More than 15 years ago, Bitcoin sparked the cryptocurrency revolution with Satoshi's white paper. The first-mover advantage and strong security make Bitcoin a great store of value – to the point where some countries have made it a fiat currency – but Bitcoin isn't really used for lending, yield farming, and other DeFi services.
According to DeFiLlama data, this is a market currently worth $50 billion. Not only are Bitcoin holders missing out on the opportunity to monetize their digital assets, but DeFi projects are also missing the massive liquidity that Bitcoin – and its $850 billion market cap – has to offer. Bringing Bitcoin into the Web3 space is an immediate opportunity that will benefit the entire Web3.
Early promise
Technology was originally a barrier to Bitcoin's adoption in DeFi, but the introduction of Bitcoin's Taproot upgrade a year ago brought some change. It enabled newer features and options that Ethereum and other chains offer without requiring a Layer-2 like the Lightning Network.
Taproot enabled more true DeFi services and NFTs, including Ordinals – which in turn enabled NFT-like inscriptions on the Bitcoin blockchain and was launched with the simple goal of “MAKING BITCOIN FUN AGAIN,” according to its creator Casey Rodarmor. Taproot Wizards, an NFT collection enabled by Ordinals, took things a step further. Its high-profile creators Eric Wall and Udi Wertheimer promise to make Bitcoin “magic” again.
But Bitcoin doesn't have to be fun or magical – it just needs to capitalize on the opportunities that other chains and communities have enjoyed for years.
The problem is both a pedagogical and a tool problem. As a result, the Bitcoin community is missing out on opportunities to monetize their assets, including using their Bitcoins in DeFi for lending, yield farming, liquidity farming, staking, and even easy access to NFTs, gaming, new services like SocialFi, and more.
These services are important not only because they encourage holders to hold on to their assets (rather than selling them), which can help maintain price stability and directly monetize through yield, but they also encourage Bitcoin holders to do so away from centralized sources exchanges to do. DeFi protocols offer better prices and also place the security of assets in the individual's own control, which is in line with the principles of monetary freedom outlined by Satoshi.
The technologies introduced in the last year have taken Bitcoin's capabilities to new levels. Instead of relying on services enabled by Taproot, Bitcoin chains like Stacks or similar Lightning Network, multichain networks have emerged that enable effective implementation of smart contracts on Bitcoin.
Read more in our opinions section: Gary Gensler has lost the Bitcoin ETF battle. Can he win his crypto war?
This is important because institutional adoption of cryptocurrencies – which will officially begin following the recent approval of the long-awaited Bitcoin ETFs – will drive demand for financial products on Bitcoin, not to mention the opportunities to combine Bitcoin with other smart contract Connect financial services like Restacing, DeFi and more.
Restaking is a particularly powerful concept where Eigenlayer adds the basic element to not only provide additional yield but also increase security. The growth of Lido (a top 10 token), Rocketpool (a top 50 token), and others on Ethereum made liquid staking a hot topic. Similar offerings on Bitcoin would allow passive Bitcoin holders to take advantage of new return opportunities while maintaining their wealth for the long term.
New use cases are emerging
One of the hallmarks of Bitcoin is its strong community. This is an area where building on the blockchain has been pushed back. Ordinal numbers, for example, were initially criticized by so-called Bitcoin maximalists, who believe that the asset's sole purpose is to store value. But they have become a mainstay, recording 350,000 daily sign-ups this summer. This shows that there is strong interest in new types of services on Bitcoin, even if not the entire community is convinced.
In fact, top exchanges Binance, Gate.io and KuCoin listed ordinal-based BRC-20 memecoins just this month, showing another side of their rising appeal.
Ordinal and memecoins are on the more playful side of crypto, but their popularity provides a glimpse into the interaction and demand that could be unlocked by incorporating Bitcoin into the broader decentralized app ecosystem.
Of course, these options will not be attractive to all Bitcoin holders, but more options are always preferable to few. Additionally, it aims to strengthen Bitcoin by enabling wider adoption among new audiences, which is ultimately the goal outlined in Satoshi's white paper.
Institutional acceptance looks promising. There is widespread optimism after the US approved a Bitcoin ETF, which will benefit Bitcoin and attract new stakeholders. In the long term, many of these new owners will demand options for using their digital assets, particularly these financial institutions. Outside of Bitcoin, the broader crypto industry will only benefit from the inclusion of Bitcoin, especially during this winter period.
It is high time that Bitcoin no longer remains isolated.
Brandon Truong is lead product writer for ZetaChain. He previously co-founded the social platform Yada (which was acquired in 2020) and spent time building products for BuzzFeed and Udacity.
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