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Bankless:Can Bitcoin Thrive Onchain?

For over a decade,  Bitcoin has stood as a cornerstone of the crypto ecosystem—prized for its decentralization, censorship resistance, and provable scarcity. Yet despite its market cap dominance and renewed hype, Bitcoin remains largely disconnected from one of the most vibrant sectors in crypto: DeFi.

According to Bitcoin Layers, only about $30 billion worth of BTC—just 1.875% of its total supply—is being used in DeFi. In contrast,  Ethereum boasts around $50 billion in ETH locked in DeFi, representing roughly 23% of its supply.

This disparity highlights a core tension in today’s Bitcoin narrative: while BTC holds immense value, relatively little of it is actively utilized on-chain to provide yield opportunities. That gap is fueling a wave of innovation around wrapping, staking, and other methods to bring Bitcoin into the DeFi economy and unlock ways to allow BTC to be a productive capital asset. 

Bitcoin Layers*: BTC supply by network, showing all BTC that’s been wrapped


Ethereum’s DeFi ecosystem has exploded with tools for borrowing, lending, staking, and trading. In contrast, native Bitcoin remains difficult to use productively, particularly for new users. Transaction times are slow, fees are variable and often high, and Bitcoin’s architecture lacks the programmability that powers Ethereum-based applications.

This raises an important question as the broader crypto landscape matures: Can Bitcoin participate meaningfully in the on-chain economy? And if so, how do we onboard everyday BTC holders without forcing them through a gauntlet of bridges, wrapped tokens, and unfamiliar apps?

The Problem: Bitcoin's Design vs. DeFi Utility

Bitcoin wasn’t built for programmability in how we see smart contract expressiveness today. It prioritizes security and decentralization through Proof-of-Work (PoW) over expressiveness, which has made it a robust store of value—but less adaptable for use in smart contracts or complex DeFi applications. As a result, native Bitcoin is largely excluded from the composable finance ecosystems flourishing on chains like Ethereum or Solana.

Historically, there have been workarounds:

  • Wrapped Bitcoin: Users convert BTC into ERC-20 tokens to access Ethereum-based DeFi. This introduces custodial risk, as token liquidity can be opaque and not always backed 1:1 by BTC, while being held by third-party custodians.
  • Bridging Protocols: Cross-chain platforms allow BTC to be moved into other ecosystems. But manually bridging adds friction, complexity, and risk—especially for non-technical users.
  • Custodial Platforms: Centralized services, like Coinbase, offer BTC yield but require users to give up custody, and often pay returns in points, stablecoins, or proprietary tokens rather than BTC.

Each of these options comes with trade-offs that challenge Bitcoiners' core ethos: security, simplicity, and user sovereignty.

The Onboarding Gap: Why UX Still Matters

Accumulation of BTC in 2024, river.com


For Bitcoin holders curious about doing more with their assets—earning yield, participating in on-chain governance, or experimenting with DeFi—the entry points remain fragmented, unintuitive, and often intimidating. While the infrastructure has matured, the user experience still lags behind, and the competition isn’t with just other blockchains, it’s with TradFi.

This friction creates a major onboarding gap. Most users aren’t looking to become power DeFi users—they want simple, secure ways to grow their net worth and BTC holdings without navigating a maze of applications, bridges, and protocols, as is evident with the large majority of recent Bitcoin buyers being off-chain through brokerages, ETFs, and products like Michael Saylor’s Strategy.

To bring the next wave of users on-chain, rather than being simple off-chain holders, tools need to abstract away this complexity without sacrificing control, self-custody, or transparency. That’s where emerging protocols and modern wallet experiences are starting to make a real difference—offering user-friendly access to DeFi primitives, all while keeping Bitcoin’s ethos intact.

Better UX isn’t just a nice-to-have, it’s essential infrastructure for the next chapter of Bitcoin adoption.

New Approaches to Onchain BTC Yield & Productivity

A number of emerging solutions aim to make Bitcoin more usable in DeFi—each with a different balance of trade-offs:

1. Staking, Restaking, & Points-Based Yield Programs

Platforms like Babylon and Lombard now offer Bitcoin-related yield programs through points or reward tokens, typically through staking/restaking, often redeemable for perks or future airdrops. These systems can be appealing to early adopters and crypto natives, who chase airdrops, and platform-specific tokenomics. These products typically consist of converting BTC to a wrapped BTC standard, then locking assets inside various programs/products to earn a variable yield. For the savvy onchain trader, there are high yields that can be earned, but require deeper understanding of how to use crypto, and manually bridge, wrap, and deposit funds. 

Pros:

  • Broad spectrum of yield opportunities
  • Typically self custodial

Cons:

  • Rewards are not paid in BTC
  • Typically requires lock-up periods
  • Uncertain long-term value of rewards

2. Bitcoin Layer 2s & Meta Protocols

Developments like the Lightning NetworkRootstock (RSK), Alkanes, and emerging Layer 2s such as Botanix and Starknet are bringing new functionality, programmability, and speed to Bitcoin. These innovations enable use cases like fast payments, NFTs, and smart contract-like behavior. As a result, users can now access a wide range of DeFi opportunities with their BTC—such as securing networks by locking up funds, participating in market making, lending and borrowing, or converting assets to support wrapped BTC standards on various protocols. With a growing number of teams building these networks, the ecosystem of Bitcoin-based yield opportunities continues to expand. 

Pros:

  • Expands Bitcoin’s use cases
  • Maintains alignment with Bitcoin’s architecture
  • Broad optionality on how you can earn yield onchain

Cons:

  • Still relatively early and fragmented
  • Requires mid-level to advanced understanding to utilize
  • Requires mass developer resources to build out utility that mostly already exists on other smart contract chains

3. Smart Wallet Integrations, & Native BTC Yield

Wallets like Braavos (disclosure: I work here!) offer features that let users earn native BTC yield without the need to manually wrap their Bitcoin or give up custody. Users can invest BTC directly through their wallet, without dealing with the usual hurdles of bridging or using external apps. The complex steps—such as depositing, wrapping, and bridging—are handled seamlessly in the background, with the BTC deployed into a specific DeFi strategy. This user-friendly approach is designed to make BTC yield accessible to everyone, regardless of technical background or crypto experience.

Pros:

  • Yield is paid in BTC (not points or proxy tokens)
  • No manual bridging or third-party custody
  • Self-custodial by default
  • Beginner friendly

Cons:

  • Relies on conversion to wrapped BTC
  • Requires some trust in the bridging mechanism and yield protocol infrastructure

The Bigger Picture: Bitcoin’s Evolving Role Onchain

Bitcoin’s narrative has long centered around “store of value”—a role it has filled reliably. But as on-chain economies grow, the pressure is mounting for Bitcoin to integrate more fully into this emerging financial stack, and fulfill its promise of being a reliable payment infrastructure.

To do that without sacrificing decentralization or user trust, new infrastructure must make these opportunities accessible without requiring technical expertise or the abandonment of core Bitcoin principles.

This means:

  • Yield should prioritize being paid in BTC, not derivative assets
  • Custody must remain with the user
  • Complexity must be abstracted, not transferred to the user

Products like BraavosLombardBabylon and the others mentioned in this article are examples of how these ideas can be implemented. Either by giving users access to yield through staking, or by embedding Bitcoin support directly into self-custodial options and automating the complexities behind it, they make DeFi more accessible to Bitcoiners—without asking them to leave the Bitcoin ecosystem entirely.

Bridging the Gap, Carefully

Bitcoin’s transition into the on-chain economy won’t happen overnight—and it shouldn’t. Caution, simplicity, and self-sovereignty are foundational to the Bitcoin ethos. But as more tools emerge that respect those values while offering new functionality, BTC’s role in the broader crypto economy is evolving.

The challenge now is building systems that are open, secure, and above all—accessible. If the next billion users are going to onboard through Bitcoin, they’ll need experiences that meet them where they are, and are accessible to a wider spectrum of users. 

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