Original author: Chilla
Original translation: Block unicorn
Preface
Decentralized finance (DeFi) on Bitcoin is no longer just theory. Despite some setbacks, momentum is building around unlocking Bitcoin’s potential beyond digital gold.
But let’s be honest: No one really cares. And understandably so. Because until recently, things have been a bit confusing.
While Ethereum built a massive DeFi economy, Bitcoin sat on the sidelines, with over $1.5 trillion in liquidity locked in cold wallets. The absence of DeFi smart contracts, the lack of a decentralized wrapper/bridge (wBTC), and Bitcoin’s status as digital gold limited the development of an ecosystem around the orange currency. But things are changing.
As a wave of new protocols launch on and around Bitcoin, we’re seeing the foundations of a truly BTC-native DeFi stack. Projects like Babylon, Lombard, SatLayer, and Solv Protocol are leading the way in terms of technology and total value locked (TVL), each solving a different piece of the DeFi Lego.
Babylon: Bitcoin’s Collateral Layer
Babylon can be compared to Ethereum’s Beacon Chain, but designed specifically for Bitcoin. It is a native Bitcoin staking protocol with over $5 billion in TVL, the first of its kind.
What’s special about Babylon is that it allows users to stake BTC directly on the Bitcoin mainnet, without the need for a bridge or wrapper. The coins remain where they are, stored in a non-custodial manner.
But Babylon is not just about staking for the sake of staking. Its main innovation is to extend the security of Bitcoin to other blockchains, whether it is an EVM chain, a Rollup, or an application chain.
Bitcoin holders can now help secure the network by locking up their coins and earn rewards from the chain they secure.
Lombard: Liquid Staking for Bitcoin
It’s the Lido of Bitcoin. Babylon does the staking; Lombard makes it composable.
As a result, Lombard, which has $1.9 billion in Bitcoin-related TVL, is built on Babylon. It allows users to stake BTC through Babylon and receive LBTC, a liquid staking token that represents the staked position.
In fact, as we said before, BTC staked through Babylon remain locked on the BTC network. Therefore, they are useless without the consensus mechanism to verify other networks. They cannot be used in DeFi. This is exactly where Lombard comes in. Now, users can get liquid staked BTC (LBTC) and start trading, lending, mining and all other similar things.
Lombard earns revenue by delegating BTC to Babylon validators, who in turn secure external networks and earn rewards, as mentioned earlier. These rewards are shared with LBTC holders. In simple terms, the more chains Babylon verifies, the higher the returns for stakers.
Lombard is active in multiple ecosystems including Sonic, Sui, and Base, and has demonstrated its composability by partnering with protocols such as Aave, Pendle, Ether.Fi, and Corn. It also played an important role in the Boyco Berachain liquidity event, helping to kick-start early TVL.
SatLayer: Bitcoin’s EigenLayer
As the title suggests, SatLayer can be thought of as an Eigen Layer built on top of Babylon.
Although its TVL is the smallest on the list at just $340 million, it introduces a new re-staking model. While Babylon locks BTC to secure external networks at the consensus layer, SatLayer allows users to re-stake LBTC to secure the application layer.
This opens the door to markets for yields derived directly from protected applications, for example, an oracle paying re-stakeholders to ensure data integrity, or a Rollup paying re-stakeholders to ensure transaction validity, or a bridge paying to avoid slashing or fraud.
SatLayer supports re-staking on the EVM and Sui networks.
Do you see the full picture now?
Babylon acts as the base layer, providing consensus for the network;
Lombard is used as a liquidity pledge to unlock the locked Babylon BTC;
SatLayer provides re-staking to provide economic security for the application layer.
Are the similarities to Ethereum, Lido, and Eigen Layer beginning to emerge?
However, it is important to note that both Lombard and SatLayer currently depend on Babylon, but not vice versa.
SatLayer does not necessarily rely on Lombard, although given its decentralized nature, Lombard is currently the only solution it leverages.
Solv Protocol: BTC Reserves and DeFi Vaults
The Solv protocol, which has a TVL of $524.27 million in the BTC ecosystem, takes a different approach.
Similar to Lombard, it provides liquidity staking for BTC, but is not dependent on Babylon and focuses on building its own Bitcoin reserve strategy and other DeFi products.
In fact, the SolvBTC token is a liquid representation of its BTC reserve strategy. Users deposit a wrapped version of BTC, and then Solv converts most of it into native BTC through institutional channels and stores it through centralized custody.
While Solv is not dependent on Babylon, it benefits from Babylon-related assets such as LBTC. In turn, it offers greater composability thanks to its DeFI vault.
Conclusion
DeFi on Bitcoin is no longer just a pipe dream. With the emergence of new protocols and improved liquidity, we may be witnessing a new era of decentralized returns on Bitcoin.
This is no longer just about wrapping BTC on Ethereum, but about unlocking native BTC DeFi.
As more projects like Botanix launch EVM-compatible Bitcoin blockchains, the composability and potential value of these layers could take off. Billions of idle BTC could soon become active collateral, helping validate the network, secure applications, and earn real returns.
Institutional investors are flocking to Bitcoin; they like the returns.
