Unleashing the hidden power of Bitcoin defi: Exploring the untapped potential of the iceberg’s tip | Opinion
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Since its launch in 2009, Bitcoin has emerged as a safeguard against inflation, with some countries even adopting it as legal tender, such as El Salvador. In March 2024, the market value of Bitcoin’s circulating supply surpassed $1.4 trillion, making it the 8th most valuable asset globally, surpassing silver.
Despite Bitcoin’s dominance in the cryptocurrency market, a significant portion of Bitcoin remains inactive in user wallets. The limited scalability of the network and the lack of support for programmable smart contracts have hindered its potential for growth and the development of decentralized finance (defi) services on the Bitcoin network.
Efforts have been made by developers to enhance Bitcoin’s functionality and performance to make it suitable for defi. Upgrades like Segregated Witness (SegWit) in July 2017 and the Taproot upgrade in November 2021 have improved transaction time and block capacity. However, during the crypto winter, developers focused on building robust Bitcoin defi protocols.
For example, Casey Rodarmor launched Ordinals in January 2023, creating NFT-like inscriptions on the Bitcoin chain and opening a Bitcoin NFT market that could reach $4.5 billion by 2025. Rodarmor also introduced the Runes protocol, which allows the minting of fungible tokens like memecoins on Bitcoin. In the first week, users minted over 11,000 Runes tokens, accounting for 45% of Bitcoin transactions.
Additionally, layer-2 solutions like Stacks, launched in 2021, provide smart contract functionalities to Bitcoin. The Stacks Nakamoto upgrade, introduced in April 2024, reduces transaction processing time to 5 seconds and ensures 100% Bitcoin block finality. These developments are expanding Bitcoin’s utility and scalability, marking the beginning of the Bitcoin defi movement.
While the total value locked (TVL) in defi protocols surpassed $80 billion in February 2024, it’s important to note that this figure does not include any liquidity from Bitcoin reserves. The majority of funds in defi apps come from Ethereum, with almost 60% market dominance. If defi protocols could access even a fraction of Bitcoin’s market cap, the TVL would reach unprecedented levels.
According to a Spartan Research report, Bitcoin defi presents a 7-fold growth opportunity without considering additional liquidity influx. For example, in December 2023, Ethereum’s market capitalization was $270 billion, while its defi app TVL was $76 billion. In comparison, Bitcoin’s market capitalization was $850 billion, but its defi TVL was only $320 million. This suggests a $238 billion market opportunity for Bitcoin defi as of December 2023.
The potential of the Bitcoin defi market is far from fully realized. As more smart contract functionalities and scalable defi apps launch in 2024, the market is expected to expand further.
Protocols like Ordinals, Runes, and layer-2 networks like Stacks play a crucial role in the growth of Bitcoin defi. They allow users to access the untapped potential of Bitcoin reserves while benefiting from the security and decentralization of the underlying Bitcoin chain.
While some Bitcoin maximalists believe that memecoins and NFTs have harmed Bitcoin’s reputation and caused network congestion, emphasizing the playful aspect of crypto may be necessary to popularize Bitcoin defi and drive mass adoption.
Meme tokens could lead to increased developer activity and user participation in Bitcoin-based financial services such as lending, borrowing, trading, yield farming, staking, as well as GameFi and SocialFi protocols. These applications will contribute to realizing Nakamoto’s vision of an alternative financial system.
As we approach the defi summer, the true potential of Bitcoin defi will be revealed, allowing users worldwide to access Bitcoin-based permissionless financial services.
Read more: Investors must protect themselves from hidden defi costs in 2024 | Opinion
Mikhil Pandey is the co-founder and chief strategy officer of Persistence, a purpose-built layer-1 platform focused on maximizing yield and security through liquid staking and restaking. Persistence Labs offers various products in its ecosystem, including pSTAKE Finance and Dexter.
