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2025 is the year when Bitcoin (BTC) will reach its turning point. Historically regarded as a “store of value,” its role in decentralized finance has been minimal, capturing only close to 0.3% of its market cap compared to Ethereum (ETH) dominant position. Ethereum’s programmability has made it the natural home for DeFi, but Bitcoin’s $2 trillion market cap and unmatched security present an untapped opportunity ripe for investment and success.
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Key advancements, including BitVM, a proposed system that allows complex computations and smart contracts to be executed on the Bitcoin blockchain, and Bitcoin staking protocols like Babylon, are now reshaping this narrative. These innovations can unlock Bitcoin’s dormant capital and create financial solutions that attract both retail and institutional investors. With venture capital flowing into Bitcoin DeFi projects and forecasts predicting a $47 billion Bitcoin layer-2 ecosystem, 2025 is poised to be the year Bitcoin asserts its position in the DeFi space.
Bitcoin’s emerging opportunity
Ethereum currently dominates DeFi due to its smart contract capabilities and dynamic ecosystem, capturing over half of the total value locked in crypto. Bitcoin, in comparison, has had a limited role in DeFi as it’s been constrained by its lack of programmability and slow block times.
Recent advancements aim to change that, though, and developers are positioning Bitcoin as more than an asset. Merging Bitcoin’s liquidity with Ethereum’s programmability could create a hybrid DeFi model that combines Bitcoin’s security and dormant capital with Ethereum’s thriving ecosystem and drive for innovation. By leveraging proposals like BitVM and trustless bridges, hybrid blockchains could expand DeFi’s reach, unlocking new use cases and driving broader adoption across retail and institutional users.
Bringing scalability to Bitcoin
Developers have explored several approaches to bring programmability and DeFi capabilities to Bitcoin, each addressing specific challenges. Wrapped Bitcoin (WBTC) enables interaction with Ethereum’s DeFi ecosystem, but it is heavily centralized. To convert Bitcoin into WBTC or redeem WBTC for Bitcoin, users must go through an authorized merchant and comply with know your customer and anti-money laundering regulations. Users must also trust the custodian to manage and safeguard the Bitcoin reserves. This is where BitVM comes in to offer a breakthrough, with two main objectives being enabling true Bitcoin rollups and trust-minimised Bitcoin bridges. BitVM introduces the ability to execute programs on Bitcoin without requiring protocol changes
In practice, this means BitVM allows Bitcoin to support complex decentralized applications and financial operations, such as lending or token swaps. By bridging BTC to a Bitcoin-secured layer-2 in a trust-minimized way, we are able to dramatically increase utility while preserving core principles of security and decentralization.
BitVM positions Bitcoin as more than a store of value. It paves the way for Bitcoin to play a central role in DeFi, combining utility and trust to meet the demands of an evolving financial landscape.
The opportunity for retail and institutional investors
Before 2025, Bitcoin’s role in DeFi has been slowly gaining traction and platforms like Babylon are already facilitating billions in staking deposits. A large pool of Bitcoin holders are eager to put their assets to work, earning yields through BTC staking. Until now, limited technology and infrastructure, along with a lack of trust-minimized solutions, have been significant barriers. However, this surge in activity highlights growing confidence among investors in Bitcoin’s potential to unlock new financial opportunities in 2025.
Bitcoin’s unmatched $2 trillion market cap, robust security, and global trust mean it is uniquely positioned to bridge the gap for retail and institutional investors who have previously avoided DeFi due to concerns about regulation or risk. Its scale and reputation provide a foundation for the mainstream adoption of DeFi.
Bitcoin DeFi is now a movement. With key innovations and a growing TVL, it can compete, and possibly surpass Ethereum in the DeFi space. As we get further into 2025, the narrative is shifting. Those who recognize Bitcoin’s unlocked potential now will be poised to benefit as the ecosystem continues to evolve.
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Dominik Harz
Dominik Harz is the co-founder of BOB (“Build on Bitcoin”), a Hybrid Layer-2 that combines the best of Bitcoin and Ethereum to create the home for Bitcoin DeFi. As a technical expert, Dominik pioneered the idea of intent-based bridging for Bitcoin and is bringing BitVM to a practical implementation. He has been a key contributor to DeFi and smart contracts R&D since 2016, most recognized for his pioneering work on DeFi security, stablecoins, and smart contracts. With a passion for building decentralized systems, Dominik holds a PhD in computer science from Imperial College London.
