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The year 2024 was significant for Bitcoin (BTC). For the first time, Bitcoin exceeded $100,000 per coin.
This unprecedented peak ignited renewed interest in cryptocurrency from both regulators and investors, leading to fresh discussions surrounding Bitcoin DeFi.
As Bitcoin continued to gain momentum, industry experts anticipated that decentralized finance (DeFi) applications specific to BTC would increase in the upcoming year.
Alexei Zamyatin, co-founder and CEO of Build on Bitcoin (BOB), informed Cryptonews that the initial wave of Bitcoin DeFi occurred in 2024.
“Teams began developing products last year involving emerging layer-2 (L2) scaling networks and DeFi protocols for Bitcoin,” Zamyatin stated. “However, this was merely the beginning, as all of these products are set to go live in 2025.”
Bitcoin Liquid Staking and Liquidity Options
Zamyatin clarified that the Bitcoin L2 Babylon will debut this year, establishing secure and straightforward pathways for users to engage in Bitcoin staking.
He mentioned that Bitcoin Secured Networks (BSN) will connect with the BOB L2 network, enhancing the development of Bitcoin liquid staking.
According to Zamyatin, the more BTC liquid staking tokens (LSTs) are utilized on chains like BOB, the more fees are generated on these chains, which then distribute a portion back to BTC stakers. This cycle likely attracts additional BTC into staking.
$3.5bn BTC staked so far
Let that sink in.
And we’re only just getting started. Still 700+ blocks to go. Cap-3 remains open.
For those who have already staked directly through the Babylon protocol, you can now visit our discord, verify your BTC address and secure… pic.twitter.com/p6ZIr7NByi— Babylon (@babylonlabs_io) December 12, 2024
LSTs representing claims on staked BTC had already reached $5.5 billion in total value locked (TVL) by January 1, 2025, according to stakingrewards.com.
Enabling Liquidity Without Selling BTC
Granite is another Bitcoin DeFi project set to launch in 2025. Granite is an autonomous liquidity protocol built on the Stacks Bitcoin L2 blockchain.
The protocol allows borrowers to obtain stablecoin loans using Bitcoin as collateral, without exposure to counterparty or rehypothecation risk.
Rena Shah, COO of Trust Machines – a collective of dedicated Bitcoin developers – informed Cryptonews that Granite enables Bitcoin holders to access liquidity without selling their Bitcoin.
The end of 2024 is approaching, but there is still time to join the @GraniteBTC waitlist.
2025, Bitcoin DeFi is coming.— Rena Shah (@renapshah) December 31, 2024
“DeFi hasn’t significantly impacted Bitcoin, but with the increased price volatility, more individuals are seeking options to leverage their Bitcoin without selling it,” Shah stated. “Granite finally allows Bitcoin users to unlock their assets through a DeFi protocol.”
Given the evolving Bitcoin DeFi sector, Shah added that Bitcoin could play a crucial role in mainstream DeFi adoption in 2025.
“With over a trillion dollars in BTC held across various wallets, the potential for Bitcoin staking services will be one of the most sought-after areas of Bitcoin for new and expanding firms looking to provide access to Bitcoin DeFi,” she remarked.
Bitcoin Adoption in Institutional Lending Protocols
While loans and staking are vital for retail investors, institutional DeFi lending platforms will incorporate Bitcoin derivatives as collateral this year.
Sidney Powell, CEO and Co-Founder of Maple Finance, informed Cryptonews that Maple Finance is integrating Lightning Bitcoin (LBTC) as collateral.
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In 2024, our High Yield pool delivered 16.5% net APY to lenders, always overcollateralized.
High Yield is positioned for an even stronger Q1 – deposit today to continue outperforming DeFi competitors. pic.twitter.com/MLzMGkgEu8— Maple (@maplefinance) December 30, 2024
“This reflects growing confidence in Bitcoin’s high liquidity and low counterparty risk,” Powell stated. “These developments highlight Bitcoin’s evolving role as a cornerstone asset in decentralized lending, derivatives, and automated market maker (AMM) ecosystems.”
Powell further believes that the adoption of Bitcoin in institutional lending protocols will continue to expand, with Bitcoin serving as collateral in decentralized undercollateralized loans.
“This trend reflects the broader integration of crypto into traditional finance, as institutions increasingly value blockchain’s transparency and efficiency,” he commented. “Moreover, new use cases like Bitcoin Ordinals are opening up innovative opportunities for asset tokenization and creative finance solutions linked to Bitcoin.”
Powell mentioned that use cases like these further demonstrate how Bitcoin is being utilized beyond traditional narratives of store-of-value and payments.
“With Bitcoin increasingly integrated into institutional DeFi lending markets, it’s poised to establish itself as a premier collateral asset within decentralized financial ecosystems,” he stated.
Improved UX Designs For Bitcoin DeFi Protocols
Beyond L2 solutions, projects are enhancing user experiences (UX) to make Bitcoin DeFi more accessible.
Matt Luongo, CEO of crypto venture production studio Thesis, revealed that Mezo – an economic layer for Bitcoin – is preparing a UX upgrade focusing on a concept known as “Cathedral and Bazaar.”
BitcoinFi will dominate 2025
— Mezo (@MezoNetwork) December 31, 2024
According to Luongo, the primary focus of Mezo’s offering will be an intuitive process for Bitcoin borrowing.
This will enable users to collateralize their BTC and access a line of credit through mUSD, Mezo’s native stablecoin. This feature is currently live on the Mezo testnet.
“Bitcoin Layer 2 solutions like Mezo will enhance scalability and unlock smart contract capabilities for Bitcoin-based DeFi applications,” Luongo added. “I expect many of the highly anticipated projects to be live in the market in 2025, providing a complete end-to-end Bitcoin DeFi experience.”
Challenges for Bitcoin DeFi
While 2025 holds promise, potential obstacles may hinder adoption. Powell explained that new tax regulations in the United States will likely impact Bitcoin DeFi this year, particularly for institutional participants.
“Stricter reporting requirements for crypto transactions may introduce added complexity for institutions leveraging Bitcoin in DeFi activities, such as using it as collateral in lending protocols or yield-generating strategies,” he remarked.
As a result, these changes may necessitate more detailed transaction monitoring and could trigger taxable events at multiple stages.
Nonetheless, Powell believes that clearer tax policies could encourage institutional adoption by alleviating regulatory uncertainty, which has long been a barrier for large-scale market players.
“Greater transparency and compliance could motivate institutions to engage more confidently with Bitcoin DeFi platforms,” he stated.
Retail investors may also be cautious regarding earning yield on Bitcoin.
Deven Soni, CEO of Matador Network, informed Cryptonews that “the biggest criticism of Bitcoin yield historically has been the centralization risk of platforms like Celsius and FTX.”
However, Soni noted that the emergence of decentralized platforms that allow users to access DeFi/yield while retaining custody of their crypto is something to look forward to this year.
The post Bitcoin DeFi Trends Predicted to Soar in 2025 appeared first on Cryptonews.
