Bitcoin DeFi Trends Predicated to Soar in 2025
Bitcoin’s performance in 2024 was remarkable, as it surpassed $100,000 per coin for the first time. This all-time high generated renewed interest in cryptocurrency from regulators and investors, leading to discussions about Bitcoin DeFi.
As Bitcoin gained more traction, industry experts predicted that specific use cases of decentralized finance (DeFi) related to BTC would increase in the coming year.
Alexei Zamyatin, co-founder and CEO of Build on Bitcoin (BOB), stated that the first wave of Bitcoin DeFi occurred in 2024. “Teams started developing products last year, including emerging layer-2 (L2) scaling networks and DeFi protocols for Bitcoin,” Zamyatin said. “But this was just the beginning, as all of these products will finally go live in 2025.”
Bitcoin Liquid Staking and Liquidity Options
Zamyatin explained that the Bitcoin L2 Babylon will launch this year, providing users with safe and easy channels to participate in Bitcoin staking. He noted that Bitcoin Secured Networks (BSN) will connect to the BOB L2 network, boosting the growth of Bitcoin liquid staking.
According to Zamyatin, the use of BTC liquid staking tokens (LSTs) on chains like BOB has already reached a total value locked (TVL) of $5.5 billion by January 1, 2025, as reported by stakingrewards.com.
Enabling Liquidity Without Selling BTC
Granite, another Bitcoin DeFi project, will be launched in 2025. Granite is an autonomous liquidity protocol built on the Stacks Bitcoin L2 blockchain. The protocol allows borrowers to take stablecoin loans using Bitcoin as collateral, without being exposed to counterparty or rehypothecation risk.
Rena Shah, COO of Trust Machines, a community of dedicated Bitcoin builders, stated that Granite enables Bitcoin holders to access liquidity without selling their Bitcoin. “DeFi hasn’t had a significant impact on Bitcoin, but with increased price volatility, more people are looking for ways to leverage their Bitcoin without selling it,” Shah said. “Granite finally allows Bitcoin users to unlock their assets through a DeFi protocol.”
Considering the maturing Bitcoin DeFi sector, Shah added that Bitcoin has the potential to play a crucial role in mainstream DeFi adoption in 2025. “With over a trillion dollars in BTC held across different wallets, the potential for Bitcoin staking services will be one of the most sought-after areas for new and expanding companies looking to provide access to Bitcoin DeFi,” she remarked.
Bitcoin Adoption in Institutional Lending Protocols
While loans and staking are important for retail investors, institutional DeFi lending platforms will incorporate Bitcoin derivatives as collateral this year. Sidney Powell, CEO and Co-Founder of Maple Finance, stated that Maple Finance will include Lightning Bitcoin (LBTC) as collateral.
“This reflects the growing confidence in Bitcoin’s high liquidity and low counterparty risk,” Powell said. “These advancements 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. “Additionally, new use cases like Bitcoin Ordinals are opening up innovative opportunities for asset tokenization and creative finance solutions linked to Bitcoin.”
Powell mentioned that such use cases further demonstrate how Bitcoin is being used beyond its traditional narratives of store-of-value and payments. “With Bitcoin increasingly integrated into institutional DeFi lending markets, it is poised to establish itself as a premier collateral asset within decentralized financial ecosystems,” he said.
Improved UX Designs For Bitcoin DeFi Protocols
In addition to L2 solutions, projects are working on 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, has prepared a UX upgrade focused on a concept called “Cathedral and Bazaar.”
According to Luongo, Mezo’s main focus will be to provide an intuitive process for Bitcoin borrowing. This will allow users to collateralize their BTC and access a line of credit via mUSD, Mezo’s native stablecoin. This feature is currently live on the Mezo testnet.
“Bitcoin Layer 2 solutions like Mezo will improve scalability and unlock smart contract capabilities for Bitcoin-based DeFi applications,” Luongo added. “I expect many highly anticipated projects to be available on the market in 2025, offering a complete end-to-end Bitcoin DeFi experience.”
Challenges for Bitcoin DeFi
Although 2025 holds promise, potential obstacles may slow down adoption. Powell explained that new tax regulations in the United States are likely to impact Bitcoin DeFi this year, especially for institutional participants.
“Stricter reporting requirements for crypto transactions could introduce additional complexity for institutions using Bitcoin as collateral in lending protocols or yield-generating strategies in DeFi activities,” he remarked.
As a result, these changes may require more detailed transaction tracking and could trigger taxable events at multiple stages.
On the other hand, Powell believes that clearer tax policies could promote institutional adoption by alleviating regulatory uncertainty, which has long been a barrier for large-scale market players.
“Greater transparency and compliance may encourage institutions to engage more confidently with Bitcoin DeFi platforms,” he said.
Retail investors may also be hesitant when it comes to earning yield on Bitcoin. Deven Soni, CEO of Matador Network, said that “the biggest concern with Bitcoin yield historically has been the centralization risk of platforms like Celsius and FTX.”
However, Soni noted that the rise of decentralized platforms that allow users to access DeFi and yield while maintaining custody of their crypto is something to look forward to this year.