Bitcoin’s DeFi Potential Remains Vastly Underserved, Says Binance Research

Bitcoin’s (BTC) role in decentralized finance (DeFi) is still in its early stages but represents a massive, untapped opportunity, according to a new Binance Research report published Thursday.

“The Bitcoin network is steadily transforming into a more expansive DeFi ecosystem, leveraging innovations that go beyond its traditional use case as a store of value,” wrote Binance Research analyst Moulik Nagesh.

The report highlights that Bitcoin DeFi enables greater capital efficiency through applications such as lending, staking, stablecoins, and decentralized exchanges (DEXs).

DeFi refers to financial services built on blockchain networks that remove intermediaries, allowing users to transact directly with smart contracts. However, only about 0.8% of bitcoin’s total supply is currently engaged in DeFi, indicating a largely untapped market. Franklin Templeton Digital Assets analyst Julian Love has previously suggested that Bitcoin DeFi could unlock as much as $1 trillion in value.

A key challenge, according to Binance Research, is Bitcoin’s lack of “native programmability” compared to smart contract-focused layer-1 blockchains like Ethereum. This makes layer-2 scaling solutions crucial for Bitcoin’s DeFi expansion.

While development in the Bitcoin layer-2 space has gained momentum, these platforms still require broader adoption and liquidity incentives to scale effectively, the report noted.

Another concern is Bitcoin’s long-term security model, as block rewards continue to halve over time, potentially reducing miner incentives.

For Bitcoin DeFi to succeed, it will need continued innovation in layer-2 networks, deeper liquidity, and an approach that aligns with Bitcoin’s fundamental strengths, the report concluded.