Author: Darius Moukhtarzadeh Source: cointelegraph Translation: Shan Ouba, Golden Finance

A series of emerging projects and Technological innovation is increasing the utility of the Bitcoin ecosystem, extending its uses beyond traditional stores of value.

Bitcoin is the oldest, most influential, and most secure blockchain and asset in the crypto space. Recently, it proved its strength to the doubters by breaking through the psychologically important $100,000 mark and continuing to hit all-time highs. Although Bitcoin's acceptance has steadily increased, its primary uses have changed since its creation 15 years ago. From its original creation as a peer-to-peer digital currency, it has grown to be considered “digital gold.”

Although the "digital gold" narrative has attracted more and more institutional and retail investors - as in January 2024, the Bitcoin exchange-traded fund ( ETF) has seen record inflows since its launch, as well as its recent all-time highs suggest — but the vast majority of Bitcoin remains stagnant in wallets, underutilized. Considering its market capitalization of over $2 trillion, Bitcoin’s liquidity holds huge potential that remains untapped.

Fortunately, a rapidly growing Bitcoin decentralized finance (DeFi) application and second-layer solution (L2) is unlocking Bitcoin's liquidity , creating a native DeFi ecosystem, which will become one of the hottest new tracks in the encryption field in 2025.

The activity and adoption rate of Bitcoin L2 and DeFi projects continue to increase

Due to the limited smart contract functions of Bitcoin itself, the Bitcoin L2 solution is not suitable for Bitcoin DeFi It’s vital that it becomes a reality. Over the past three years, L2 has grown to more than 75 projects. Various L2s are gaining traction and maturing, such as Pantera-backed Mezo, which recently launched a testnet and plans to launch mainnet in Q1 2025. Likewise, BOB supports Bitcoin DeFi in an Ethereum Virtual Machine-compatible environment and has attracted more than 300,000 unique users since its launch in May 2024.

As one of the most mature Bitcoin second layers, Stacks completed the Nakamoto upgrade in the fourth quarter of 2024. The upgrade introduces performance improvements, including faster block timesand complete Bitcoin finality. Additionally, Stacks is preparing to launch sBTC – a decentralized and programmable version of Bitcoin that is supported 1:1 with BTC – in mid-December. This innovation will enable the transfer of Bitcoin between Layer 1 and Layer 2 without relying on centralized solutions like Wrapped Bitcoin (WBTC) on Ethereum.

Binance, the world’s largest crypto exchange, is expanding its Bitcoin DeFi offerings, nominating three of the most popular Runes (fungible tokens on Bitcoin) ) for futures listing. Additionally, Binance announced it is offering Bitcoin staking services via the Babylon protocol as part of Binance Earn, enabling on-chain earnings.

Adoption is Reflected in Increased TVL

Growing interest in Bitcoin DeFi is reflected in Bitcoin’s TVL, which on December 16th It hit a record high of US$7.48 billion (excluding TVL of L2 such as Mezo or BOB). This number grew significantly in Q4 2024, with much of the value locked in re-staking protocols like Babylon and Lombard. While Bitcoin DeFi’s TVL is still small compared to Ethereum’s $68.35 billion as of January 17, it demonstrates the growing interest in Bitcoin DeFi applications. This number will rise significantly in the coming months and years as more projects mature, launch mainnets, and issue their own tokens (multiple TGEs are expected in 2025).

Regulatory clarity is expected to encourage investors

The U.S. financial and regulatory environment is changing. Under Trump, with crypto-friendly Paul Atkins serving as chairman of the Securities and Exchange Commission (SEC) and David Sacks serving as “head of artificial intelligence and encryption,” the United States appears to be moving in the direction of becoming more supportive of cryptocurrencies.

More precise laws and guidance will give investors more confidence when using their crypto assets for DeFi applications. This change in attitude comes at a critical time, as the nascent Bitcoin DeFi space is poised to flourish in a more friendly regulatory environment than in the past.

Some critics believe that the Bitcoin whale groupThere may be resistance to increasing Bitcoin’s utility because they believe Bitcoin is already perfect enough. The debate surrounding Ordinals and Inscriptions shows that not everyone is excited about new features on Bitcoin. However, it is unclear whether these voices represent the views of the majority of the Bitcoin community. Even if a significant portion of holders choose to keep Bitcoin as is, and only a small portion of the Bitcoin supply enters the DeFi space, the industry could still reach significant scale.

Messari research analyst Kinji Steimetz’s calculations show that if Bitcoin’s DeFi penetration rate is the same as that of WBTC (accounting for 2.87% of its total addressable market) , then the value of Bitcoin in DeFi will reach $47 billion. This calculation highlights the huge potential of Bitcoin DeFi, where even a small penetration could be enough to create an entirely new and important industry. This scale will be enough to place it among the top ten projects by market capitalization, further encouraging innovation and greater participation.

Bitcoin DeFi may solidify Bitcoin’s security budget

Unlocking Bitcoin’s liquidity through DeFi can enhance its utility beyond a store of value. As advanced infrastructure, new applications, and benefits emerge, Bitcoin will transform from a passive asset to a productive one, providing revenue opportunities and building a more dynamic and An ecosystem of engagement.

These developments may in turn strengthen Bitcoin’s network security. As more use cases generate fees and revenue, miners will have an incentive to continue maintaining and protecting the network after the last Bitcoin is mined in 2140. This will help ensure the long-term security and sustainability of the Bitcoin network.