Will 2025 become the year of Bitcoin DeFi?

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Bitcoin-native decentralized finance (DeFi) will be among the hottest themes in 2025 as institutional Bitcoin (BTC) adoption accelerates and its DeFi ecosystem matures, several industry executives told Cointelegraph.

The growth potential for BTC staking is especially strong, with a total addressable market in the hundreds of billions of dollars, two of the executives said. As of Dec. 30, Bitcoin staking commands roughly $5.5 billion in TVL, according to Staking Rewards.

“Everything aligns for Bitcoin staking being a significant market,” Matt Hougan, Bitwise’s head of research, told Cointelegraph.

“There’s a lot of demand for Bitcoin yield,” Hougan added. “Even if you’re getting a 3% yield, it’s attractive compared to other options.”

Hougan estimates Bitcoin staking represents a $200 billion market opportunity. More generally, Bitcoin DeFi’s total value locked (TVL) could increase by approximately 300x, Alexei Zamyatin, co-founder and CEO of Build on Bitcoin, told Cointelegraph.

“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.

Institutional adoption

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,” Dean Tribble, CEO of layer-1 network Agoric, told Cointelegraph.

Some protocols are particularly well-positioned to benefit. 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 Dec. 30, Babylon’s and Eigenlayer’s TVLs exceed $5 billion and $15 billion, respectively, according to data from DefiLlama.

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. It stakes to Core, a Bitcoin L2, and pays upward of 5.65% APR as of Dec. 30, according to Valour’s website. Staking is not yet permitted for Bitcoin ETFs in the United States.

“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 Dec. 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.

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,” Jacob Phillips, Bitcoin staking protocol Lombard’s co-founder and head of strategy, told Cointelegraph.

Phillips foresees Bitcoin’s maturing DeFi ecosystem eventually helping cement its status as the world’s reserve currency.

“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.

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