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Bitcoin’s all-time high of $100,000 at the end of last year was a fever dream. It was the peak of an epic bull run that was long-awaited, and since then, the US has considered a Bitcoin (BTC) federal reserve, and even pension funds are dabbling in the crypto space. Whilst this is good for Bitcoin as an asset, it highlights an urgent need for Bitcoin to do and be more for the growing world of people turning their attention to the chain.
Last year was a year of Bitcoin possibility—an exploration of the routes to achieving DeFi built on Bitcoin, and Trump’s choice to use WBTC for the reserve reaffirmed what we’re all thinking about Bitcoin. It’s a fantastic store of value, but when it comes to utility, Ethereum (ETH) still has the upper hand, and with more eyes on the chain than ever, Bitcoin has some catching up to do.
The current space is not void of developers, 2024 saw positive progress in Bitcoin DeFi development, which has included major headway in native solutions that would give users the ability to lend, take part in yield farming, and other DeFi services that we are currently missing on Bitcoin. These ‘native’ solutions built directly on Bitcoin blockchain offer unique advantages in terms of security and decentralization.
So there’s no doubt that DeFi on Bitcoin is not just a possibility—it’s a reality. But, for Bitcoin to truly evolve, the action must shift from theory to building accessible and easy-to-understand projects that offer tools and DeFi functionalities for a broader audience. The key is not about the possibility of Bitcoin DeFi, but the simplicity with which we can build an environment that prioritizes the user experience and consequently accelerates its adoption.
Others have done it—how can Bitcoin?
We know Ethereum was designed to support a wide range of DeFi functionalities via smart contracts: Ethereum Virtual Machine, which enables complex logic; layer-2 solutions, which enhance scalability; and its fixable programming, which allows for customizable applications. Ethereum was built so users can lend and borrow assets, trade on decentralized exchanges like Unisawp or SushiSwap, engage in yield farming, and more.
Bitcoin’s strength lies in its secure store of value—but unfortunately for many, that’s where it ends. Bitcoin, many still perceive, has stark limitations for users when it comes to scaling up and doing more with the asset. Ethereum, on the other hand, has drawn millions of users by offering a healthy and bustling ecosystem of DeFi protocols. To maintain this relevance and attract the next generation of crypto users, Bitcoin must move beyond being a mere passive store of value. It needs to provide users the same opportunities that chains like Ethereum do.
The developer community is well aware of this, which is why we have seen a wave of new projects and innovations increasing utility to the Bitcoin ecosystem. Layer-2s and rollups, for example, projects like BOB are bringing the power of Ethereum’s DeFi tools to Bitcoin by bridging to an EVM, protocols like Babylon are enabling Bitcoin staking with onchain yields, and Mazo’s full-featured platforms for Bitcoin, allowing for faster transactions and more complex smart contracts. Additionally, new protocols are emerging that are enabling a whole new way of building functionality directly on Bitcoin’s layer-1, using inscriptions and ordinals. Together, these projects are expanding the use-cases of Bitcoin.
Equally as important, as Bitcoin’s DeFi capabilities expand, its unparalleled liquidity becomes even more relevant. Unlike other ecosystems, Bitcoin offers the largest liquidity with inherent stability.
Bitcoin’s liquidity significance
While Ethereum currently dominates the DeFi narrative with its rich ecosystem of dApps and developers, Bitcoin holds a uniquely powerful advantage: its liquidity. Despite its relatively limited DeFi functionality, Bitcoin’s market capitalization is over $2 trillion as of January 2025. Bitcoin’s liquidity pool isn’t just large; it’s uniquely stable and trusted.
Liquidity is the ultimate lifeblood of any financial ecosystem, and in DeFi, it plays a critical role. Liquidity pools and automated market makers enable users to trade assets directly on the blockchain without intermediaries. By contributing their crypto assets to these pools, users earn rewards from transaction fees while supporting the overall health of the system.
This is where Bitcoin’s vast liquidity becomes a game-changer. It enables users to engage with Bitcoin DeFi while benefiting from more stable prices, reduced risks, and simpler interactions. By eliminating the need to worry about liquidity, Bitcoin creates an ecosystem that is more accessible and reliable for everyone. This unmatched liquidity is Bitcoin’s core competitive advantage—one that many other blockchains cannot replicate. The potential to combine Bitcoin’s unparalleled liquidity with new technological innovation is what will make the next evolution of Bitcoin so significant.
Simplifying Bitcoin DeFi for mainstream adoption
Currently, for many, engaging with Bitcoin DeFi requires navigating a complex web of transactions and technical jargon. This is not a scalable model, which is why we need to move towards something simpler.
However, there are new developments that are beginning to address this problem. By utilizing advancements in Bitcoin’s scripting capabilities, some developers are now able to create systems that significantly reduce the complexity of trading or executing complex financial transactions. With new solutions, users can now initiate more advanced interactions directly on the Bitcoin network, unlocking features such as peer-to-peer trading without requiring the user to move off the Bitcoin blockchain.
Developing systems that make it easy to engage in trading, lending, or yield farming without users having to navigate through complex technical hurdles is transformational for how users interact with Bitcoin.
What’s next?
Currently it seems “Bitcoin DeFi” is this year’s hot topic. Its transformation from a passive store of value to a dynamic hub for decentralized finance is already underway.
We have seen how its liquidity forms a solid foundation, providing stability and security, while developers continue to create innovative solutions like layer-2s and advanced scripting capabilities. However, the current complexities surrounding Bitcoin DeFi are preventing it from reaching its full potential. To unlock Bitcoin’s true power, it is crucial to build a robust, self-sufficient DeFi ecosystem that incorporates all the necessary functionalities natively on its own network. This will enable Bitcoin to evolve beyond a store of value, transforming it into a versatile and functional financial tool.
