Bitcoin-Native Decentralized Finance (DeFi) on the Rise: Experts Weigh in on 2025’s Hottest Themes
As we step into the new year, the decentralized finance (DeFi) landscape is poised for significant growth, with several industry executives predicting that Bitcoin-native DeFi will be one of the hottest themes in 2025. The acceleration of institutional Bitcoin adoption and the maturation of its DeFi ecosystem are expected to drive this trend.
The Rise of BTC Staking
One area where growth potential is particularly strong is in BTC staking, with a total addressable market estimated to be in the hundreds of billions of dollars. As of December 30, Bitcoin staking commands roughly $5.5 billion in TVL (Total Value Locked), according to Staking Rewards.
"Everything aligns for Bitcoin staking being a significant market," said Matt Hougan, Bitwise’s head of research, in an interview with Cointelegraph. "There’s a lot of demand for Bitcoin yield. Even if you’re getting a 3% yield, it’s attractive compared to other options."
Hougan estimates that Bitcoin staking represents a $200 billion market opportunity.
A Growing Market Opportunity
More generally, the total value locked (TVL) in Bitcoin DeFi could increase by approximately 300x, according to Alexei Zamyatin, co-founder and CEO of Build on Bitcoin. "We have spoken with dozens and dozens of large Bitcoin DeFi users and funds keen to put their Bitcoin holdings to work earning yield," Zamyatin said.
This growth is driven in part by the increasing demand for yield-bearing assets. As Hougan noted, "Whether you’re getting 3% or 5%, it’s attractive compared to other options."
Institutional Adoption
The rise of institutional adoption will also play a significant role in driving the growth of Bitcoin DeFi. In 2024, Bitcoin surpassed $100,000 per coin for the first time as investors poured more than $100 billion into spot BTC exchange-traded funds (ETFs).
"Bitcoin’s all-time high will spark renewed interest in crypto from institutions and regulators alike and should reinvigorate the entire crypto sector in 2025," said Dean Tribble, CEO of layer-1 network Agoric.
Protocols Poised for Growth
Some protocols are particularly well-positioned to benefit from this growth. Babylon, a Bitcoin layer-2 (L2) scaling network, and EigenLayer, a restaking protocol on Ethereum taking Wrapped Bitcoin (WBTC) as collateral, are seen as legitimate by institutions, Hougan said.
"The tech seems reasonable, even from a high-level perspective," Hougan noted.
As of December 30, Babylon’s and Eigenlayer’s TVLs exceed $5 billion and $15 billion, respectively, according to data from DefiLlama.
Staking Bitcoin: A Growing Market
Staking Bitcoin involves locking BTC as collateral to secure Bitcoin L2s in exchange for rewards. Restaking involves taking a token that has already been staked and using it to secure other protocols simultaneously.
Additionally, staked BTC ETFs could catalyze institutional interest in 2025, Hougan said. In November, asset manager Valour launched a Bitcoin-staking ETF in Europe, which stakes to Core, a Bitcoin L2, and pays upward of 5.65% APR as of December 30, according to Valour’s website.
"Whether [staked BTC] makes it into an ETF structure in the United States, I’m not sure, but in Europe, definitely," Hougan said.
Maturing DeFi Ecosystem
Liquid staking tokens (LSTs) representing claims on staked BTC are proliferating, enabling more complex DeFi use cases. As of December 30, Bitcoin LSTs command upward of $2.5 billion in total TVL, according to Staking Rewards.
Some Bitcoin L2s — including RSK, Merlin and Stacks — already host Bitcoin-native DeFi ecosystems, including decentralized exchanges, lending protocols and all-in-one platforms such as Sovryn. Merlin even touts a Bitcoin-native derivatives protocol, Surf.
Novel DeFi Strategies
Soon, novel DeFi strategies will emerge across the risk curve with Bitcoin as a collateral asset, from simple buy-and-hold strategies with yield-bearing Bitcoin assets to basis trades and options strategies, according to Jacob Phillips, co-founder and head of strategy at Lombard’s Bitcoin staking protocol.
"The Bitcoin staking rate will become the ‘risk-free rate,’ flipping the US Treasury bill rate and becoming a benchmark for DeFi lending and borrowing," Phillips said.
The Future of Bitcoin-Native DeFi
As we look to 2025, it is clear that the future of Bitcoin-native DeFi holds much promise. With institutional adoption on the rise, a growing market opportunity in BTC staking, and a maturing DeFi ecosystem, we can expect significant growth in this space.
As Hougan noted, "The potential for growth is massive, and it’s an exciting time to be involved in this space."
Join the Conversation
What do you think about the future of Bitcoin-native DeFi? Share your thoughts with us on social media using the hashtag #BitcoinDeFi.
