Inevitable Expansion of the Bitcoin Ecosystem

Key Takeaways

• Bitcoin ecosystem emerged to enhance the utility of Bitcoin's high security and economic value. While initially facing issues with slow processing speeds and low usability, the ecosystem is now rapidly expanding due to technological advancements.

• Bitcoin ecosystem has grown rapidly with Stacks' Nakamoto upgrade, BitVM development, and the emergence of Babylon-centered BTC liquid staking ecosystem. However, structural issues such as centralized bridges and ambiguous TVL calculation methods are still being pointed out.

• In the near future, existing limitations are expected to be resolved through the use of zkVMs, and the ecosystem is expected to expand further with BTCFi integration from various chains including Sui and Cardano.

1. Bitcoin Conference: Biggest Event of the Bitcoin Ecosystem

Source: @TheBitcoinConf

The Bitcoin Conference, which started with just 75 attendees in 2011, has evolved into the largest annual event in the Bitcoin ecosystem. According to public information, the presentation topics at the first Bitcoin Conference were mostly about Bitcoin mining and how to improve the stability and scalability of Bitcoin Core.

As Bitcoin gradually gained recognition as a store of value, the types of topics presented at Bitcoin conferences diversified. Particularly, the Bitcoin conference held in Nashville in July last year was one of the most important political turning points in Bitcoin history. Donald Trump (then presidential candidate) declared through his keynote speech that he would make America the "capital of cryptocurrency," promising the creation of a Bitcoin strategic reserve and the dismissal of SEC Chairman Gary Gensler. Subsequently, Wyoming Senator Cynthia Lummis announced a federal Bitcoin reserve bill to accumulate 1 million bitcoins over 5 years and hold them for 20 years. These policy changes signified a paradigm shift where Bitcoin is recognized as a strategic asset at the national level rather than merely a speculative asset.

Not only policy topics but also many technical presentations were made. Technical updates from more than 10 Bitcoin scalability solutions including Stacks were presented, and core technologies for building Bitcoin-based rollups were announced. This means that Bitcoin Layer 2 chains and Bitcoin-based financial products (BTCFi) have grown to a scale where they are actively discussed not only in the altcoin ecosystem but also within the Bitcoin community.

This year's Bitcoin Conference was held in Las Vegas from May 27-29. In light of this, this article covers the development process of the Bitcoin-based ecosystem, existing limitations, and efforts to overcome them. Additionally, we examine the current expansion of the Bitcoin ecosystem occurring across various chains.

2. The Emergence of Bitcoin Ecosystem - Beyond the Limit of Scripts

Source: Peakpx

2.1 Limitations of Bitcoin Script

The Bitcoin ecosystem refers to separate chains or protocols that use Bitcoin as a settlement/validation layer or bridge BTC to generate additional returns. Since these do not implement complex smart contracts on Bitcoin like the Ethereum ecosystem, strictly speaking, it's somewhat ambiguous to call them a Bitcoin "ecosystem." For ease of understanding, we will use the term ecosystem in this article.

So why did chains and projects with such weak connectivity to Bitcoin emerge as ecosystem projects? The fundamental cause lies in the implementation limitations of Bitcoin Script.

To explain simply, Bitcoin Script is a language that allows writing simple programs on Bitcoin. Since Bitcoin Script's purpose is for transaction verification on the Bitcoin network, it was designed to have only essential elements such as signature verification and conditional statement processing. Therefore, Bitcoin Script cannot write implementation bodies as complex as those supported by Ethereum-based smart contracts.

The implementation limitations of Bitcoin Script can be briefly summarized as follows:

• Turing Incompleteness: "Turing completeness" refers to the ability to compute all mathematical algorithms. Common programming languages like Python and C all have Turing completeness, as does Solidity used for writing Ethereum smart contracts. However, Bitcoin Script lacks Turing completeness because it structurally cannot perform recursive/iterative operations that return to previous computation points.

• No State Value Access: Each Bitcoin Script operates independently, preventing previous script results from affecting subsequent executions. Simply put, it can be described as a structure without memory. Additionally, direct access to Bitcoin network state values such as block timestamps is impossible (indirect interactions with time-related opcodes are only available).

While upgrades like Segwit and Taproot have been implemented to improve scalability by adding some commands at the Bitcoin Core level to address script implementation limitations, Bitcoin Script still has clear constraints, such as being unable to implement staking contracts. These limitations made it difficult for the Bitcoin network to compete with the scalability of platforms like Ethereum and increased demand for Layer 2 solutions.

2.2 Emergence of Bitcoin Ecosystem

The first frontier of the Bitcoin ecosystem was Bitcoin's fundamental use case: payments. The first project in the Bitcoin ecosystem was the Lightning Network, structured to deposit collateral between transaction counterparts, perform multiple transactions on a sidechain, and then process transfers on the Bitcoin network reflecting those results. This structure also led to the emergence of verification protocols such as Watchtowers that determine whether transaction counterparts are acting maliciously. The Lightning Network, which emerged in the very early days of the Bitcoin ecosystem, quickly spread throughout the Bitcoin community and is now established as the most widely used Bitcoin transfer method.

Subsequently emerged smart contract chains represented by Rootstock and Stacks. These acknowledged the implementation limitations on Bitcoin and sought to build Layer 2 execution environments that connect with Bitcoin in the most stable way possible. The consensus methods of early Bitcoin Layer 2 chains took various forms, with representative methods including merged mining, where Bitcoin miners are delegated to generate their blocks and receive part of the block rewards in exchange for borrowing Bitcoin's security, and Stacks' Proof of Transfer (PoX) method, which auctions block generation rights through Bitcoin deposits. These supported one-to-one pegging BTC deposits and withdrawals based on the strong security guaranteed by Bitcoin's Proof of Work, and pegged BTC was used in basic forms of BTCFi protocols through smart contracts on Layer 2 chains.

However, despite these efforts, early Bitcoin Layer 2 solutions were still too slow and inconvenient compared to other commercial chains like Ethereum and Solana. While merged mining allows processing more transactions in the same time compared to Bitcoin, users inevitably experience low usability because block generation is dependent on Bitcoin block mining. For example, according to a report published by Bitcoin media MetaLamp last November, Rootstock's transactions per second (TPS) showed usage rates so low that they were less than 1. Additionally, execution environments that were different from or had poor compatibility with EVM made it difficult to adopt existing infrastructure, ultimately leading to difficulties in implementing DeFi protocols within the ecosystem and low user adoption rates.

Ironically, the movement to solve these problems was triggered by the development of the Ethereum ecosystem. The rapid development of the modular ecosystem in 2023 led to the emergence of rollup frameworks such as Polygon's CDK, Optimism's OP Stack, and ZKsync's ZK Stack, making it relatively easy to build EVM Layer 2 chains using these frameworks. Most Bitcoin Layer 2 chains that emerged afterward show almost identical adoption of existing Ethereum rollup/sidechain structures.

3. Rapid Expansion of the Bitcoin Ecosystem

Source: @Satoshi_BTCFi

Since 2023, the Bitcoin ecosystem has shown remarkable growth both technically and in market size, with the Bitcoin ecosystem now expanding enough to have more than 20 Bitcoin Layer 2 chains and more than 10 BTCFi protocols in operation.

The current Bitcoin ecosystem can be broadly divided into two parts: Layer 2 chains that use Bitcoin as a settlement layer, and BTCFi protocols that expose bridged Bitcoin to DeFi products on various chains. In this section, we will introduce various developments in each Bitcoin ecosystem and several critical elements faced by the current Bitcoin ecosystem.

3.1 Technological Developments in Bitcoin Ecosystem

3.1.1 Stacks' Nakamoto Upgrade

Source: Stacks

Stacks successfully implemented the long-prepared Nakamoto upgrade in October 2024, significantly growing in terms of scalability and security. The Nakamoto upgrade changed the block generation mechanism from the existing one-to-one matching with Bitcoin blocks to a tenure-based system where multiple blocks are generated and then submitted to Bitcoin blocks, similar to Ethereum rollups. This dramatically improved transaction processing time from the previous 10+ minutes to about 5 seconds, and by committing processed transactions to Bitcoin, it now fully inherits the finality of Layer 1 chains like current Ethereum rollups.

3.1.2 BitVM, BitVM2

The development of the EVM-based modular ecosystem significantly lowered the difficulty of building and deploying execution layers, but Bitcoin Layer 2 solutions built using these still had the biggest problem of on-chain verification of transaction data. It was realistically perceived as difficult to implement challenge games or zero-knowledge proof verification performed in Ethereum rollups through Bitcoin Script.

BitVM, unveiled in October 2023, received much attention as a solution that enables verification of off-chain computation results on the Bitcoin network, showing the possibility of solving this problem. BitVM is a mechanism developed based on the idea that all types of computations can be decomposed into NAND operations, attempting to express arbitrary computations by creating NAND circuits with Bitcoin Script by combining hashlock, OP_BOOLAND, and OP_NOT that Bitcoin previously supported.

BitVM decomposes arbitrary computations into NAND circuit trees and stores them in the form of Taptrees. Taptrees are data structures that enable storing scripts in compressed tree form on the Bitcoin network, making relatively large-scale computations possible. However, even with the improved scalability due to Taptrees, there are clear limits to processing computations as complex as commercial programs, so most computations are performed off-chain with only their records verified in BitVM.

BitVM's biggest feature is computation integrity verification through challenges. BitVM verifies computation integrity through one-on-one games between provers and verifiers when computations are suspected of being manipulated. Like Ethereum's optimistic rollups, it performs challenge-response processes that verify computation results through binary search games by submitting computation records to Taptrees, filtering out entities that performed incorrect computations. BitVM's challenge method enabled several Bitcoin Layer 2 chains to adopt structures similar to Ethereum's optimistic rollups, with BitLayer, Citrea, BOB (Build on Bitcoin), Merlin, and other Bitcoin Layer 2 chains designed based on this.

However, BitVM still had significant limitations: since provers and verifiers are matched one-on-one, the possibility of collusion cannot be ruled out, and poor scalability makes it very difficult to process multiple verifications simultaneously. In response, BitVM released BitVM2 in August 2024, which significantly improved the limitations of the existing version. BitVM2's biggest improvement is a "permissionless" system that reduced complexity to require only 3 on-chain transactions for dispute resolution, allowing anyone to challenge suspicious transactions. Additionally, BitVM2 improved scalability by having scripts stored in Taptree leaf nodes include sub-functions of zkSNARK verifiers rather than simple NAND gates.

3.1.3 Emergence of Trust-Minimized Bridge Solutions

The centralization problem faced by existing WBTC (Wrapped Bitcoin) has long been a core issue pointed out in the BTCFi ecosystem. These concerns grew even more when BitGo announced in 2024 that it would transition WBTC operations to a joint venture with BiT Global, a Hong Kong-based company partially owned by Justin Sun, the founder of Tron.

Source: Coinbase Assets

In this situation, MakerDAO (now Sky) decided to stop using WBTC as collateral in August 2024, and Coinbase decided to delist WBTC from its platform. This shows growing distrust of alternative BTC tokens issued by centralized management entities.

Bitcoin ecosystem, recognizing this problem, has been developing mechanisms to minimize trust relationships in BTC bridging. A representative example is Stacks' sBTC mentioned earlier, where Stacks implemented sBTC to be issued through bridging completely connected to the Bitcoin network within Stacks through the aforementioned Nakamoto upgrade.

Source: Hiro

Before the Nakamoto upgrade, sBTC issuance and burning occurred as follows:

• sBTC Peg-in (Bitcoin → Stacks): When users deposit BTC to threshold signature addresses, the Stacks network detects this and issues the same amount of sBTC to the Stacks address specified by the user.

• sBTC Peg-out (Stacks → Bitcoin): When users burn sBTC on Stacks, signers transfer BTC to the user's Bitcoin address on the Bitcoin network through threshold signatures.

At this time, a method was adopted where 11 or more of 15 signers sign to approve sBTC issuance and burning, but this structure had the vulnerability that users' BTC depends on the signer group.

Source: Stacks

Even after the Nakamoto upgrade, the signer group still plays its role in sBTC issuance/burning processes, but they were implemented to function as validators directly participating in Stacks' PoX consensus mechanism beyond simply managing multisig wallets. They verify and approve all Stacks blocks generated by Stacks block miners during their tenure, also processing sBTC-related transactions. This means sBTC issuance and burning proceed synchronized with Stacks network block generation. Particularly, as the Stacks network periodically submits state values to the Bitcoin network, the difficulty of network forks improved to Bitcoin's level, allowing sBTC issuance and burning records to be directly protected by Bitcoin network security.

3.1.4 Limitations of Bitcoin Layer 2 Solutions

Despite these technical efforts, Bitcoin Layer 2 solutions have received much criticism from not only the Bitcoin community but also Ethereum and other communities, because their structures are often overly centralized due to implementation limitations on the Bitcoin network side.

Elements commonly pointed out in Bitcoin Layer 2 chains can be briefly summarized as follows:

• Lack of Data Availability: Most Bitcoin Layer 2 chains do not use the Bitcoin network as a data availability layer due to cost issues, managing chain data through their own nodes or off-chain servers. This means that chains operated by a few selective validators can arbitrarily manipulate network data under validator collusion.

• Centralized Withdrawal Methods: Implementing fraud proof mechanisms or zero-knowledge proofs on the Bitcoin network is considered almost impossible. Therefore, most Bitcoin Layer 2 solutions except for chains with strong connectivity to the Bitcoin network like Stacks process withdrawal requests to Bitcoin through arbitrary approval by multisig-based operators instead of on-chain verification. Due to this structure, some Bitcoin Layer 2 solutions are still criticized as "multisig solutions rather than Layer 2."

Source: Bitcoin Layers

The above figure is a dashboard provided by Bitcoin Layers, which can be considered the L2Beat for Bitcoin Layer 2 chains, allowing a quick understanding of the structural security of current Bitcoin Layer 2 chains. It can be confirmed that Merlin and Bsquared, which have the highest BTC deposits among current Bitcoin Layer 2 solutions, adopt the most centralized structures, meaning there are many technical problems that Bitcoin Layer 2 solutions need to solve.

3.2 BTCFi’s Expansion to Liquid Staking

BTCFi is expanding from simple DeFi farming using one-to-one pegged BTC to the realm of liquid staking/restaking that enables using Bitcoin network security for verification of other proof-of-stake networks or off-chain services. In this section, we will examine these movements centered around Babylon in more detail.

3.2.1 Babylon

Babylon is the first Bitcoin-secured Layer 1 blockchain built on Cosmos SDK, establishing itself as the core of BTC-based liquid staking and restaking ecosystem by implementing a Proof of Stake mechanism using Bitcoin's security.

Babylon's biggest feature is a dual-token-based proof-of-stake system where 100 validators stake $BABY tokens and 60 finality providers stake BTC. Babylon's proof-of-stake system has two characteristics: first, additional voting on block finality by finality providers occurs after consensus by validators, and second, validators' $BABY is managed on the Babylon chain while finality providers' BTC is managed on different chains - the Bitcoin network.

Babylon maximized the use of Bitcoin Script to enable BTC deposits directly to finality providers without BTC bridging or wrapping, implementing two mechanisms for this.

Source: Babylon

The first is the Extractable One-Time Signature (EOTS) mechanism. EOTS is a mechanism that enables managing staked BTC on the Bitcoin network, automatically exposing private keys when signing two different messages with the same private key. Babylon used this to implement a mechanism that immediately performs slashing through scripts when finality providers that provide chain finality through BTC delegated from users perform double signing.

The second is the Covenant system, which implemented the ability to specify the ratio of BTC burned during malicious behavior or set withdrawal grace periods during unstaking through multi-signature structures with BTC depositors through Bitcoin Script.

Through this system, Babylon enabled users to generate additional returns by depositing their BTC without separate bridging, and implemented trust-minimized bridges based on BitVM2 to provide maximum trust to users wanting to use BTCFi protocols within the Babylon chain.

Source: Babylon

Babylon's vision is not limited to building its own proof-of-stake chain but aims to provide security to other proof-of-stake chains based on delegated BTC. Babylon aims to enable any type of chain to borrow Bitcoin's security by including stakes delegated from finality providers in consensus, composing them into an ecosystem called Bitcoin Supercharged Networks (BSN). However, since building BSN requires modifications to chain consensus mechanisms, there is an entry barrier, so BSN adoption is expected to take considerable time.

3.2.2 Expansion to Liquid Staking

The emergence of Babylon, which uses BTC in proof-of-stake chain consensus, naturally led to the emergence of liquid staking protocols that enable using staked BTC as liquidity again. Currently, the Bitcoin liquid staking token market is rapidly growing with TVL exceeding $4 billion, with major projects like Lombard Finance and Solv Protocol leading the market with differentiated approaches.

Lombard Finance

Lombard Finance provides services that enable Bitcoin holders to earn returns through staking to Babylon while participating in DeFi activities through LBTC (Lombard Staked BTC), a liquid staking token.

Source: Lombard Finance

Lombard's biggest feature is a B2B approach centered on Software Development Kits (SDKs). Lombard built a cryptographic key management system called CubeSigner and provides SDKs that enable various platforms such as wallets, centralized exchanges, and DeFi protocols to immediately integrate Bitcoin staking. Through this method, Lombard succeeded in integrating with major centralized exchanges like Binance and Bybit.

Lombard enables LBTC holders to earn BABY tokens through Babylon staking and native tokens from BSN, providing additional revenue opportunities through LBTCv, a DeFi vault token that allows depositing LBTC, WBTC, and cbBTC.

Solv Protocol

One of Solv Protocol's biggest features is its layered liquid staking token structure. SolvBTC serves as a universal Bitcoin reserve integrating Bitcoin liquidity across multiple EVM chains, SolvBTC.BBN is a Babylon staking-specific token providing BTC staking rewards and Solv points, and xSolvBTC is a liquid yield token generating low-risk returns that can be used as liquidity or collateral in DeFi activities.

Source: Solv Protocol

Solv is receiving greater attention for supporting not only staked BTC liquidity but also products integrated with traditional financial products. Solv launched SolvBTC.AVAX, an RWA-based Bitcoin yield product utilizing $4 billion in institutional assets managed by BlackRock's BUIDL and Hamilton Lane's SCOPE. This structure combines Bitcoin staking yields with traditional treasury and private credit product returns, evaluated as an attempt to blur the boundaries between BTCFi and traditional finance.

Liquid Staking Ecosystem Expansion and Competition

Beyond these major projects, various Bitcoin liquid staking protocols are emerging to enhance ecosystem diversity, and recently Bitcoin restaking protocols have emerged. Particularly, SatLayer is presenting a new model that restakes Lombard Finance's LBTC to provide security for off-chain applications.

3.2.3 Criticism on BTCFi

Source: Nubit

In January 2025, several Bitcoin ecosystem projects including Nubit, Nebra, Bitcoin Layers, and Alpen Labs jointly published a report called 'Proof of TVL', pointing out that many existing BTCFi projects are reusing the same assets or manipulating and inflating total value locked (TVL) figures. They pointed out that TVL in the Bitcoin ecosystem is fundamentally difficult to track and security-wise vulnerable, which can be explained in more detail as follows:

• Structural Problems of TVL Manipulation: Bitcoin's UTXO model differs from Ethereum's account-based model, creating individual "chunks" with specific spending conditions for each transaction. This makes tracking and locking funds complex, resulting in LST protocol TVL figures relying on self-reporting rather than data analysis. Additionally, this makes it difficult to verify whether LSTs were actually issued with one-to-one collateral, making security trust difficult.

• Absence of Slashing Mechanisms: They pointed out that most current Bitcoin staking protocols have not implemented staking, arguing that BTC that cannot actually be controlled or slashed should not be included in TVL.

They proposed zero-knowledge proof (ZKP)-based verification methods as solutions to these problems, with development of TVL measurement frameworks for BTCFi through on-chain data currently underway led by Nubit and Nebra.

4. What’s Next for the Bitcoin Ecosystem

4.1 Technological Developments

4.1.1 OP_CAT

OP_CAT is one of the most important upgrade proposals that can fundamentally resolve Bitcoin's implementation limitations. OP_CAT is a function originally included in Bitcoin Script by Satoshi Nakamoto but removed due to concerns about Denial of Service (DoS) attack risks. In April 2024, BIP-347 to restore OP_CAT to Bitcoin mainnet was designated as an official proposal, and the function is currently being tested on Bitcoin testnet Signet.

While OP_CAT is a command that performs the very simple function of concatenating two strings, when added to current Bitcoin Script, the possibility of implementing zero-knowledge proofs improves to a very high level.

Source: Starkware

Representatively, Starknet's Starkware succeeded in implementing and verifying Stwo, the first on-chain zero-knowledge proof verifier through OP_CAT on Bitcoin Signet, giving great hope for the possibility of implementing truly trust-minimized Bitcoin bridges.

OP_CAT has received widespread support within the Bitcoin community, with major Bitcoin ecosystem communities such as Taproot Wizards actively promoting and participating in its development. Taproot Wizards is a developer and community group that supports Bitcoin's technical advancement and innovation, widely promoting OP_CAT's potential and conducting related experimental projects. For example, in February 2024, they implemented and operated the on-chain Bitcoin vault "Purrfect Vault" using OP_CAT, which was previously impossible to implement with existing Bitcoin scripts.

Source: Bitcoin Merges

Recent update to Bitcoin Core that removed size restrictions on OP_RETURN data also suggests that OP_CAT's introduction is imminent. While OP_CAT provides functionality to concatenate two data elements from the stack into one, OP_RETURN allows arbitrary data to be stored in Bitcoin transactions. Previously, the size of data that could be stored via OP_RETURN was limited to around 80 bytes, but removing this restriction now enables the storage of complex data structures. The combination of OP_CAT and OP_RETURN will add functionality close to smart contracts to the Bitcoin network, enabling the creation of complex data structures and their permanent storage on the Bitcoin network. Additionally, the removal of OP_RETURN restrictions provides sufficient space to record proof system results on-chain, significantly increasing the potential utilization of zero-knowledge proofs.

4.1.2 Full-Scale Introduction of zkVMs

Recently, projects that developed powerful zkVMs such as Succinct and RISC Zero have successively announced integrations with Bitcoin ecosystem chains. Zero-knowledge virtual machines execute high-level computations that cannot be fully executed on-chain due to gas fees and other issues in off-chain environments, then provide execution process integrity in the form of verifiable zero-knowledge proofs. While it's possible to generate and verify zero-knowledge proofs externally without using zkVMs, if proof generators and verifiers are essentially the same, possibilities of malicious activities such as installing backdoors in verification circuits cannot be ruled out. Most zkVMs are open-sourced and use relatively common zero-knowledge proofs, so they can largely resolve centralization problems in zero-knowledge proof verification processes.

Bitcoin ecosystem projects have also continuously faced centralization problems because most bridges are implemented as multisig forms signed by a few operators due to implementation limitations on the Bitcoin network. While the introduction of OP_CAT mentioned earlier is being discussed as an alternative to solve this, the bridge centralization problem faced by the Bitcoin ecosystem is a critical issue that must be resolved before OP_CAT introduction.

Currently, the Bitcoin ecosystem is trying to solve this problem by generating zero-knowledge proofs through zkVMs and verifying computation integrity on the Bitcoin network through verifiers implemented with BitVM. zkVMs are scheduled to be introduced to various elements of the Bitcoin ecosystem, including verification of bridge withdrawal requests, building zero-knowledge rollups through transaction data submission to Bitcoin, and proving computations in off-chain environments.

Currently, various projects have announced zkVM introduction, and their implementation methods are as follows:

• Citrea: Implemented Bitcoin-based zero-knowledge rollups using RISC Zero's zkVM. Like Ethereum-based zero-knowledge rollups, Citrea bundles thousands of transactions for processing in off-chain zkVMs, then generates zero-knowledge proofs confirming execution accuracy and output data for anyone to verify.

• Molecule: A Bitcoin Layer 2 solution using Solana Virtual Machine (SVM) as execution environment, implementing challenge-reward mechanisms that post zero-knowledge SNARKs to Bitcoin with zkVMs.

• GOAT Network: A Bitcoin Layer 2 solution using BitVM2 based on ZKM's zkMIPS. It improved challenge scalability through zkVMs and implemented structures enabling anyone to challenge on the Bitcoin network through BitVM2.

• Nubit: Developing Goldinals, a new token standard that evolved ordinals token operations that relied on existing centralized off-chain indexers to be verifiable on-chain through BitVM and Succinct's provers.

• Babylon: Developing Bitcoin light clients verified through Succinct's SP1 to improve bridge trustworthiness.

Additionally, Alpen Labs, BOB, and others are utilizing zkVMs in developing EVM-based Bitcoin rollups. Thus, zkVMs are expected to play very important roles in trust minimization of Bitcoin rollup bridges in the future and are expected to resolve centralization problems of Bitcoin Layer 2 solutions quickly.

4.2 Greater BTCFi Expansion

Recently, movements to actively onboard BTCFi at the network level such as Sui and Cardano are occurring, and these movements show possibilities of leading to technological developments including cross-network trust-minimized bridge implementation beyond simple liquidity movement.

4.2.1 Sui

Source: Sui

Sui is one of the Layer 1 blockchains showing the most active movements in BTCFi in 2025. Interest in BTCFi within the Sui ecosystem is very high, evidenced by more than 10% of Sui's total TVL consisting of BTC and Bitcoin derivative assets.

Source: Stacks

Sui is preparing to introduce various BTCFi products within the ecosystem to meet this high demand. Sui announced plans to support Stacks' one-to-one Bitcoin collateral asset sBTC within the next few months, and the Sui Foundation will also operate as a validator on the Stacks network. Additionally, early this year Sui formed partnerships with major BTCFi projects including Babylon, Lombard Finance, Cubist, SatLayer, and Bitlayer.

Sui network's pursuit of collaboration with the Bitcoin ecosystem while already having enormous liquidity is evaluated as a very encouraging phenomenon, and through this, an environment where BTCFi assets previously exposed mainly on EVM-based chains can be easily exposed to the high-potential Move ecosystem in the future is expected to be built.

4.2.2 Cardano

Cardano is one of the chains most actively planning BTCFi expansion, with founder Charles Hoskinson announcing plans to integrate BTCFi into the Cardano ecosystem by 2025 last December.

Source: BitcoinOS

Cardano is currently performing various technical experiments through integration with various Bitcoin ecosystem projects. For example, last May BitcoinOS demonstrated BTC transfers that do not require bridges using its self-developed BitSNARK protocol, achieved through issuing xBTC, non-custodial, cryptographic, programmable tokens directly linked to Bitcoin. This bridging was possible because xBTC exists as UTXOs on Cardano and can be used with Cardano-side users' private keys, requiring no separate trust structures. BitcoinOS implemented verification of xBTC movement process integrity through BitSNARK during this bridging process.

Source: Fairgate

During the same period, Fairgate developed and released Cardinal, which enables bridging Bitcoin network ordinals to Cardano native tokens through BitVMX, a Bitcoin Script-based verification mechanism with a structure similar to BitVM2. Fairgate aims to compose infrastructure supporting BTCFi on Cardano through bridging not only ordinals but also other assets within the Bitcoin ecosystem.

Thus, Cardano is planning to expand BTCFi within the ecosystem through bridging with seamless compatibility with Bitcoin by actively utilizing UTXO structures fundamentally similar to Bitcoin.

4.2.3 Aptos

Source: Aptos

Aptos is also one of the chains putting the most effort into BTCFi expansion, onboarding various BTC pegging assets to its ecosystem and currently hosting a total of $400M worth of BTC assets. The most crucial role in Aptos's BTCFi is performed by Echo Protocol, which supports the issuance of aBTC, a pegged BTC on the Aptos network, through BTC bridging. Echo Protocol is a Bitcoin liquidity layer specialized for the Move ecosystem that receives deposits of pegged BTC or liquid staking BTC from multiple chains, issues a unified form of UnifiedBTC based on these deposits, and allows this to be used again in Echo Protocol's yield farming protocol to provide additional returns. Aptos has recently announced support not only for integration with Echo Protocol but also for Stacks' sBTC and OKX's xBTC, aiming to activate its own DeFi ecosystem by onboarding BTC asset liquidity distributed across various chains.

4.2.4 USDT's Entry into Bitcoin Ecosystem

Source: Tether

The stablecoin ecosystem operating on the Bitcoin network is facing a new turning point with USDT's entry into the Bitcoin network. In January 2025, through partnership with Lightning Labs, it was announced that USDT would be integrated into Bitcoin-based layers and the Lightning Network. This was implemented with the Taproot Assets protocol released by Lightning Labs in summer 2024, which embeds arbitrary asset metadata into existing UTXOs using Bitcoin's Taproot and supports improved scalability using Schnorr signatures. Tether envisions a future fully integrated with the Lightning Network to provide instant settlement, low fees, and high throughput of Tether in the Bitcoin network environment.

5. Is Spring Coming to the Bitcoin Ecosystem?

Source: Bleach

The Bitcoin ecosystem has received much criticism for various structural problems such as low bridge asset security at the multisig level operated by centralized operators and resulting doubts about BTCFi effectiveness. It's also true that many people still have resistance to Bitcoin Layer 2 due to poor user experiences of Bitcoin Layer 2 solutions that emerged early.

Source: Bitlayer

However, despite these criticisms and challenges, the Bitcoin ecosystem can be said to be just beginning. This is because attempts to overcome technological limitations continue to emerge, and their results are gradually becoming visible. Bridge security, pointed out as the biggest security weakness in existing Bitcoin Layer 2 solutions, shows great potential for improvement with development of BitVM2 and its extension solutions, and recent rapid growth of zkVMs significantly reducing computational and verification burdens for off-chain challenge games. As if to prove this, on May 26, Bitlayer succeeded in identifying invalid withdrawal requests through a challenge game through BitVM for the first time in the Bitcoin ecosystem, leaving a great mark on the history of the Bitcoin Layer 2 ecosystem.

BTCFi is also becoming increasingly sophisticated beyond simple liquidity provision or lending. For example, Yala implemented a MetaMint mechanism that issues stablecoin $YU using deposited BTC as collateral, providing more complex and sophisticated financial products. Additionally, on Solana, Fragmetric launched fragBTC in collaboration with Zeus Network and Solv Protocol, exposing BTC to the Solana DeFi ecosystem and creating new revenue opportunities for users. The Bitcoin ecosystem will evolve into an ecosystem providing powerful economic security and returns through BTC's enormous intrinsic value.

In conclusion, spring is coming to the Bitcoin ecosystem. While various challenges currently exist, these problems are being resolved through continuous technological development and innovation, laying the foundation for greater expansion and development of the Bitcoin ecosystem. The future Bitcoin ecosystem will provide safer, more efficient, and user-friendly environments, creating new opportunities for the entire crypto ecosystem.