31.1.2025
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BitcoinFi, also called BTCFi, is taking the crypto world by storm. With the biggest cryptocurrency now open to the possibilities of decentralized finance, many are wondering what that entails and how they can participate.
Read on to learn about BTCFi and how you can earn yield in this new Bitcoin-powered decentralized finance market.
BTCFi or BitcoinFi is shorthand for Bitcoin finance, which refers to decentralized finance on Bitcoin (Bitcoin DeFi).
All of these terms are used interchangeably and represent the growing ecosystem around Bitcoin, based on different assets and a growing offering of different Internet-native financial services like borrowing, lending, market making, trading, etc.
DeFi used to be tied to other blockchains, with the mistaken belief that it wouldn’t be able to implement these financial capabilities on Bitcoin. However, some key changes–like the Taproot update for on-chain Bitcoin and the growth in the Bitcoin Layer 2 ecosystem–jumpstarted these developments, and BitcoinFi was born.
The Bitcoin blockchain is actually not well-suited for DeFi. Unlike Ethereum and many other blockchains, it’s not Turing-complete, which means it doesn’t have native complex smart contract capabilities, which were widely considered to be a basic prerequisite for all things DeFi.
These issues were first solved through Layer 2 solutions that had these capabilities.
Then, a game-changer for on-chain BitcoinFi arrived in the form of the Ordinals protocol in early 2023. This lets users assign additional information (referred to as inscriptions) to each satoshi.
This paved the way for Runes and BRC-20, both fungible token protocols based directly on Bitcoin, that now introduced a whole new world of possibilities with asset types that weren’t simple BTC or sats.
A combination of L2s and Bitcoin-native protocols have made it possible to build DeFi on Bitcoin.
This is especially attractive to users and developers who like Bitcoin’s robust security and decentralization. Additionally, as the biggest cryptocurrency by far, Bitcoin’s liquidity is unmatched, and its brand recognition outside of the cryptosphere reaches much further than any other cryptocurrency.
For traditional DeFi, the go-to option tends to be Ethereum. As a Turing-complete environment with high liquidity and high adoption, it’s been a popular choice among users and devs with all levels of prior experience.
One of Bitcoin’s most significant advantages is that it’s the biggest cryptocurrency by market cap. Ethereum comes in second, but it’s still significantly smaller, making up only 12% of the total crypto market, as opposed to Bitcoin’s 59%.
Ethereum is natively programmable, as it was built a few years after the launch of Bitcoin in order to address what its creators considered Bitcoin’s shortcomings. This is also why it took Bitcoin so long to catch up to Ethereum. Since Bitcoin has long been considered just a store of value, many devs simply turned to Ethereum and other environments due to their relative ease of use at the time.
Both networks are stable, but Bitcoin’s last outage (out of a total of two in its history) was in 2013, while Ethereum had its last bout of issues in 2023.
Finally, people outside of the cryptosphere sometimes (mistakenly) use the terms “Bitcoin” and “cryptocurrency” interchangeably. This stems from the fact that Bitcoin is simply the best-known cryptocurrency. This means a higher potential in widespread adoption among users outside of the crypto world.
BTCFi has several different use cases and applications, all of them already popular among DeFi users. Here, we list the main ones.
Bitcoin-native assets are another way to refer to Layer 1 assets like Runes and Ordinals. These rely on the mainnet itself and don’t require any additional blockchain but only an indexer service, specialized wallets, and their own blockchain explorers. As a protocol for issuing fungible tokens on Bitcoin, Runes enable the creation of any token that can be used for different purposes like borrowing and lending, trading, usage within specific dapps, etc.
One example of Runes Protocol implementation is POWA, a Sovryn-native meme coin used to reward staking, trading, and social media activities. Aside from being able to trade POWA on Sovryn’s DEX, users will also be able to hold it to earn access to exclusive Bitcoin NFT collections in the future.
Borrowing lets users access crypto capital by providing collateral in the asset they own and receiving the desired asset in return. On the other side, lenders are rewarded with the fees and interest paid by borrowers and incentivized to keep lending.
Sovryn’s borrowing & lending service requires over-collateralization to ensure lenders are always covered. Borrowing and lending are both available for Bitcoin-based assets, regardless of whether they’re native or L2-based, as long as there is demand.
BTCFi also includes decentralized trading. Like borrowing and lending, this relies on a secure and decentralized platform. Sovryn lets you convert assets quickly and with low fees; it also supports different coins outside of the Bitcoin ecosystem, which is especially useful for those trying to take advantage of different DeFi environments.
Like every other type of DeFi, BitcoinFi also relies on users willingly providing liquidity to different pools in order to function in a decentralized way. In practice, this means depositing your BTC or BTC-based assets into liquidity pools and receiving a percentage of the fees charged from those using the pool.
Sovryn currently offers a number of different pools, including Runes. Since they rely on pairs that need to be balanced, you’re required to deposit both assets in proportional amounts. For example, if you’re depositing into the DOGGOTOTHEMOON/POWA pool (available on the Sovryn dapp on BOB), you’ll have to provide both the DOG.GO.TO.THE.MOON Rune and Sovryn’s own POWA Rune in equivalent amounts.
Bitcoin-based Layer 2 solutions that use staking as a governance model reward users who participate with the fees generated through their network’s operations. In Sovryn’s case, staking SOV lets you decide on issues pertaining to the network’s future and receive rewards in return.
Other similar platforms also allow Bitcoin staking. Babylon and Acre, for example, both let users lock up their BTC to gain rights to validate different Proof of Stake (PoS) chains. The funds are locked in a self-custodial manner, so they always belong to you for as long as you participate honestly.
Sovryn offers full access to BitcoinFi, from lending and borrowing to staking, market making, and more. BTC and Bitcoin-based assets can be utilized to their full potential through this platform.
To get started with BitcoinFi, connect your wallet to Sovryn.
To get started with BitcoinFi, choose a well-known platform that adheres to the tenets of security and decentralization and offers the services you’d like to use. Sovryn is secure, decentralized, and self-custodial but also beginner-friendly if you’re unsure about where to start. Here, you can earn yield in different ways by using your Bitcoin-based assets.
Yes, BitcoinFi makes it possible to earn yield on your BTC or Bitcoin-based assets. You can lend out your assets and receive yield based on the fees and interest paid by borrowers. You can also deposit your asset pairs into different liquidity pools. Sovryn is a good place to start since it offers all these ways to earn yield and more.
BTCFi’s risks are often tied to the platforms offering BitcoinFi services. They can be centralized, and thus, they are at risk of single-point failure (through hacks or honest mistakes). They can require you to trust them with your funds, or they can have mistakes in their smart contract code that put everything at risk. For this reason, it’s important to choose a secure, decentralized, and time-tested platform like Sovryn.
