The Rise of the Bitcoin DeFi Ecosystem: From Theory to Reality

Decentralized Finance (DeFi) on Bitcoin is moving from theory to reality. Although this process has not been smooth, the momentum around unleashing the potential of Bitcoin is growing, no longer limited to its positioning as digital gold.

For a long time, Ethereum has dominated the Decentralized Finance field, while Bitcoin has been in a wait-and-see mode, with over $1.5 trillion in liquidity locked in cold wallets. The development of the Bitcoin ecosystem is constrained by various limitations, including the lack of DeFi smart contracts, decentralized wrapping/bridging solutions, and its inherent identity as digital gold. However, this situation is changing.

With a number of innovative protocols launched on the Bitcoin network and its surroundings, we are beginning to see the emergence of true BTC-native Decentralized Finance infrastructure. Among them, projects like Babylon, Lombard, SatLayer, and Solv Protocol are leading in both technology and Total Value Locked (TVL), each addressing different components of the DeFi ecosystem.

Babylon: Bitcoin Staking Infrastructure

Babylon can be regarded as the Bitcoin version of the Ethereum Beacon Chain. As the pioneering native Bitcoin staking protocol, Babylon's TVL has exceeded 5 billion USD. Its uniqueness lies in allowing users to stake BTC directly on the Bitcoin mainnet without any bridging or wrapping operations, and storing in a non-custodial manner.

The core innovation of Babylon lies in extending the security of Bitcoin to other blockchains, including EVM-compatible chains, Rollups, and application chains. This allows Bitcoin holders to enhance network security by locking their assets and earning rewards from the protected chains.

Lombard: Bitcoin's Liquid Staking Solution

Lombard can be compared to Lido in the Bitcoin ecosystem. It is built on Babylon, with a Bitcoin-related TVL of $1.9 billion, and is dedicated to improving the composability of staked assets. Users can stake BTC through Babylon and receive LBTC, which is a liquidity token representing the staked position.

The existence of Lombard allows BTC staked through Babylon to no longer be limited to validating the consensus mechanisms of other networks. Users can now obtain liquid staked BTC (LBTC) and participate in trading, lending, liquidity mining, and other Decentralized Finance activities.

Lombard earns rewards by delegating BTC to Babylon validators, who are responsible for securing the external network and receiving rewards. These rewards are shared with LBTC holders, meaning the more chains validated by Babylon, the higher the earnings for stakers.

Currently, Lombard has established a presence in multiple ecosystems such as Sonic, Sui, and Base, and has collaborated with protocols like Aave, Pendle, Ether.Fi, and Corn, demonstrating its strong composability.

SatLayer: Bitcoin's Re-staking Platform

SatLayer can be understood as the Eigen Layer built on top of Babylon. Although its TVL is relatively small, at only $340 million, it introduces an innovative re-staking model. Unlike Babylon, which locks BTC to protect external networks at the consensus layer, SatLayer allows users to re-stake LBTC to protect the application layer.

This innovation paves the way for markets to directly gain profits from protected applications. For example, oracles can pay restakers to ensure data integrity, Rollups can pay restakers to validate transaction validity, or cross-chain bridges can pay to prevent asset dilution or fraud.

SatLayer currently supports re-staking operations on the EVM and Sui networks.

Solv Protocol: BTC Reserves and Decentralized Finance Vault

The Solv protocol has a TVL of $524.27 million in the BTC ecosystem and employs different approaches. Similar to Lombard, it provides liquidity staking services for BTC but does not rely on Babylon; instead, it focuses on building its own Bitcoin reserve strategies and other Decentralized Finance products.

The SolvBTC token serves as a liquidity representative of its BTC reserve strategy, allowing users to deposit a wrapped version of BTC. Subsequently, Solv converts the majority into native BTC through institutional channels and stores it via centralized custody.

Although Solv does not rely on Babylon, it is able to utilize Babylon-related assets such as LBTC. At the same time, thanks to its DeFi treasury, Solv offers higher composability.

Looking to the Future

DeFi on Bitcoin is moving from ideal to reality. With the emergence of new protocols and an increase in liquidity, we may be witnessing a new era of decentralized yield on Bitcoin. This is no longer just about wrapping BTC on Ethereum, but about unlocking the potential of native BTC DeFi.

As more projects like Botanix launch EVM-compatible Bitcoin blockchains, the composability and potential value of these layers may experience explosive growth. Billions of idle BTC are expected to become active collateral, not only for validating networks and securing applications but also for providing substantial returns to holders.

It is worth noting that institutional investors are flooding into the Bitcoin market, showing a strong interest in this new type of income model. This may signal that the Bitcoin Decentralized Finance ecosystem is about to experience broader adoption and development.