Bitcoin DeFi presents $1T untapped opportunity

Bitcoin’s (CRYPTO:BTC) role in decentralised finance (DeFi) is expanding as the cryptocurrency evolves beyond being a store of value, according to a Binance Research report published Thursday.

Analyst Moulik Nagesh emphasised that the Bitcoin network is "developing into a broader decentralised finance ecosystem with the emergence of Bitcoin DeFi."

Currently, only 0.8% of Bitcoin’s supply is utilised within DeFi applications, highlighting significant growth potential.

The report noted that Bitcoin DeFi unlocks capital efficiency through financial tools such as lending, staking, stablecoins, and decentralised exchanges (DEXs).

This underutilisation presents an untapped opportunity estimated to be worth as much as $1 trillion, according to industry analysts like Julian Love of Franklin Templeton Digital Assets.

Despite its growing importance in DeFi, Bitcoin faces challenges due to its lack of "native programmability" compared to smart contract-based Layer 1 networks like Ethereum (CRYPTO:ETH).

Binance Research pointed out that Bitcoin’s Layer 2 solutions are essential for scaling its DeFi capabilities.

Layer 2 platforms, which operate on top of the base blockchain, need greater adoption and liquidity incentives to overcome current limitations.

The report also raised concerns about Bitcoin’s long-term security model.

As block rewards halve over time, miner incentives may diminish, posing sustainability challenges for the network.

The success of Bitcoin DeFi will depend on further development of Layer 2 technologies and alignment with Bitcoin’s unique value proposition.

Bitcoin’s evolving role in DeFi aligns with broader trends in the cryptocurrency market.

In 2024, total value locked (TVL) in DeFi surged by nearly 120%, driven by increased institutional adoption and regulatory clarity.

However, Bitcoin remains underrepresented in this sector compared to other blockchains like Ethereum and Solana (CRYPTO:SOL).

At the time of reporting, the Bitcoin (BTC) price was $81,852.23.