Perspective by: Brendon Sedo, initial contributor of Core DAO
Bitcoin is evolving beyond its traditional role as “digital gold.” The main catalyst for this transformation is the emergence of Bitcoin DeFi (BTCfi), which explores applications beyond simply serving as a store of value.
Bitcoin’s New Role in 2024
In 2024, Bitcoin (BTC) transitioned into a yield-generating asset and became central to decentralized finance ecosystems akin to Ethereum. The innovation is expected to further flourish in 2025 with the development of Bitcoin sidechains.
Overcoming Limitations of Bitcoin’s Base Layer
Previous attempts to capitalize on Bitcoin as a productive asset often necessitated major alterations to its base layer, which contributed to their decline. The Bitcoin layer 1 is not structured for substantial changes, resulting in many Bitcoin users simply holding their assets rather than utilizing them effectively. Consequently, Bitcoin has been underused as a network and asset.
The Promise of Bitcoin Sidechains
Bitcoin sidechains have surfaced as effective solutions for enhancing Bitcoin’s functionality without modifying the base layer. These protocols are poised to serve as powerful drivers for BTCfi’s expansion, especially as Bitcoin surpasses $100,000, capturing over 60% of the total crypto market share and navigating a new regulatory climate with the first “pro-crypto” US administration.
Challenges and Opportunities in BTCfi
Currently, the market for Bitcoin DeFi is in its infancy; as of November 2024, only 0.8% of Bitcoin’s circulating supply is being used for DeFi applications, according to Galaxy Digital. While Bitcoin’s market capitalization is approximately $2 trillion, merely $7 billion is tied up in BTCfi TVL.
Investment Potential in Bitcoin Ecosystem
This current level of usage underscores the great potential that lies ahead. The Bitcoin Layer 2 infrastructure has expanded sevenfold from 2021 to November 2024. Investments into Bitcoin sidechains have already exceeded $447 million, with around $174 million allocated in Q3 2024, paving the way for significant growth in 2025. This influx of funding is expected to lead to successful launches and innovations, enhancing user choices and overall value.
Conclusion: The Future of Bitcoin DeFi
With Bitcoin-native solutions emerging, users will not have to rely on third parties or Bitcoin-agnostic platforms, allowing for greater value generation for principled BTC holders. The evolving Bitcoin finance environment promises exciting opportunities, aligning more closely with Bitcoin’s foundational principles and cultivating a positive cycle of adoption.
Perspective by: Brendon Sedo, initial contributor of Core DAO.
This article is intended solely for informational purposes and should not be considered legal or investment advice. The views expressed herein are solely those of the author and do not necessarily represent the views of Cointelegraph.
