The year 2025 promises to bring exciting developments in the world of decentralized finance (DeFi), with Bitcoin-native DeFi emerging as one of the hottest themes. As institutional adoption of Bitcoin accelerates, its DeFi ecosystem is expected to mature, opening up new opportunities for investors and users alike.
Growth Potential of BTC Staking
The growth potential of Bitcoin staking is particularly strong, with a total addressable market in the hundreds of billions of dollars. According to Matt Hougan, Bitwise’s head of research, "Everything aligns for Bitcoin staking being a significant market." Hougan estimates that Bitcoin staking represents a $200 billion market opportunity.
As of December 30, 2024, Bitcoin staking commands roughly $5.5 billion in total value locked (TVL), according to Staking Rewards. This number is expected to increase significantly as more investors and institutions become aware of the benefits of staking their Bitcoin holdings.
Institutional Adoption
In 2024, Bitcoin surpassed $100,000 per coin for the first time, with investors pouring over $100 billion into spot BTC exchange-traded funds (ETFs). This milestone is expected to spark renewed interest in crypto from institutions and regulators alike, reinvigorating the entire crypto sector in 2025.
Some protocols are particularly well-positioned to benefit from this trend. 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. As of December 30, 2024, Babylon’s and Eigenlayer’s TVLs exceed $5 billion and $15 billion, respectively, according to data from DefiLlama.
Staking and Restaking
Staking 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.
Some notable examples of staking protocols include Core, a Bitcoin L2, which pays upward of 5.65% APR as of December 30, according to Valour’s website. Staking is not yet permitted for Bitcoin ETFs in the United States, but Hougan notes that it may be allowed in Europe.
Liquid Staking Tokens (LSTs)
Liquid staking tokens (LSTs) representing claims on staked BTC are proliferating, enabling more complex DeFi use cases. As of December 30, 2024, Bitcoin LSTs command upward of $2.5 billion in total TVL, according to Staking Rewards.
Some notable examples of Bitcoin-native DeFi ecosystems include:
- RSK: A decentralized exchange (DEX) and lending protocol.
- Merlin: A derivatives protocol with a Bitcoin-native derivatives platform called Surf.
- Stacks: An all-in-one platform offering decentralized exchanges, lending protocols, and more.
Maturing DeFi Ecosystem
The maturing DeFi ecosystem is expected to help cement Bitcoin’s status as the world’s reserve currency. According to Jacob Phillips, co-founder and head of strategy at Lombard, a 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.
This development is expected to open up new opportunities for investors and users alike, with novel DeFi strategies emerging across the risk curve. From simple buy-and-hold strategies with yield-bearing Bitcoin assets to basis trades and options strategies, the possibilities are endless.
Conclusion
The year 2025 promises to be an exciting time for decentralized finance (DeFi) and Bitcoin-native DeFi in particular. With institutional adoption accelerating and the DeFi ecosystem maturing, new opportunities are emerging for investors and users alike.
As the market continues to evolve, it will be interesting to see how these trends develop and what new innovations emerge. Whether you’re a seasoned investor or just starting out, there’s never been a better time to explore the world of Bitcoin-native DeFi.
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