Binance Research: Bitcoin’s Growing Role in DeFi Presents $1 Trillion Opportunity
Bitcoin’s (BTC) influence in decentralized finance (DeFi) is expanding as the network evolves beyond its traditional role as a store of value, according to a Binance Research report published Thursday.
“The Bitcoin network is transforming into a more comprehensive decentralized finance ecosystem with the rise of Bitcoin DeFi,” wrote Binance Research analyst Moulik Nagesh.
This emerging sector aims to enhance bitcoin’s capital efficiency through financial applications such as lending, staking, stablecoins, and decentralized exchanges (DEXs), the report stated.
DeFi refers to a range of financial services, including lending and trading, conducted on blockchain networks without reliance on traditional financial institutions.
Currently, only about 0.8% of bitcoin’s total supply is utilized in DeFi, leaving a massive “untapped opportunity,” Binance noted. Last year, Franklin Templeton Digital Assets analyst Julian Love estimated that this opportunity could be worth as much as $1 trillion.
The report emphasized the importance of Bitcoin layer-2 networks, as the Bitcoin blockchain lacks “native programmability,” unlike smart contract-enabled layer-1 networks. Layer-2 solutions are built on top of primary blockchains to enhance scalability and efficiency.
Although progress has been made in developing Bitcoin layer-2 networks, these platforms require greater adoption and liquidity incentives to scale effectively, Binance Research noted.
Additionally, Bitcoin’s long-term security model faces sustainability concerns as mining rewards continue to decline with each halving event, potentially impacting miner incentives.
For Bitcoin DeFi to succeed, it must overcome execution challenges, advance layer-2 development, and maintain alignment with Bitcoin’s core value proposition, the report concluded.
