Bitcoin-based decentralized finance (DeFi) projects are narrowing their focus to institutional investors and long-term holders as a broad market liquidity contraction reshapes the sector, according to Richard Green, director of institutions and ecosystem at Rootstock Labs, the investment arm of the Bitcoin layer-2 network Rootstock ($RIF).
Market Contraction Reshapes DeFi Strategy
In an interview with The Block, Green explained that as significant funds have exited the DeFi market, core customer segments—including crypto-native traders and hedge funds—have substantially reduced their activity. The DeFi sector is currently shrinking due to a large-scale decrease in overall liquidity, forcing projects to adapt their strategies.
“The overall market has become smaller, but there is still sufficient liquidity and demand within specific areas,” Green said. As a result, Bitcoin DeFi projects are concentrating on groups with clear, sustained demand—such as institutions, long-term Bitcoin holders, and operators of specific yield strategies—rather than attempting to serve the entire market.
Data Confirms Broader DeFi Downturn
The shift comes amid a steep decline in the total value locked (TVL) across DeFi protocols. Data from The Block indicates that TVL has fallen from approximately $180 billion in October 2023 to around $70 billion today, representing a drop of more than 60% in roughly six months. This contraction has prompted a reevaluation of target audiences across the industry.
Why This Matters for Bitcoin DeFi
The pivot toward institutional users and long-term holders represents a strategic maturation for Bitcoin DeFi. Rather than chasing retail volume and speculative trading, projects are now prioritizing stability and predictable demand. This approach may help build more sustainable infrastructure, but it also signals that the sector is still searching for a product-market fit beyond the bull market cycles.
For investors and users, this means that access to Bitcoin DeFi products—such as lending, borrowing, and yield generation—may become more tailored to accredited or sophisticated participants, potentially limiting retail participation in the near term.
Conclusion
Rootstock’s commentary reflects a broader recalibration in the DeFi space, where liquidity constraints are forcing projects to specialize. By focusing on institutions and long-term Bitcoin holders, Bitcoin DeFi projects aim to weather the current downturn while building foundations for more resilient growth. The coming months will reveal whether this targeted approach can sustain the sector until broader market conditions improve.
FAQs
Q1: Why are Bitcoin DeFi projects focusing on institutions now?
A: Due to a sharp drop in overall market liquidity, many retail and speculative traders have reduced activity. Institutions and long-term Bitcoin holders offer more stable demand, making them a more reliable user base during a market contraction.
Q2: What is Rootstock and how does it relate to Bitcoin DeFi?
A: Rootstock ($RIF) is a Bitcoin layer-2 network that enables smart contracts and DeFi applications on Bitcoin. Rootstock Labs is its investment arm, supporting projects that build on the network.
Q3: How much has DeFi TVL declined recently?
A: According to The Block, total value locked across DeFi protocols fell from approximately $180 billion in October 2023 to around $70 billion today, a decline of over 60%.
