Hey Edge readers,

Bitcoin DeFi, often referred to as BTCFi, is rapidly expanding as developers look to replicate the significant growth seen in Ethereum’s DeFi sector. This week, we delve into what BTCFi means and feature the emerging protocols that are gaining traction in this space.

Here's what we're covering this week:

1. What is BTCFi? 🟠

   We explore the state of Bitcoin DeFi.

2. Degen Responsibly feat. IPOR 🎙️

   Tune in to learn about interest rate swaps in DeFi.

3. Ethereum Spot ETFs 🗞️

   zkSync airdrop, restaking protocols and more.

Stay sharp. 🫡

-The Exponential team

What is BTCFi?

Bitcoin DeFi, or BTCFi, represents an exciting and rapidly growing sector that introduces DeFi capabilities to the Bitcoin ecosystem. By leveraging Bitcoin’s robust security and extensive network, BTCFi provides secure options for BTC holders to generate yield through DeFi activities.

Why BTCFi matters?

Bitcoin, with a market cap of approximately $1.3 trillion, has historically seen limited on-chain activity beyond basic transactions. Recent innovations such as Ordinals and Runes have begun to explore new use cases, but the potential for Bitcoin in DeFi remains largely untapped.

Since the beginning of 2024, the total value locked (TVL) in Bitcoin DeFi protocols has surged more than 9.5x, approaching nearly $2 billion—yet this is still only about 0.14% of Bitcoin’s total market cap. In contrast, Ethereum’s DeFi ecosystem has a TVL of $75 billion, representing about 17% of its market cap, underscoring a significant growth opportunity for BTCFi.

BTCFi not only unlocks significant value within Bitcoin’s market cap but also introduces new yield-generating opportunities for BTC holders. More than just HODLing, BTCFi opens up native ways for holders to do more with their BTC, including staking, lending, market making, and more. As BTCFi protocols evolve, they could rival or even surpass the utility of established Ethereum-based DeFi services, contributing to a more diversified and resilient DeFi ecosystem.

Emerging BTCFi protocols

We’re keeping an eye on several key players driving innovation in the BTCFi space:

Layer 2s / Sidechains

• Stacks: Stacks is a sidechain that enables smart contracts and decentralized apps to run on Bitcoin. It uses a unique consensus mechanism called Proof of Transfer, linking its operations directly to Bitcoin.

• Liquid Network: Operates as a sidechain to Bitcoin, facilitating faster and more confidential transactions while maintaining the security of the main blockchain.

• Rootstock: Brings Ethereum-compatible smart contracts to the Bitcoin network, expanding functionality without compromising the core principles of Bitcoin.

Staking / Restaking

• Babylon: A Cosmos-based network that uses Bitcoin staking to secure PoS networks, enhancing Bitcoin’s utility and engagement in the broader blockchain ecosystem.

• Bedrock & Lorenzo: These platforms focus on liquid restaking tokens like uniBTC and stBTC, enabling Bitcoin holders to participate in PoS staking while remaining liquid.

Bitcoin-native DeFi

• Solv: A unified yield and liquidity layer for major digital assets. SolvBTC is a liquid yield token that tokenizes the best CeFi and DeFi yields available for BTC.

• Sovryn: Built on the Rootstock (RSK) smart contract platform, Sovryn extends DeFi functionalities to Bitcoin without needing to wrap the token on other networks. Users can engage in lending, borrowing, and trading activities directly with their BTC.

As BTCFi continues to develop, we anticipate the emergence of novel ways for Bitcoin users to actively participate in DeFi, potentially matching the level of innovation seen in Ethereum’s DeFi sector.

In the news

• Ether Spot ETF approvals may be around the corner - Read

• Proposed Ether ETFs will not stake their ETH - Read

• zkSync expected to launch token this week - Read

• Solana restaking protocol hits $20M deposit cap in under an hour - Read

• Restaking protocol Kelp valued at $90M in latest round - Read 

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