The native Bitcoin DeFi ecosystem is rising

Recently, the momentum around unleashing Bitcoin's potential is strengthening, and decentralized finance on Bitcoin ( DeFi ) is no longer just a theory. Although this field has faced some setbacks, recent developments are remarkable.

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

With a number of new protocols being launched on the Bitcoin network and its surroundings, we are witnessing the formation of a true BTC native Decentralized Finance infrastructure. Several projects have excelled in terms of technology and total locked value (TVL), each addressing different components of the DeFi ecosystem.

Babylon: The Staking Layer of Bitcoin

Babylon can be likened to Ethereum's beacon chain, but is specifically designed for Bitcoin. As a native Bitcoin staking protocol, it has over $5 billion in TVL, leading among similar protocols.

The uniqueness of Babylon lies in allowing users to stake BTC directly on the Bitcoin mainnet, without the need for bridging or wrapping. The coins are still stored in a non-custodial manner on the original network.

Babylon is not just about staking for the sake of staking. Its main innovation lies in extending the security of Bitcoin to other blockchains, including EVM chains, Rollups, and application chains. Bitcoin holders can now help secure the network by locking up their coins and earn rewards from the secured chains.

Lombard: The Liquidity Staking of Bitcoin

Lombard can be seen as the Bitcoin version of Lido. If Babylon is responsible for staking, then Lombard makes it composable. Lombard has a Bitcoin-related TVL of $1.9 billion, built on top of Babylon. It allows users to stake BTC through Babylon and receive LBTC, which is a liquid staking token representing the staked position.

The BTC staked through Babylon is still locked on the BTC network, and it cannot be used for DeFi without verifying the consensus mechanism of other networks. This is exactly where Lombard comes in. Now, users can obtain liquid staked BTC(LBTC) and start trading, lending, mining, and other operations.

Lombard earns rewards by delegating BTC to Babylon validators, who in turn protect external networks and receive rewards. These rewards are shared with LBTC holders. In short, the more chains validated by Babylon, the higher the earnings for stakers.

Lombard is active in multiple ecosystems and collaborates with several well-known protocols, showcasing its composability. It has also played an important role in liquidity activities on a certain trading platform, helping to kickstart early TVL.

SatLayer: Bitcoin's Re-Staking Layer

SatLayer can be seen as a re-staking layer built on top of Babylon. Although its TVL is only $340 million, which is relatively small, it introduces a new re-staking model. Babylon locks BTC to secure external networks on the consensus layer, while SatLayer allows users to re-stake LBTC to secure the application layer.

This opens the door for markets to earn directly from protected applications. For example, oracles may pay restakers to ensure data integrity, Rollups may pay restakers to ensure transaction validity, or cross-chain bridges may pay to avoid slashing or fraud.

SatLayer supports re-staking on the EVM and Sui networks.

Solv Protocol: BTC Reserve and Decentralized Finance Vault

The Solv protocol has a TVL of $524.27 million in the BTC ecosystem, employing different approaches. Similar to Lombard, it provides liquidity staking for BTC, but does not rely on Babylon, focusing instead on building its own Bitcoin reserve strategy and other Decentralized Finance products.

SolvBTC token is the liquidity representative of its BTC reserve strategy, where users deposit a wrapped version of BTC, and then Solv converts most of it into native BTC through institutional channels, storing it through centralized custody.

Although Solv does not rely on Babylon, it benefits from Babylon-related assets such as LBTC. Conversely, thanks to its Decentralized Finance treasury, it offers higher composability.

Conclusion

DeFi on Bitcoin is no longer just an unattainable dream. With the emergence of new protocols and the increase in liquidity, we may be witnessing a new era of decentralized yields on Bitcoin. This is no longer just about wrapping BTC on Ethereum; it is about unlocking the potential of native BTC DeFi.

As more projects launch Bitcoin blockchains compatible with EVM, the composability and potential value of these layers may significantly increase. Billions of idle BTC could soon become active collateral, helping to validate networks, secure applications, and generate substantial returns.

Institutional investors are flocking to Bitcoin, showing strong interest in this yield model. The future development of the native Bitcoin DeFi ecosystem is worth looking forward to.