Is Bitcoin DeFi Ready to Challenge Ethereum’s Dominance?

• There is a growing narrative on Bitcoin DeFi being the next big thing.
• Ethereum dominates TVL and the number of protocols.
• Bitcoin DeFi currently lags significantly behind other chains.

As the first blockchain to launch programmable smart contracts, Ethereum holds an iron grip over the decentralized finance (DeFi) sector. Currently, Ethereum commands over 56% of the total value locked (TVL) in DeFi across all platforms while boasting the largest number of active DeFi applications and protocols. However, amongst Ethereum’s dominance, whispers of Bitcoin’s DeFi potential are growing louder.

Is Bitcoin DeFi the Next Big Thing?

The narrative that Bitcoin DeFi is set to explode is gaining ground, with influencer “Crypto Snooper” citing Ethereum’s previous DeFi cycle top as the primary reason to “get in early.” In support of this view, Crypto Snooper highlighted upcoming, promising Bitcoin DeFi projects, such as BeFi Labs, Orange Crypto, and 10n8 BRC-20.  

Echoing Crypto Snoper’s sentiment, Dan Held, marketing partner at Trust Machines, stated that Bitcoin DeFi was the hot topic of discussion during this year’s Satoshi Roundtable, adding that he is “So incredibly bullish on this sector.”

Satoshi Roundtable is a private annual meeting of crypto movers and shakers, with “No press. No media. No pitches. All discussions are off the record.” This year’s event was hosted in Dubai between February 1 and 6.

While optimistic narratives abound on Bitcoin DeFi’s future, its scope remains far behind other chains, particularly the established Ethereum DeFi market.

Long Way to Go

According to DeFi Llama data, Bitcoin DeFi lags far behind other chains, ranking 15th by TVL at just $307.7 million. This represents a tiny fraction compared to Ethereum’s whopping $32.9 billion valuation.

Further analysis shows just nine Bitcoin DeFi protocols listed by DeFi Llama, with the Lightning Network layer 2 payment system accounting for approximately 70% of the value locked into the Bitcoin chain. With that in mind, it would likely take years of development to offer comparable functionality with leading DeFi chains, let alone contend for the top spot.

On the Flipside

• Bitcoin‘s brand name and network effects give it an inherent edge in capturing DeFi users.
• Bitcoin may have less flexibility for complex DeFi products due to technical restrictions in its core protocol capabilities.
• Purists argue that BRC-20, based on Bitcoin DeFi functionality, is a network exploitation .  

Why This Matters

Bitcoin’s robust network effects and liquidity position it well to challenge Ethereum’s dominance in the DeFi sector. However, the Bitcoin DeFi ecosystem still trails behind other chains and lacks a standout protocol that entices users away from competing platforms.

Read about South Korea tapping the US SEC for Bitcoin ETF guidance here:
South Korea Plans Bitcoin ETF Talks with SEC Chair Gensler

Find out more on the SFC’s deadline for crypto exchange licensing here:
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