FameEX Hot Topics | CMC Research and Footprint Analytics Report: Bitcoin's Role in DeFi is Shifting

A joint study by CMC Research and Footprint Analytics reveals that Bitcoin's role in decentralized finance (DeFi) has significantly evolved, shifting from its original use as a peer-to-peer currency to becoming a key player in the DeFi ecosystem. Technological innovations like Rootstock and Taproot are enabling Bitcoin to support more advanced financial applications, including decentralized exchanges and smart contracts.

The report emphasizes the importance of Taproot, which, through Merklized Alternative Script Trees (MAST), condenses complex transactions into a single hash. This reduces transaction fees and memory usage, improving the efficiency of Bitcoin’s smart contracts. While Taproot itself is not a DeFi solution, its upgrade enhances Bitcoin’s capability to handle more intricate transactions, laying the groundwork for future DeFi developments on the network.

As of September 2024, the total value locked (TVL) in Bitcoin-based DeFi projects reached $1.07 billion, a remarkable 5.7x increase since January. While Ethereum has traditionally dominated the DeFi space, Bitcoin is quickly emerging as a strong competitor. According to the study, Bitcoin’s superior security and decentralized framework make it an appealing platform for DeFi projects, despite existing challenges like scalability and transaction speed. The report highlights that Bitcoin’s unmatched security framework serves as the backbone of the BTCFi ecosystem, ensuring that developments align with its core values.

To overcome scalability issues, innovations like layer two (L2) solutions—such as the Lightning Network—and sidechains like Core and Merlin Chain are enabling Bitcoin to manage DeFi activities without sacrificing security or decentralization. According to data from CMC Research and Footprint, Core currently leads among Bitcoin-based DeFi platforms, accounting for 27.6% of TVL across all Bitcoin L2 solutions. Other notable platforms include Rootstock, Merlin Chain, and Sovryn, which allow Bitcoin holders to engage in DeFi activities such as lending, borrowing, and yield farming.

Additionally, wrapped assets like WBTC are enabling Bitcoin holders to access Ethereum’s broader DeFi ecosystem, even as Bitcoin’s native DeFi space continues to grow. The researchers are optimistic about Bitcoin’s future in DeFi, predicting continued growth as technical challenges are addressed and regulatory frameworks adapt. Key innovations such as Discreet Log Contracts (DLCs) and improved interoperability with Ethereum are expected to play critical roles in expanding Bitcoin’s presence in DeFi. As the ecosystem matures, it is likely to attract more attention from both retail and institutional investors, potentially reshaping the cryptocurrency landscape.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.