiency, transparency, and security. Blockchain App Factory provides Bitcoin DeFi development services to help projects build and scale innovative BTCFi solutions tailored for the future of decentralized finance.
