Beginner’s Guide: Unlocking Opportunities and Risks in the Bitcoin DeFi Ecosystem

Why use BTC for DeFi?

Traditionally, Bitcoin is considered “digital gold” for value storage. However, with the development of the DeFi ecosystem, more and more projects are attempting to make BTC “move”—for lending, staking, cross-chain trading, and more. Information indicates that “Bitcoin DeFi (BTCFi)” can transform BTC from a passive asset into a tool that generates yield.

The benefits of using BTC for DeFi include:

• Leverage the high liquidity and notoriety of Bitcoin to lower the project threshold.
• Enable BTC to participate in more financial activities in a multi-chain environment.

However, it is also important to note that the Bitcoin ecosystem itself is not as mature as Ethereum in terms of smart contract applications, so there are more “bridging” and “compatibility” issues.

Latest Milestone: Project, Liquidity and Price Status

• Project Progress: As mentioned earlier, the cross-chain plan for Build on Bitcoin and the financing breakthrough for BitcoinOS.
• Liquidity Action: BOB Gateway connects native BTC with wBTC.OFT to 11 main chains, linking approximately 15,000 dApps.
• Price Status: The current BTC price is around US$108,000.
• Ecosystem scale: According to DeFi data, as of now, the daily revenue and transaction volume on the Bitcoin chain, although far lower than Ethereum, are in a growth trend.

These changes mean that if you want to participate in Decentralized Finance within the Bitcoin ecosystem, you are likely in an earlier stage.

Risk Cross-section: Technology, Security, and Compliance

• Technical risks: For example, the ALEX project security incident resulted in a loss of approximately 14 million dollars.
• Bridging and Compatibility Risks: The Bitcoin ecosystem’s DeFi often relies on cross-chain bridges, wrapped BTC, and other mechanisms, and the security of bridging has always been a bottleneck in the industry.
• Compliance and Regulatory Risks: Due to the cross-border and cross-chain nature of DeFi, the regulatory environment is still unclear.
• Liquidity risk: Compared to the Ethereum ecosystem, some Bitcoin DeFi projects are smaller in scale, and liquidity and market participation may be relatively low.

For newbies, understanding these risks and setting reasonable expectations is crucial.

Four Key Steps for Newbies to Enter

• Self-education: Understand the basics of BTC (wallets, private keys, transfers) and the basics of DeFi (staking, lending, liquidity pools).
• Choose an entry point: You can start with mainstream DeFi protocols that are compatible with Bitcoin and try with a small amount first.
• Diversified Investment: Do not put all funds into a single project. Set stop-loss and take-profit mechanisms.
• Stay updated on news, protocol updates, and security announcements: such as major news on financing, vulnerabilities, ecosystem expansion, etc.

Summary and Future Outlook

In summary, Bitcoin DeFi projects are entering an interesting stage: transitioning from “store of value” to “financial infrastructure.” If you are a newbie, it’s not too late to get in now, but be sure to face the risks with clarity. The key phrase “Bitcoin DeFi projects” represents an emerging ecosystem, which may have many opportunities in the early stages, but also numerous challenges. In the coming years, if the ecosystem matures, cross-chain operations are smooth, and security issues are well addressed, Bitcoin DeFi could become one of the mainstream financial pathways. If you are interested in diving deeper into a specific protocol or learning detailed operations, I am always here to help.