FameEX Hot Topics | CMC Research and Footprint Analytics Report: Bitcoin’s Role in DeFi is Evolving

According to a joint study by CMC Research and Footprint Analytics, Bitcoin's role in decentralized finance (DeFi) has evolved significantly, transitioning from its original use as a peer-to-peer currency to becoming a major player in the DeFi ecosystem. Technological advancements, including Rootstock and Taproot, are enabling Bitcoin to support complex financial applications such as decentralized exchanges and smart contracts.

The report highlights that Taproot, through Merklized Alternative Script Trees (MAST), condenses complex transactions into a single hash, reducing transaction fees and memory usage. While not a DeFi solution itself, the Taproot upgrade enhances Bitcoin’s smart contract capabilities, making it easier to implement complex transactions and laying a foundation for future DeFi developments.

As of September 2024, Bitcoin-based DeFi projects have locked in a total value (TVL) of $1.07 billion, a 5.7x increase from January. Although Ethereum traditionally dominates the DeFi space, Bitcoin is emerging as a strong competitor. The report suggests that Bitcoin’s security and decentralized nature make it an attractive platform for DeFi, despite challenges like scalability and transaction speed. "Bitcoin’s unparalleled security framework forms the foundation of the BTCFi ecosystem," the researchers note, ensuring that all developments stay aligned with Bitcoin’s core values.

Innovations like layer two (L2) solutions—such as the Lightning Network—and sidechains like Core and Merlin Chain are helping Bitcoin handle DeFi activities while maintaining security and decentralization. Data from CMC Research and Footprint shows that Core is the leading Bitcoin-based DeFi platform, accounting for 27.6% of TVL across all Bitcoin L2 solutions. Other significant platforms include Rootstock, Merlin Chain, and Sovryn, offering BTC holders opportunities to participate in DeFi activities like lending, borrowing, and yield farming.

Wrapped assets like WBTC are also allowing Bitcoin holders to access Ethereum’s larger DeFi ecosystem, even as native Bitcoin DeFi continues to expand. The researchers express optimism for Bitcoin’s future in DeFi, predicting further growth as technical obstacles are addressed and the regulatory environment evolves. Innovations such as Discreet Log Contracts (DLCs) and improved interoperability with Ethereum are seen as crucial to expanding Bitcoin’s DeFi role. As Bitcoin’s DeFi ecosystem matures, it is expected to attract increased attention from both retail and institutional investors, potentially reshaping the broader cryptocurrency landscape.

Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.