As institutional Bitcoin adoption accelerates and its decentralized finance (DeFi) ecosystem matures, several industry executives predict that Bitcoin-native DeFi will be one of the hottest themes in 2025. This phenomenon is expected to bring forth immense growth potential for various sectors within the DeFi landscape.
Bitcoin Staking: A Growing Market Opportunity
The growth potential for BTC staking is particularly strong, 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," Matt Hougan, Bitwise’s head of research, told 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.
Maturity of the DeFi Ecosystem
Bitcoin DeFi’s total value locked (TVL) could increase by approximately 300x, according to Alexei Zamyatin, co-founder and CEO of Build on Bitcoin. This growth is largely driven by institutional adoption, with large Bitcoin DeFi users and funds eager to put their holdings to work earning yield.
"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
2024 saw Bitcoin surpass $100,000 per coin for the first time as investors poured more than $100 billion into spot BTC exchange-traded funds (ETFs). As a result, institutional adoption of crypto and regulators alike are expected to reinvigorate the entire crypto sector in 2025.
"Some protocols are particularly well-positioned to benefit," Hougan said. "Babylon, a Bitcoin layer-2 (L2) scaling network, and EigenLayer, a restaking protocol on Ethereum taking Wrapped Bitcoin as collateral, are seen as legitimate by institutions."
Protocols Poised for Growth
Babylon’s and Eigenlayer’s TVLs exceed $5 billion and $15 billion respectively, according to data from DefiLlama. These protocols are poised for growth due to their reasonable technology and institutional backing.
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.
ETFs and Staking
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 December 30.
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 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.
Emergence of Novel DeFi Strategies
As the DeFi ecosystem matures, novel strategies will emerge across the risk curve with Bitcoin as a collateral asset. From simple buy-and-hold strategies to basis trades and options strategies, these new strategies will further cement Bitcoin’s 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," Jacob Phillips, co-founder and head of strategy at Lombard, told Cointelegraph.
Conclusion
The growth potential for Bitcoin-native DeFi is immense, with institutional adoption driving the sector forward. As the ecosystem matures, novel strategies will emerge, further cementing Bitcoin’s status as a global reserve currency.
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Note: This article is for informational purposes only and should not be considered as investment advice. Always do your own research before making any investment decisions.