The Rise of DeFi On The Bitcoin Network: A New Era of Innovation and Community Empowerment

The Rise of DeFi On The Bitcoin Network

After almost two years of lull and existential threats due to low demand and rising hacks, DeFi is making a strong comeback. In Q1 this year, DeFi’s TVL grew by 70 percent to cross $175 billion. Low fees and rising speculative interest have also pushed interest rates for stablecoin loans up to 20 percent.

Such factors signal the onset of the next DeFi Summer. However, while hyped narratives like liquid staking and restaking are important for DeFi’s ongoing resurgence, there’s been a fundamental industry-wide shift towards more value-oriented, utilitarian innovation.

Over 75 percent of projects launched during the last DeFi Summer in the 2020-21 bull cycle failed because they lacked sustainable long-term incentives and community support. Empowering grassroots users, forging active communities, and progressive economic modeling is necessary to as part of the “crypto revival” that is needed.

Emerging DeFi projects are already making progress along these lines. Unlike in 2020, when launching questionable projects to grab market share or profits had almost become the norm, DeFi founders now focus more on getting the basics right and delivering real, tangible value to the community.

As Pepecoin founder, Prometheus, says, “This DeFi cycle is unique. Some people are still greedy and only want to pump their bags. But industry stakeholders now focus more on incentivizing the good — in product design, revenue models, etc. — and ensuring the maximum value for the community. There’s a greater recognition for what’s real while gimmicks or fake narratives are being called out. And as we’re building genuine, utility-rich ecosystems, DeFi is becoming bigger and richer as a whole.”

Moving on from short-sighted sectarianism, DeFi has become more mature and this is helping to expand its horizons and bring new opportunities for users.

The Rise Of DeFi On Bitcoin

While the Ethereum Network hosts the lion’s share of DeFi projects, building DeFi on the Bitcoin Network solves two persistent problems – bitcoin gives the network a much needed utility boost while its extensive decentralization and robust security structure helps safeguard DeFi users from losing billions of dollars to hacks and scams.

Past attempts at bringing DeFi to Bitcoin have mostly failed due to technical challenges and other factors. Since early-2023 inventions like Ordinals, BRC-20, and Runes have laid the “stepping stones” for Bitcoin DeFi. Launched on Halving Day, Runes-related interactions have already accounted for over 81 percent of daily BTC transactions on some days and sent BTC fees to record highs.

Runes garnered immense enthusiasm and Bitcoin L2s like Stacks recorded new ATHs with 120K+ active accounts in April.

ALEX co-founder, Dr. Chiente Hsu said, “The next DeFi Summer will be on Bitcoin. The world’s most decentralized and robust blockchain is no longer restricted to handling payments and storing value. Ordinals, BRC20/Runes Inscriptions, etc., have significantly broadened the utility of bitcoin blockchain. These developments have paved the way for more accessible ecosystems and platforms, enabling the creation of practical financial applications directly on Bitcoin.”

Beyond innovations and the overall improvements in the underlying tech, a mindset shift towards using the best available resources, across boundaries and affiliations, has also been crucial to the evolution of DeFi on Bitcoin.

Rich Rines, an initial contributor at Core Chain, says, “New-age DeFi projects aren’t fixated on specific chains like Bitcoin, Ethereum, or Solana. Instead, they’re focused on scaling DeFi by leveraging the best tools and principles at their disposal. This cycle is all about unlocking the utility of Bitcoin, and we’re seeing builders entering the BTCfi ecosystem to bring true trust to DeFi, enhance interoperability, and drive web3 growth to achieve global adoption of Bitcoin and blockchain technology.”

Bridging Gaps And Empowering Communities

DeFi is evolving from a predominantly speculative industry to a community empowerment vehicle across ecosystems. This has been possible, mainly, by simultaneously fulfilling demands on the seller, buyer, and investor sides. Moreover, innovators are building products and services that fill gaps in the market with long-term approaches and solutions.

From core primitives like zkProofs to Super Apps or fully non-custodial, privacy-first products like Hero Wallet, the trend in value-led research and development is evident across the DeFi landscape right now. In turn, this has drawn VCs and institutions who invested $626 million in DeFi YTD, second only to infrastructure projects like EigenLayer.

More importantly, the current depth of DeFi innovation is making it more accessible and relevant to the mass market. Platforms like Anzen, for example, help broader access to on-chain private credit, so users can leverage low volatility, predictable, and secure returns backed by institutional-grade real world assets, irrespective of short-term market conditions.

Zac Cheah, co-founder and ceo of Pundix emphasizes, “DeFi’s future lies in offering practical tools to empower merchants, consumers, and other financial stakeholders. Serving traders and speculative investors alone won’t make it successful long-term. Making DeFi broadly accessible through simultaneous hardware and software development will reduce costs, improve performance, and foster inclusion. That’s the goal.”

There’s a clear distinction in the nature and quality of DeFi projects launching now from their predecessors in 2020-21. Returns and APYs still matter, as they always do, but a lot more than “too-good-to-be-true yields” are being offered now, from dedicated point-of-sale payment systems to application builders and launchpads.

As DeFi moves ahead, the power of decentralized, non-custodial technologies is fully being utilized across the board. User and developer communities are not only getting new investment instruments but also the scope to effectively solve new kinds of financial problems and limitations. DeFi, in its current form trajectory, is ushering in a new frontier where financial autonomy, security, and inclusion are setting out to be the norm.