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Opinion by: Brendon Sedo, Core DAO initial contributor
Bitcoin is outgrowing the “digital gold” narrative. The primary driver of this shift is the rise of Bitcoin DeFi (BTCfi), which looks beyond the mere store-of-value use cases.
In 2024, Bitcoin (BTC) became a natively yield-generating asset and the centerpiece of Ethereum-style decentralized finance ecosystems. 2025 is when that kindling can grow its flame on innovative Bitcoin sidechains.
Most past attempts to tap Bitcoin’s value as a productive asset required significant changes to its base layer. That’s a big reason they failed. The Bitcoin layer 1 is not designed for much change, leaving most Bitcoiners to merely hodl and not do much else. The result is that Bitcoin remained underutilized as a network and an asset.
Bitcoin sidechains have emerged as the perfect solution to all these problems, scaling Bitcoin’s utility without altering or being limited by the base layer. Naturally, these protocols will be the most potent catalyst for BTCfi’s growth, especially with BTC surpassing $100,000, constituting over 60% of the total crypto market share, and entering a new regulatory landscape with the first “pro-crypto” US government regime.
Scaling Bitcoin, a productive asset
Per Hal Finney, “Bitcoin itself cannot scale to have every single financial transaction […] included in the blockchain.” That’s why there’s a need for a secondary level of payment’ in his view.
For a long time, the blockchain space ignored Finney’s call to action and prioritized innovation that isolated Bitcoin. However, innovations previously limited to chains like Ethereum are now crossing over to the world of Bitcoin. Sidechains, rollups and other scaling solutions offer more options for holders who want Ethereum-style utility while remaining aligned with Bitcoin. This prepared the ground for BTCfi, where holders can access a range of income-generating solutions like staking, lending and derivatives.
The industry is, however, still in the early innings of this revolution in Bitcoin. As of November 2024, merely 0.8% of its circulating supply is utilized for DeFi use cases, according to Galaxy Digital. Out of Bitcoin’s roughly $2 trillion market cap, less than $7 billion comprises BTCfi TVL.
While this may appear unencouraging, it highlights the massive remaining opportunity. Bitcoin L2 infrastructure scaled 7x from 2021 to November 2024.
Recent: Bitcoin DeFi TVL up 2,000% amid bumper 2024 for BTC price, adoption
More importantly, it has accounted for a sizable share of new liquidity flowing into BTC, besides institutional products like exchange-traded funds (ETFs).
Even if the supply of Bitcoin in BTCfi platforms and sidechains grows by 0.25% annually, the sector will have a total addressable market of $44 billion to $47 billion by 2030, according to Galaxy Digital. However, as Bitcoiners know, this is a conservative estimate and would be accelerated by accelerating BTC price action or even more Bitcoin DeFi adoption.
VCs, for one, have started to recognize the potential of Bitcoin sidechains, investing over $447 million already, according to Galaxy Digital. Of this, about $174 million was invested in Q3 2024, setting the stage for more explosive growth in 2025. More funding for early-stage projects will ensure more successful launches, innovations, choices for users, and overall value.
As Bitcoin-native solutions provide access to productive use cases for Bitcoin, users will no longer need to rely on trusted intermediaries and Bitcoin-agnostic smart contract platforms. Sacrifices that were necessary to expand the utility of Bitcoin in the past will no longer be required. That can unlock substantial value for principled BTC holders and even the Bitcoin network itself.
Yields on Bitcoin for Bitcoin
So far, bridging to Turing-complete Ethereum Virtual Machine (EVM) chains has been a go-to way to facilitate yields and other financial use cases on Bitcoin. For example, the wrapped Bitcoin (WBTC) market on Ethereum is more than $10 billion. While solutions like WBTC have been suitable for some, many Bitcoin holders prefer not to entrust custodians with their capital or rely on chains like Ethereum, which do not align with Bitcoin’s consensus principles or support the network at all.
BTCfi, defined by Bitcoin-aligned and Bitcoin-powered infrastructure, is a solution from which both WBTC users and Bitcoin purists can benefit. Users who are already accustomed to Ethereum’s smart contract sophistication can continue to enjoy that EVM experience while also growing closer to Bitcoin’s roots. Principled Bitcoin users can get more options for their BTC’s utility if the sidechain aligns with the base network.
Bitcoin holders also gain access to BTC derivatives superior to Ethereum-native solutions like WBTC. Yield-bearing BTC derivatives on Bitcoin-aligned sidechains are a 100x improvement, offering self-custody and previously unavailable yield sources to Bitcoin holders.
Overall, BTCfi can be much more significant. Not just compared to where it is now, but also vis-a-vis EVM and SVM-based DeFi. Bitcoin sidechains are already driving this shift, and will continue to do so throughout 2025. All that is needed is the right approach and consistency regarding development and product pipelines.
For BTCfi, the path is clear: Deliver use cases with product-market fit to Bitcoin holders on Bitcoin-powered platforms. This will lay the foundation for generating even more value for the Bitcoin community as a whole. And ultimately, there will be a positive flywheel of Bitcoin adoption.
The institutional side led headlines in 2024. Now, it’s time for the native, onchain camp to show its strength and deliver.
Opinion by: Brendon Sedo, Core DAO initial contributor.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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