Does BitcoinFi Have a Future?

In the first quarter of 2025, altcoins have left many crypto enthusiasts disappointed. Those who once eagerly awaited an altseason seem to have lost patience altogether. Instead, attention has shifted back to Bitcoin, now widely regarded as a more promising investment.

Developers, too, are increasingly launching innovative crypto projects directly in Bitcoin’s ecosystem, a trend known as BitcoinFi — DeFi solutions built on Bitcoin. While this concept sparked interest last year, in 2025, it appears even more relevant and timely.

Rootstock: Pioneering Bitcoin-Based DeFi

There’s one important detail people often overlook: all the necessary tools to create DeFi on Bitcoin have already existed for a long time. Rootstock, a Bitcoin sidechain fully compatible with the Ethereum Virtual Machine (EVM), allows virtually any Ethereum-based DeFi project to be deployed on Bitcoin. Although several promising projects have emerged on Rootstock, they’ve struggled to gain widespread popularity. Why has adoption been so limited? Let’s explore this in more detail.

Rootstock launched in 2018 with a clear mission — to end the isolation of Bitcoin holders from the rapidly growing decentralized application (dApp) ecosystem. Back then, Bitcoin holders who wanted to participate in trending dApps were forced to swap their BTC for other cryptocurrencies like ETH, NEO, EOS, TRX, and so forth. Even at that time, Bitcoin maximalists argued that these altcoins would not reliably preserve value over the long term compared to Bitcoin. To them, creating a financial ecosystem relying on altcoins was akin to relying on fiat currencies, inevitably losing value over time. Today, observing the price trends of those cryptocurrencies that facilitated dApp access back in 2018, it’s clear their concerns were valid.

ETH/BTC, NEO/BTC, EOS/BTC, and TRX/BTC charts 2018–2025. Source — CoinGecko

The Rootstock developers envisioned an ecosystem where the core asset is Smart Bitcoin (RBTC) — a tokenized Bitcoin operating within Rootstock’s EVM-compatible blockchain. To create and redeem RBTC, a two-way federated bridge was established. Users convert their BTC into RBTC by locking the equivalent amount of Bitcoin on the bridge address, where these coins remain frozen until the RBTC is subsequently burned within Rootstock.

RBTC serves as the native token for gas payments within Rootstock, meaning Bitcoin essentially powers all economic activity in this blockchain. Bitcoin holders thus gained complete Ethereum-style DeFi functionality without relying on ETH’s price success.

Rootstock hosts unique DeFi projects without direct analogues in the broader DeFi space. The MoneyOnChain protocol stands out, featuring the DollarOnChain (DoC) stablecoin and the volatility-oriented token BPro, both collateralized by a shared pool of Smart Bitcoins. Users exchanging RBTC for BPro assume higher volatility than Bitcoin itself — leading to potentially higher rewards but also higher risks. Conversely, users exchanging RBTC for DoC receive protection from volatility, as they can later burn each DoC token to reclaim an RBTC amount equivalent to one dollar. If Bitcoin price rises during that period, the surplus benefits the BPro holders; if Bitcoin depreciates, BPro holders absorb the losses. This model has proven remarkably robust: since its launch, DoC has never lost its peg to the dollar, unlike better-known stablecoins such as DAI.

Rootstock supports the most popular DeFi features, including token issuance, stablecoins, decentralized lending, DEXes, and NFTs. In late 2024, Rootstock’s total value locked (TVL) reached an all-time high of $253 million, but as of March 30, 2025, it stands at $188 million. In comparison, Ethereum, the current DeFi leader, holds nearly $50 billion in TVL — hundreds of times greater than Rootstock.

If Rootstock can mirror Ethereum’s capabilities, why hasn’t it gained similar widespread adoption? After seven years, why does Rootstock host just over 40 DeFi protocols?

One issue is limited throughput. Rootstock generates blocks every 30 seconds and maintains a very low gas limit, constraining its transaction capacity to less than 1 TPS. Consequently, Rootstock-based dApps operate slowly, deterring developers.

However, the most significant obstacle remains marketing — or rather, the lack thereof. DeFi platforms such as Ethereum, Binance Smart Chain, Tron, and Solana aggressively marketed their innovative potential, encouraging users to purchase their native tokens (ETH, BNB, TRX, SOL) necessary for smart contract execution. In Rootstock, the equivalent token is RBTC, tied directly to Bitcoin. Rootstock developers don’t profit from RBTC purchases, as no pre-mining occurred; each RBTC is backed by real BTC locked on the bridge. Thus, there was no aggressive promotion, and without it, explosive demand couldn’t materialize.

Natural demand from Bitcoin enthusiasts remains weak, too. Although RBTC is sufficiently liquid — you can easily swap it on rabbit.io for numerous other cryptocurrencies — it lacks Bitcoin’s crucial trait: guaranteed censorship resistance. Redeeming RBTC for underlying BTC requires permission from a federation holding private bridge keys. Although approval is usually automatic, theoretically, external pressure could cause federation members to freeze bridge-held Bitcoins indefinitely.

What Are Today’s BitcoinFi Projects Bringing to the Table?

Stacks

Stacks isn’t exactly a new player — it’s been around since 2017 and also aims to bring smart contracts to the Bitcoin ecosystem. But in some ways, it’s more in tune with the current wave of innovation than Rootstock, as its most active phase of development has taken place in 2024–2025.

Stacks is tightly integrated with the Bitcoin blockchain. Each Stacks block includes a hash that gets written into Bitcoin, meaning it’s impossible to rewrite Stacks’ history without also altering Bitcoin’s. This strong linkage reinforces the network’s security and transparency.

The network’s wrapped Bitcoin asset, sBTC, allows users to interact with DeFi applications in the Stacks ecosystem. But unlike Rootstock, Stacks doesn’t rely on a centralized bridge. Instead, it enables atomic swaps — trustless exchanges of BTC for sBTC and vice versa. This method significantly improves security since there’s no intermediary holding your funds.

However, atomic swaps have their own tradeoffs. They require a counterparty, and if no one is available to make the trade, you’re stuck holding sBTC. And since sBTC is still a relatively illiquid asset, that’s a real concern. In fact, none of Rabbit Swap’s partners currently support sBTC for exchange, so even on rabbit.io — with over 8,000 cryptocurrencies available — there’s no way to swap sBTC for anything.

That said, Stacks does offer some creative DeFi features, like STX staking. Users can temporarily lock up their STX tokens and earn rewards paid out in Bitcoin.

Despite these innovations, Stacks hasn’t gained much traction. Its total value locked (TVL) stands at just $101 million — lower than Rootstock’s — despite having raised development funds by selling its native token, STX, and offering grants and other incentives to developers.

Bitlayer and Other Bitcoin Rollups

Projects like Bitlayer are tackling one of the biggest challenges in Bitcoin-based DeFi: trust in the bridge. Instead of relying on federated multisig addresses — like those used in Rootstock — Bitlayer leverages Bitcoin’s Taproot upgrade to create a smarter, trust-minimized solution. With Taproot, control over locked Bitcoin is governed directly by smart contracts, removing the need for trusted intermediaries.

In practice, Bitlayer’s design looks somewhat similar to Rootstock at first glance:

• Users send their regular BTC to a special multisig address on the Bitcoin mainnet. These funds are locked there temporarily. No single party controls the private keys to this address.
• Once BTC is locked, Bitlayer mints a corresponding token within its rollup network. These tokens can then be used freely — transferred, traded, or deployed in DeFi applications.

But when it’s time to withdraw BTC back to the Bitcoin mainnet, the user simply burns their rollup tokens, and this triggers the Taproot-based smart contract, which allows the locked BTC to be released and sent to the user.

Bitlayer has successfully drawn developer and investor attention, thanks to its own native token and a well-funded grant program. In just about a year since its launch, the protocol already hosts over 100 projects, with a TVL of $252 million — surpassing both Rootstock and Stacks.

Other rollups are following similar models, using Taproot scripts to power off-chain operations before final settlement on the Bitcoin blockchain. Notable examples include BEVM and Merlin Chain.

BEVM stands out by supporting not just BTC, but also BRC-20 tokens within its rollup environment. It also integrates with the Ethereum blockchain, enabling cross-chain use of Ethereum-based tokens. However, it hasn’t seen much adoption yet, with a modest TVL of just $634,000.

Merlin Chain, on the other hand, takes aim at Bitcoin’s privacy limitations. It incorporates zero-knowledge proofs to offer enhanced user privacy. The project also launched with an aggressive staking rewards program, which paid off initially: by May 2024 — just months after launch — Merlin’s TVL had surged past $500 million. However, that number has since dropped below $150 million, as the value of Merlin’s native tokens declined, eroding user incentives. Merlin ultimately illustrates a key lesson: if your DeFi ecosystem leans too heavily on its own token rather than Bitcoin, user retention and capital stickiness become much harder to maintain.

Babylon: Bitcoin Staking Without Letting Go

Among all BitcoinFi protocols, Babylon has emerged as the most popular with users. Just six months after its launch, it already boasts a total value locked (TVL) of $4.4 billion — a massive lead over its competitors.

Babylon addresses a long-standing problem: Bitcoin holders haven’t had a way to earn yield on their BTC without selling it or swapping it for riskier assets. The protocol introduces a new use case — staking Bitcoin as collateral to help secure Proof-of-Stake (PoS) networks.

It’s a clever idea. In PoS systems, validator honesty is enforced by the risk of slashing — losing a portion of their staked assets if they act maliciously. But when those staked assets are in the native token of the network (often volatile and inflationary), the economic security can be shaky — especially if early investors got their tokens cheap or for free. By contrast, slashing Bitcoin raises the stakes considerably.

Babylon allows users to lock their BTC as collateral for PoS chains, strengthening their security. At this stage, no live blockchains are yet connected to Babylon, and stakers aren’t earning yield just yet. Still, many Bitcoin holders are already signaling their interest by voluntarily locking their BTC.

That alone speaks volumes. The idea of earning a return on BTC without relinquishing control or converting it into other tokens clearly resonates. And with its strong early adoption, Babylon may mark the beginning of a new era for Bitcoin’s role in decentralized finance.

Have Rootstock’s Mistakes Been Fixed?

As we’ve seen, Rootstock offers everything needed to build a full-fledged DeFi ecosystem on Bitcoin. And yet, despite being around for years, it never achieved mainstream success. That comes down to three key issues:

• Technical limitations — Rootstock’s slow block times and low gas limits make it unsuitable for high-performance applications.
• Lack of marketing incentives — Since RBTC is pegged 1:1 with BTC and wasn’t pre-mined, developers had no token to profit from for funding promotion efforts.
• Trust requirements — Moving BTC into and out of the Rootstock ecosystem requires a federated bridge, which introduces centralization and censorship risk.

Today’s BitcoinFi projects are consciously addressing each of these shortcomings.

• Rollups are significantly faster than Rootstock. For example, Merlin Chain can handle over 100 transactions per second.
• Projects like Stacks, Bitlayer, BEVM, and Merlin have their own native tokens, which help finance development and marketing through token sales and incentive programs.
• Rollups use Taproot-based smart contracts to guarantee BTC withdrawals without relying on trusted intermediaries. Babylon goes even further — BTC used for staking never even leaves the user’s control.

In other words, the lessons from Rootstock’s struggles are being taken seriously. And thanks to those improvements, there’s genuine hope that the next generation of BitcoinFi projects could succeed where Rootstock fell short.

That said, Rootstock shouldn’t be dismissed. It remains a fully functional, proven blockchain — still one of the most credible ways for Bitcoin holders to access the world of DeFi without leaving the Bitcoin ecosystem behind.