The rise of BTCFI: From passive assets to financial powers?

Bitcoin (BTC) has always been the face of crypto, and it’s the first thing that comes to mind when you think about this market. However, for years, the role was primarily static and held as a valuable store, but rarely used by others. Then BTCFI entered the scene. Unlike traditional receivables dominated by Ethereum (ETH) and other smart contract platforms, BTCFI is built around Bitcoin as its core asset.

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In the final quarter of 2024, the total BTCFI amounted to a massive surge from $800 million to $6.5 billion. The momentum is impressive, to say the least. With more institutional players getting attention, analysts predict that by 2030, about 2.3% of Bitcoin’s distribution supply will be actively used in decentralized finance.

Therefore, BTCFI is not just a passing trend. But why does it gain so much traction? Can it really be called the future of Bitcoin’s utility?

Let’s understand that.

What is BTCFI and why are they growing now?

BTCFI represents the intersection of Bitcoin and decentralized finance, in which case the first crypto acts as a core asset. Normally, the Defi platform is built on blockchains like Ethereum, but Bitcoin holders had to wrap BTCs in ERC-20 tokens (such as WBTC) to participate in this field.

This type of tokenization began to gain pace around 2020, allowing BTC holders to access Defi services that are not normally available on the Bitcoin blockchain. These “wrapped” tokens are built in a way that is compatible with other blockchain networks. And they effectively expanded the functionality of Bitcoin.

However, advances in Bitcoin L2 solutions and LRT, or layered roll-up technology, have changed the rules. Bitcoin no longer requires the use of the “second class citizen” ERC-20 token.

For example, BTC LRT works in Ethereum and other chains, but uses Bitcoin as the primary collateral for transactions. This means unlocking the use of Bitcoin as a yield generating asset in other networks beyond the native chain.

Meanwhile, emerging Bitcoin L2 is tackling the long-standing scalability issues of this blockchain, enabling faster, more cost-effective transactions. These innovations fundamentally redefine Bitcoin and transform it from a valuable passive reservoir into an actively exploited financial asset.

Why is BTCFI the gateway for Bitcoin Zilla in 2025?

In particular, large Bitcoin holders often use BTC-backed CEFI loans to fund their businesses, as they did not want to sell their assets entirely. This practice continues today, but BTCFI is committed to making some changes. And from where it all begins, in reality, BTCFI allows for new opportunities for Bitcoin holders to make their assets work.

Soon, Bitcoin Zilla begins to see BTCFI as a powerful gateway that can be used to enter the defi space. And in the way I see it, there are two important factors that will affect that perception in 2025.

The first is the rise of Bitcoin ETFs. The BTC ETF currently accounts for almost 6% of all Bitcoin supply, exceeding its $100 billion holdings in early 2025.

This will become a major option for Defi and attract large owners who want to use BTC without selling. Earlier this February, Goldman Sachs announced it had invested $1.63 billion in Bitcoin ETFs. It’s quick and easy.

The second major factor is the appearance of BTC L2 technology, which we have already covered before. Until recently, lack of scalability and transaction efficiency has led to Bitcoin returning from Defi’s adoption. This will show you a surge in L2 solutions that improve network performance. And here’s the important part. They do so while maintaining the core principles of Bitcoin of decentralization and simplicity (and therefore its robustness).

What the DEFI platform needs to do for proper BTCFI integration

Before BTCFI can achieve truly seamless integration, there are several challenges that need to be overcome. The biggest technical problem is making sure that Bitcoin-based L2 solutions are really unreliable. At this point, they are not completely there. It often relies on intermediaries and centralized elements, which violate Bitcoin’s central philosophy.

The good news is that a lot of research and development continues to make it happen. If successful, you can make defi useful the huge amount of BTC that you are currently “collecting dust.”

Another big challenge is that it comes from people’s trust. There are many people in Bitcoin holders who don’t fully trust Ethereum and existing methods of Bitcoin tokenization. The key to getting them is to create robust and cost-effective solutions for the native Bitcoin network. Having a cheap execution layer that is completely unreliable and unreliable in the BTC blockchain could be a contractor for these people.

The Future of Bitcoin: More than just “digital gold”

For years, Bitcoin has been embraced by the name “digital gold.” This is a safe asset to keep rather than use. These days, this has become increasingly untrue. As more institutional players enter the encryption space, the possibility that BTCFI will become the next level of evolution of Bitcoin is very realistic.

Demand is rising and infrastructure is already built. For Bitcoin Zilla, who is trying to maximize their assets without selling, BTCFI could be the perfect answer.

read more: Cross-chain interoperability is key to scaling defai | Opinion

Michael Egorov

Michael Egorov A physicist, entrepreneur, and a crypto maximalist who stood at the origins of defi creation. He is the founder of Curve Finance, a decentralized exchange designed for efficient, low-slip trading in Stablecoins. Since the launch of Curve Finance in 2020, Michael has developed all his solutions and products independently. His extensive scientific experience in physics, software engineering and encryption helps him create products. Today, curve finance is one of the top three debt exchanges regarding the total amount of funds trapped in smart contracts.