As we step into the year 2025, several industry executives are predicting that Bitcoin-native decentralized finance (DeFi) will be among the hottest themes of the year. The growth potential for BTC staking is especially strong, with a total addressable market in the hundreds of billions of dollars. In this article, we’ll explore the key trends and developments that are expected to shape the future of Bitcoin DeFi.
Growth Potential for BTC Staking
The growth potential for BTC staking is significant, with several industry executives predicting a total addressable market in the hundreds of billions of dollars. As of December 30, 2024, Bitcoin staking commands roughly $5.5 billion in TVL (Total Value Locked), according to Staking Rewards.
"We believe that everything aligns for Bitcoin staking being a significant market," said Matt Hougan, Bitwise’s head of research. "There’s a lot of demand for Bitcoin yield, even if you’re getting a 3% yield, it’s attractive compared to other options."
Hougan estimates that the market opportunity for Bitcoin staking is around $200 billion.
Maturity of DeFi Ecosystem
The maturity of the DeFi ecosystem will play a crucial role in the growth of Bitcoin DeFi. As Alexei Zamyatin, co-founder and CEO of Build on Bitcoin, explained:
"We have spoken with dozens and dozens of large Bitcoin DeFi users and funds keen to put their Bitcoin holdings to work earning yield."
Zamyatin predicts that the total value locked (TVL) in Bitcoin DeFi could increase by approximately 300x.
Institutional Adoption
The institutional adoption of Bitcoin will be a key driver of growth for Bitcoin DeFi. In 2024, Bitcoin surpassed $100,000 per coin for the first time as investors poured more than $100 billion into spot BTC exchange-traded funds (ETFs).
"Bitcoin’s all-time high will spark renewed interest in crypto from institutions and regulators alike and should reinvigorate the entire crypto sector in 2025," said Dean Tribble, CEO of layer-1 network Agoric.
Some protocols are particularly well-positioned to benefit from institutional adoption. Babylon, a Bitcoin layer-2 (L2) scaling network, and EigenLayer, a restaking protocol on Ethereum taking Wrapped Bitcoin (WBTC) as collateral, are seen as legitimate by institutions.
"The tech seems reasonable, even from a high-level perspective," Hougan noted.
As of December 30, 2024, Babylon’s and Eigenlayer’s TVLs exceed $5 billion and $15 billion, respectively, according to data from DefiLlama.
Staking Bitcoin
Staking Bitcoin involves locking BTC as collateral to secure Bitcoin L2s in exchange for rewards. Restaking involves taking a token that has already been staked and using it to secure other protocols simultaneously.
Additionally, staked BTC ETFs could catalyze institutional interest in 2025. In November, asset manager Valour launched a Bitcoin-staking ETF in Europe. It stakes to Core, a Bitcoin L2, and pays upward of 5.65% APR as of December 30, according to Valour’s website.
Liquid Staking Tokens (LSTs)
Liquid staking tokens (LSTs) representing claims on staked BTC are proliferating, enabling more complex DeFi use cases. As of December 30, 2024, Bitcoin LSTs command upward of $2.5 billion in total TVL, according to Staking Rewards.
Some Bitcoin L2s — including RSK, Merlin and Stacks — already host Bitcoin-native DeFi ecosystems, including decentralized exchanges, lending protocols, and all-in-one platforms such as Sovryn. Merlin even touts a Bitcoin-native derivatives protocol, Surf.
Novel DeFi Strategies
The maturing DeFi ecosystem will lead to the emergence of novel DeFi strategies across the risk curve with Bitcoin as a collateral asset. From simple buy-and-hold strategies with yield-bearing Bitcoin assets to basis trades and options strategies, the possibilities are endless.
"The Bitcoin staking rate will become the ‘risk-free rate,’ flipping the US Treasury bill rate and becoming a benchmark for DeFi lending and borrowing," said Jacob Phillips, Bitcoin staking protocol Lombard’s co-founder and head of strategy.
Conclusion
The growth potential for BTC staking is significant, with a total addressable market in the hundreds of billions of dollars. The maturity of the DeFi ecosystem will play a crucial role in the growth of Bitcoin DeFi. Institutional adoption will be a key driver of growth, with some protocols already well-positioned to benefit.
As we step into 2025, it’s clear that Bitcoin-native decentralized finance (DeFi) is on the rise. With its potential for high returns and low risk, BTC staking is an attractive option for investors looking to diversify their portfolios.
Recommendations
- Invest in BTC staking: Take advantage of the growth potential of BTC staking by investing in reputable platforms.
- Monitor the DeFi ecosystem: Keep a close eye on the development of novel DeFi strategies and the emergence of new protocols.
- Diversify your portfolio: Spread your investments across different assets to minimize risk and maximize returns.
By following these recommendations, you can take advantage of the growth potential of Bitcoin-native decentralized finance (DeFi) in 2025.
