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Over $1 Trillion Bitcoin DeFi Opportunity — TradingView News
Since its inception in 2009, bitcoin (BTC) has steadily gained adoption and now has a market capitalization of over $1.3 trillion. It was designed to be a decentralized currency and real-time gross settlement system. The decentralized, protocol-based approach allows holders to shift trust from a centralized actor to a decentralized, code-based protocol.
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Despite bitcoin being the original cryptocurrency and corresponding blockchain, its functionality has been extremely limited up to this point compared to the smart contracts and decentralized finance (DeFi) functionality offered by Ethereum, Solana, and other blockchains. However, this dynamic is set to change with the emergence of Bitcoin Layers, meta-protocols, sidechains, layer 2s, and other technologies currently being built on the Bitcoin blockchain. These tiers will enable faster payments as well as lending, improved functionality of fungible and non-fungible tokens, decentralized exchanges, GameFi, SocialFi, and many other use cases. Bitcoin holders will soon be able to increase the productivity of their asset through a protocol-based decentralized financial system. The main differentiator between DeFi on Bitcoin and DeFi on other chains is the underlying asset (native token). While Ethereum, Solana, and next-generation blockchains compete on the merits of their respective technologies, DeFi on Bitcoin focuses solely on increasing bitcoin productivity, putting the Bitcoin DeFi ecosystem in a league of its own.
The case for creating value through a Bitcoin-based decentralized financial system is driven by three assumptions:
We already see strong signs of demand for the Bitcoin blockchain as a base layer for other tokenized assets. The market for non-fungible tokens on Bitcoin, called Ordinals, has grown from less than $100 million to more than $1.5 billion in less than six months.
However, the greatest opportunity is still ahead of us. Most of the market value of Bitcoin’s decentralized financial system will manifest itself in the value of fungible tokens on Bitcoin. Fungible tokens will fuel greater productivity of bitcoin (the asset) through yield tools and decentralized financial systems via protocols and layer 2. Compared to Ethereum, Solana and other chains, the value of fungible tokens on Bitcoin is still tiny, largely partly because we are at the beginning of programmable functionality on that blockchain.
Bitcoin’s main non-fungible token protocol, Ordinals, wasn’t released until January 2023. BRC20 and Runes, Bitcoin’s main fungible token protocols, were launched in March 2023 and April 2024, respectively. Even with these recent releases , additional features are needed for a robust decentralized financial ecosystem to exist on Bitcoin.
Additional features are introduced into Bitcoin in two ways:
As mentioned above, Bitcoin’s decentralized financial ecosystem is still in the early stages of its life cycle. However, strong indicators of future growth can be seen through the growing activity of developers and DeFi in the sector. In 2023, 40% of Bitcoin open source developers were focused on Bitcoin L2 and scaling solutions. Then, in the first quarter of 2024, the total value locked (TVL) of the Bitcoin ecosystem grew more than sixfold, from $492 million to over $2.9 billion. In light of these early indicators, along with what we have seen happening in other ecosystems, we believe that over $1 trillion in value could be created in the Bitcoin DeFi ecosystem within the next 5-10 years.
Franklin Templeton Disclaimer:
All investments involve risk, including loss of principal.
Investments in digital assets are subject to many specific risks and considerations, including but not limited to risks relating to:
(i) immature and rapidly developing technology underlying the digital assets, (ii) security vulnerabilities of this technology, (iii) credit risk of digital asset exchanges that may hold an account’s digital assets, (iv) regulatory uncertainty on rules governing digital assets Assets, digital asset exchanges and other aspects and parties involved in digital asset transactions, (v) high volatility in the value/price of digital assets, (vi) unclear acceptance of some or all digital assets by users and global markets, and (vii) manipulation or fraud resulting from the pseudo-anonymous manner in which ownership of digital assets is recorded and managed.
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