The Rise of the Bitcoin Decentralized Finance Ecosystem

With the emergence of the new generation of protocols, decentralized finance (DeFi) on Bitcoin is moving from theory to reality. Although there have been some setbacks in the process, the momentum surrounding the development of Bitcoin's potential beyond digital gold is strengthening.

For a long time, Bitcoin has been on the edge of the development of Decentralized Finance. While Ethereum built a vast DeFi economic system, over $1.5 trillion worth of Bitcoin liquidity has been locked in cold wallets. The lack of DeFi smart contracts and decentralized encapsulation/bridging solutions, combined with Bitcoin's positioning as digital gold, has limited the expansion of its ecosystem. However, this situation is changing.

A number of emerging protocols are being launched on the Bitcoin network and its surrounding ecosystem, laying the foundation for the construction of a true BTC native Decentralized Finance stack. Projects such as Babylon, Lombard, SatLayer, and Solv Protocol are at the forefront in terms of technological innovation and Total Value Locked (TVL), each addressing different aspects of the DeFi ecosystem.

Babylon: The Staking Base Layer of Bitcoin

Babylon can be seen as the Bitcoin version of the Ethereum Beacon Chain. As the pioneering native Bitcoin staking protocol, Babylon has locked over $5 billion in assets. Its uniqueness lies in allowing users to stake BTC directly on the Bitcoin mainnet in a non-custodial manner, without the need for any bridging or wrapping operations.

The core innovation of Babylon lies in extending the security of Bitcoin to other blockchains, including EVM-compatible chains, Rollups, and application chains. Bitcoin holders can now enhance network security through staking while earning rewards from the secured chains.

Lombard: Achieving Bitcoin Liquid Staking

Lombard can be likened to Lido within the Bitcoin ecosystem. Building on Babylon, Lombard has further enhanced the composability of Bitcoin staking, currently managing related assets worth $1.9 billion. Users can stake BTC through Babylon and receive LBTC tokens, which are liquidity tokens representing the staked position.

The emergence of Lombard solves the problem of Babylon's staking BTC not being directly usable for DeFi. Through LBTC, users can participate in various DeFi activities such as trading, lending, and mining. Lombard generates returns by delegating BTC to Babylon validators, who protect the external network and receive rewards, which are then shared with LBTC holders.

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

SatLayer: The Re-staking Layer for Bitcoin

SatLayer can be seen as EigenLayer built on Babylon. Although its TVL is relatively small, at only 340 million USD, SatLayer introduces an innovative re-staking model. It allows users to re-stake LBTC to secure the application layer, not just the network consensus layer.

This innovation opens the door for markets to gain revenue directly 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 slashing or fraud. SatLayer currently supports restaking on EVM and Sui networks.

Solv Protocol: BTC Reserve and Decentralized Finance Vault

The Solv protocol adopts a different approach, managing assets worth $524.27 million in the BTC ecosystem. It offers BTC liquidity staking services, but does not rely on Babylon; instead, it focuses on building its own Bitcoin reserve strategy and other Decentralized Finance products.

The SolvBTC token represents the liquidity of its BTC reserve strategy. Users deposit wrapped BTC, and Solv then converts most of it into native BTC through institutional channels and stores it via centralized custody. Although Solv does not rely on Babylon, it also utilizes Babylon-related assets such as LBTC, while providing higher composability through its DeFi vault.

Looking to the Future

The DeFi ecosystem on Bitcoin is thriving. With the emergence of new protocols and an increase in liquidity, we may be witnessing a new era of decentralized yields for Bitcoin. This is not just about wrapping BTC on Ethereum, but about unlocking the potential of native BTC DeFi.

As more projects like Botanix launch Bitcoin blockchains compatible with EVM, the composability and potential value of these layers are expected to increase further. Billions of idle BTC may soon become active collateral for network validation, securing applications, and generating real yields.

Institutional investors are paying attention to the Bitcoin ecosystem, and this emerging yield model will undoubtedly attract more capital inflow. The future of Bitcoin DeFi is full of infinite possibilities, and we may be standing at the starting point of a new era.