Today, BTCfi has passed BNB Chain. It's now the 3rd largest DeFi ecosystem. Its infrastructure is advancing, but one bottleneck still holds it back. Here’s the state of BTCfi and what comes next. BTCfi’s momentum is driven by two forces: institutional pull and infrastructure push. The substantial inflows into Bitcoin ETFs, along with the amount of BTC held in various treasuries, demonstrate the strong institutional demand for Bitcoin as a store of value. The next phase will involve utilizing Bitcoin as a yield-generating asset, leveraging the substantial BTC holdings of these institutions. On this front, the most significant infrastructure push so far is BitVM. This system has enabled smart contracts with full programmability on Bitcoin, which in turn facilitates advanced DeFi protocols, rollups, and secure bridges without altering the network's consensus rules. As such, there have been many new Bitcoin rollups, which are now looking more promising than "mere sidechains". 📒 RESTAKING Then, looking at data from @DefiLlama, we immediately see that the (re)staking sector accounts for over 90% of BTCFi's TVL. On this front, @babylonlabs_io has pioneered trustless Bitcoin staking by using Bitcoin’s native time-locking mechanism and scripting language. This allows BTC holders to earn yield by contributing to the security of PoS networks, known as Bitcoin Supercharged Networks. Babylon’s market position is a testament to its success; with a TVL of over $5.8 billion, it ranks second among all crypto restaking protocols and represents over 70% of BTCFi’s total TVL. Among the many milestones achieved, they have recently secured partnerships with @krakenfx for native staking, @NexusMutual for slashing insurance, and @cosmos ecosystems via Lombard and Neutron. Leveraging Babylon’s architecture, protocols like @Lombard_Finance and @SolvProtocol enable liquid staking and more DeFi integration. Lombard’s utilizes a Security Consortium of 14 institutions, including OKX and Fireblocks, to validate its ledger and enable trustless minting and redemption of its LST. With a TVL of $1.7 billion, it's now deployed over 13 chains and has recently secured partnerships with institutional staking providers like @Figment_io, @galaxyhq, @Kiln_finance , and @P2Pvalidator. Solv, on the other hand, has as its main selling point its Staking Abstraction Layer (SAL), which enables users to stake Bitcoin across multiple blockchains while maintaining liquidity via its LST, SolvBTC. The protocol holds a TVL of $2.1 billion, with BNB Chain having 63% of SolvBTC, and Venus (the largest lending market in the ecosystem) being the most used protocol. It has to be pointed out how Solv has launched an institutional-grade BTC+ yield vault, offering a base yield of 5-6% on idle Bitcoin and raised $10 million for it. 🫗 Spilling some juicy alpha: A yield strategy to earn a good yield on SolvBTC is to bridge to @Coredao_Org and deposit the LST on @colend_xyz for a 17% APY. Finally, another major player with over $400m of TVL is @satlayer, which extends Babylon’s security by enabling Bitcoin restaking via smart contracts on the Babylon chain and other L1s/protocols like @SuiNetwork, @berachain, @PlumeNetwork, @TacBuild, etc. Similar to Eigenlayer on Ethereum, this process creates "Bitcoin Validated Services" (BVS), which are dApps or protocols that derive their security guarantees from restaked BTC. 📗 ALTERNATIVE STAKING PRIMIITVES Beyond conventional staking, other protocols are building alternative staking primitives for BTC. Liquid Custody Tokens (LCTs) - Pioneered by @bounce_bit, they address compliance and security concerns by storing assets with regulated custodians like Fidelity. In return, users receive a voucher token that can be used in DeFi. Similarly, Solv protocol also uses a semi-custodial model, with SolvBTC reserved through a partnership with @CeffuGlobal. Dual-Staking mode - This requires users to stake both BTC and a protocol’s native token to secure the network. Core DAO pioneered this approach, combining BTC with its native $CORE token to offer tiered yields and enable self-custodial BTC staking with EVM-compatible DeFi. Core offers 0.1% if you stake BTC only and up to 5% yield when you add more $CORE. With a similar model, another notable entity is @b14g_network, which addresses reward token sell pressure by pairing a user’s BTC with another user’s native token, $CORE, e.g., to form a dual staking position. This allows BTC holders to earn higher yields without exposure to the secondary token price risk. B14g is one of the most promising projects in the Core ecosystem right now, and it currently holds ~$350 million of TVL. 📙 LENDING SECTOR The BTCFi landscape also includes a growing lending sector. Particularly, the @Stacks ecosystem is evolving into a lending hub on Bitcoin sidechains. Lending protocols like @ZestProtocol and @GraniteBTC are experiencing a steady increase in deposits, which is in clear contrast with other protocols that have seen declining TVL over the same period. 🫗 Some other alpha for those who are reading until this point: 1. Bridge $BTC to Stacks to acquire sBTC. 2. Enroll in the sBTC rewards program to receive sBTC-denominated yield, which currently stands at ~3.17% APY. 3. Lend sBTC on Zest to earn an additional yield, which can reach up to 5% APR. 4. Borrow and stake $USDh on @HermeticaFi to earn an additional 11% APY. Beyond DeFi-native apps, Coinbase has also adopted a decentralized approach to Bitcoin-backed lending, integrating with @MorphoLabs on their chain. Right now, it has generated almost 750k loans backed by $1.2 billion of collateral. Can't talk about lending without mentioning Aave, which currently has over $5 billion in $wBTC deposited in its smart contracts. However, the yield is nothing to brag about. Indeed, there is still a huge difference in yield between BTC DeFi lending and TradFi lending, with companies like Vield and @hodlwithLedn offering much more attractive rates (see following image). And so the question arises naturally: Is a 12% "centralized" yield worth enough for sacrificing the self-custody that BTCFi enables? 📘 CLOSING THOUGHTS To wrap up this "short" piece, there are a lot of debates about how much BTC is underutilized in DeFi, but one core issue still holds back the sector: most platforms offer non-competitive yields, which would be further diluted if more capital flowed in. Personally, I think the turning point for BTCFi rests on Babylon, especially Phase 3, which will extend support to additional BSNs. This will allow ecosystems like Sui, BOB, and Osmosis to integrate Babylon’s Bitcoin staking for stronger security and liquidity. If those chains generate meaningful yield, it will create a flywheel for the entire BTCfi ecosystem that could truly unlock BTC's hidden potential.