BTCFi: Unlocking the Potential of Bitcoin

Bitcoin, as an asset worth over $1 trillion, has long been underutilized. It is estimated that 99% of Bitcoin is idle, merely stored in wallets as a store of value. This stands in stark contrast to Ethereum, where a large amount of ETH is actively deployed in DeFi and staking, creating a vibrant on-chain economy.

BTCFi( Bitcoin DeFi) aims to activate these dormant capitals. It intends to transform Bitcoin from a passive asset into a productive asset, allowing holders to earn returns through BTC or use it for DeFi applications. Essentially, BTCFi seeks to bring the transformation that DeFi has brought to Ethereum to Bitcoin: converting static assets into sources of income and becoming the cornerstone for further innovation.

Institutional Demand Drives BTCFi Development

Institutional interest in BTCFi is surging. With several large asset management companies approved to launch spot Bitcoin ETFs, BTC has officially entered mainstream portfolios. Institutions have viewed Bitcoin as a strategic reserve asset, but they are also sensitive to yields.

BTCFi provides new options for institutions. By borrowing, staking, or using Bitcoin as collateral, institutions can now unlock the earning potential of BTC. An annual return rate of 3%-5% holds significant value when managing billions of dollars. Some decentralized protocols even offer annual yields of 10%-20%, making this opportunity even more attractive.

If BTC can provide stable and low-risk returns while retaining the potential for price appreciation, it will not only be a reserve asset but is also likely to become a monetary anchor point for DeFi. Just as U.S. Treasuries support traditional capital markets, Bitcoin has the potential to become the underlying asset for yields in crypto finance, setting benchmarks for all areas from lending rates to DeFi protocol valuations.

The infrastructure of BTCFi is becoming increasingly完善

The BTCFi ecosystem is rapidly developing, launching several new products and frameworks designed specifically for institutions:

• Compliant custody and liquidity packaging: Companies like Fidelity Digital Assets and Coinbase Custody support participation in DeFi under strict compliance. Emerging liquidity custody tokens (, such as BounceBit's BBTC), enable institutions to hold BTC under compliant custody while deploying it on-chain to earn yields.

• ETF and Yield Integration Products: Europe has launched interest-bearing Bitcoin ETP. BounceBit Prime combines tokenized US Treasury with BTC yield strategy to provide double returns for traditional investors. SatLayer has introduced a decentralized insurance tool backed by interest-bearing BTC.

• Protocol maturity improvement: The total locked value of BTCFi protocols such as Babylon and Lombard has surpassed several billion dollars, has passed security audits, and is advancing towards SOC2 compliance. These initiatives have established credibility for large global capital allocators.

Technological breakthroughs drive BTCFi explosion

The development of BTCFi is attributed to the technological upgrades, improved infrastructure, and clearer regulations of the Bitcoin ecosystem:

• The Taproot upgrade enhances the privacy, scalability, and programmability of Bitcoin, laying the foundation for more complex financial applications.

• Concepts like BitVM are expected to enable Ethereum-like smart contract functionalities on Bitcoin.

• Layer-2 networks such as Stacks, Rootstock, Merlin Chain, and BOB Rollup have introduced smart contract capabilities to Bitcoin.

• The Babylon protocol introduces Bitcoin staking to protect other chains, attracting over 57,000 BTC( approximately 6 billion USD).

• The explosion of Ordinals and BRC-20 proves the demand for more diverse uses of Bitcoin by users.

These advancements together build a complete technology stack, making BTCFi a reality. In the coming years, this trend may accelerate further.

BTCFi Ecosystem Scenarios

The goal of BTCFi is to transform Bitcoin from a passive store of value into an actively deployed financial asset within DeFi. Its lifecycle typically begins with BTC holders transferring their assets to a bridge or custodian, issuing a 1:1 tokenized version. This wrapped BTC can be integrated with smart contracts and DeFi protocols.

At the asset level, multiple projects are committed to expanding the functionality of BTC:

• Solv Protocol enables BTC to be used as cross-chain yield-bearing collateral through SolvBTC and staking abstraction layer.

• Maple Finance collaborates with CoreDAO to launch lstBTC, utilizing Core's dual staking mechanism.

• BitLayer provides a trust-minimized Bitcoin native Layer-2 environment.

• IXS provides real-world returns based on BTC through a compliant financial structure.

• Projects like Botanix introduce EVM compatibility, expanding the programmability of Bitcoin.

With the improvement of infrastructure, BTC can be used as collateral. For example, on bitSmiley, BTC can be used to mint stablecoins. Emerging staking models like Babylon also allow native BTC to participate in securing PoS networks and earn rewards.

Throughout the process, BTC holders maintain economic exposure to Bitcoin price fluctuations while earning returns from DeFi protocols. These positions are reversible, and users can exit at any time.

The ecosystem is supported by a diverse range of profit models, including lending interest spreads, transaction fees, and staking reward sharing. Some protocols also incentivize usage with native tokens. These models collectively demonstrate how the BTCFi protocol activates idle Bitcoin while establishing a sustainable revenue base.

As more BTC enters this layered system, it will not only circulate but also compound, generating profits and supporting a Bitcoin-centered parallel economy.