Bankless：Can Bitcoin Thrive Onchain?

2025-04-12 10:00:08 Primitive Reading

For over a decade, Bitcoin has stood as a cornerstone of the crypto ecosystem—prized for its decentralization, censorship resistance, and provable scarcity. Yet despite its market cap dominance and renewed hype, Bitcoin remains largely disconnected from one of the most vibrant sectors in crypto: DeFi.

According to Bitcoin Layers, only about $30 billion worth of BTC—just 1.875% of its total supply—is being used in DeFi. In contrast, Ethereum boasts around $50 billion in ETH locked in DeFi, representing roughly 23% of its supply.

This disparity highlights a core tension in today’s Bitcoin narrative: while BTC holds immense value, relatively little of it is actively utilized on-chain to provide yield opportunities. That gap is fueling a wave of innovation around wrapping, staking, and other methods to bring Bitcoin into the DeFi economy and unlock ways to allow BTC to be a productive capital asset.

Bitcoin Layers*: BTC supply by network, showing all BTC that’s been wrapped

Ethereum’s DeFi ecosystem has exploded with tools for borrowing, lending, staking, and trading. In contrast, native Bitcoin remains difficult to use productively, particularly for new users. Transaction times are slow, fees are variable and often high, and Bitcoin’s architecture lacks the programmability that powers Ethereum-based applications.

This raises an important question as the broader crypto landscape matures: Can Bitcoin participate meaningfully in the on-chain economy? And if so, how do we onboard everyday BTC holders without forcing them through a gauntlet of bridges, wrapped tokens, and unfamiliar apps?

The Problem: Bitcoin's Design vs. DeFi Utility

Bitcoin wasn’t built for programmability in how we see smart contract expressiveness today. It prioritizes security and decentralization through Proof-of-Work (PoW) over expressiveness, which has made it a robust store of value—but less adaptable for use in smart contracts or complex DeFi applications. As a result, native Bitcoin is largely excluded from the composable finance ecosystems flourishing on chains like Ethereum or Solana.

Historically, there have been workarounds:

Wrapped Bitcoin: Users convert BTC into ERC-20 tokens to access Ethereum-based DeFi. This introduces custodial risk, as token liquidity can be opaque and not always backed 1:1 by BTC, while being held by third-party custodians.

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