Crypto glossary
Bitcoin DeFi (BTCFi)
Bitcoin DeFi, or BTCFi, covers lending, trading, staking and yield products that use bitcoin as the base asset, either natively or through wrapped tokens.
Bitcoin is the largest crypto asset but historically sat idle, because its base layer cannot run DeFi applications. BTCFi tries to put it to work. The most common route is wrapping: custodians or bridges lock BTC and issue tokens such as WBTC or cbBTC on Ethereum and other chains, where they serve as collateral in lending markets and liquidity pools.
Newer approaches aim to keep bitcoin closer to its own chain: staking BTC to secure proof-of-stake networks without bridging it, Bitcoin layer 2s and sidechains with their own DeFi apps, Lightning-based trading and lending, and protocols built on Ordinals or Runes. The term took off in 2024 as these projects attracted funding and launched tokens and points programmes.
Each route adds risks that holding bitcoin in self-custody does not have: custodian or bridge failure, smart contract bugs, liquidation in volatile markets and opaque yield sources. Some wrapped bitcoin products have faced questions about who controls the reserves. Yields paid in new tokens can disappear when incentives end, so the real return in BTC terms is often small.
Example
A holder deposits wrapped bitcoin as collateral in a lending protocol, borrows stablecoins against it and earns a small yield, accepting the risks of the custodian and of liquidation if BTC drops.