Ethereum Watch

Bitcoin’s decentralized ecosystem (BTCfi) surpassed $1 billion in 2024 in total value locked (TVL), with a 285% year-to-date growth. This movement was expected by blockchain industry players, such as Brazilian asset manager Hashdex and data analytics firm Nansen, as both entities included the rise of BTCfi in the current bull cycle.

As the halving nears, expectations are that the BTCfi ecosystem’s TVL will become larger. Another catalyst for this expected growth is the Nakamoto upgrade, for Bitcoin layer-2 (L2) blockchain Stacks, which is an index when it comes to applications built using Bitcoin’s infrastructure.

Mark Hendrickson, from Trust Machine, shared insights with Crypto Briefing on the crescent BTCfi ecosystem, its longevity, and what to expect after the halving and the Nakamoto are completed.

Crypto Briefing – From a builder’s perspective, how did the growth of BTCfi ecosystem hit you?

Mark Hendrickson – Trust Machines is a company that is really centered on Bitcoin as a platform, so we don’t build on things that aren’t fundamentally built on Bitcoin. A lot of us come from the Stacks ecosystem, so we have experience in this L2 space when it comes to Bitcoin.

Over the last year or so we’ve seen a lot more layer-1 development with Ordinals, Stamps, and related protocols on Bitcoin. And we’ve grown to become quite, I’d say, agnostic. So Trust Machines is thinking pretty widely about how to build DeFi [decentralized finance] on Bitcoin across layers: in L1 as much as possible and on any number of L2s that are emerging and have relative strengths and weaknesses.

Broadly speaking, because I work on Leather, which is part of Trust Machines, we’re focused on providing the best-in-the-class wallet for Bitcoin Web3, for the BTCfi emergent scenario. From a wall perspective, we want to disabuse people of this concept of “you can’t do things on Bitcoin that you can do elsewhere, like on Ethereum with MetaMask.”

So we’ll make it abundantly clear that you’d also have on Bitcoin as much functionality as you’d find on alternative L1s. We want to build on top of Bitcoin when it comes to its unique characteristics as well.

And then across Trust Machines, I’d say we have a pretty open view, and we’re looking at various types of DeFi protocols that can be built on Bitcoin, looking to spin up new teams and products that serve those use cases. I think over the next year or two, you’re gonna see it sort of multiplying the types of apps that Trust Machines is looking to launch and get off the ground.

Crypto Briefing – Do you believe that the BTCfi ecosystem will sharp boost in traction after the halving and the Nakamoto upgrade for Stacks, or do you think it will be more of a consistent growth movement over time?

Mark Hendrickson – I wouldn’t expect things to just blow up overnight after Nakamoto lands or when stBTC lands on Stacks later this year. I think it’s going to be a catalyst as far as driving more interest, and as far as attracting developers to build on Stacks, and being able to consume Bitcoin and smart contracts with stBTC, and have much faster blocks than traditionally have been available on Stacks.

The first order effect, I think, will be more developments and more developers on Stacks as L2, and then I think we’re going to see the user growth after that. I do think that there’s this interplay that we have to see play out.

There’s a lot of stuff going on in the L1 when it comes to new asset classes, like Runes, which is going to launch this week, and we’ve seen within Ordinals, Stamps, and BRC-20, which a sort of the top meta protocol from the last 12 months in particular. So the question is when that bleeds over into L2s, like Stacks.

I think we’re looking to prepare Stacks, so that when folks really run into the restrictions on the L1, such as costs of minting or trading, and search for the complexity of trying to make sense of more sophisticated sorts of interactions between users. People are already feeling the pain of that, but I think the pain is only going to increase. We’re going to see, as people just sort of have had enough of it, more migration to the L2, especially as Stacks and other L2 evolve, and it has more capabilities for people.

So that’s a long way of saying that I don’t think it’s gonna be like an overnight, all of a sudden, like “Stacks goes to the roof.” But I think we’re gonna see an uptick as far as there’s interest and we’re gonna see a gradual movement to the L2 over the coming, let’s say, 12 months.

Crypto Briefing – Do you believe that the BTCfi movement will surpass the current bull cycle and make Bitcoin a permanent infrastructure when it comes to DeFi?

Mark Hendrickson – Yeah, I’m highly confident that this is going to surpass just the current bull market, and that’s partly because we’ve seen a huge emergence of interest in Bitcoin, DeFi, and Web3 over the past year. Plus, in times when there wasn’t a bull market. I mean, if you go back a year when things heated up, and this comes to Ordinals and Stacks, we’re still in a general bear market.

People in crypto in general are still waiting for life to come back into the industry. And yet, we are working on Bitcoin-based offerings, and we’re feeling this ‘mini bull’ run just within our ecosystem. To me, it’s clearly a trend that goes beyond just the current moment.

Also, I just noticed there’s a larger circle of people now in crypto that have traditionally been pro-Bitcoin in the sense that they thought it was the best asset to hold. But they are now experiencing that sort of ‘aha moment’ as far as it’s not just the best asset to hold, but you can build a lot of things with it. And we’re seeing all this experimentation as a result of that.

This cultural shift that we’ve seen when it comes to Bitcoin and the design space around it, I don’t see that just falling apart if the market were to head south as far as prices. I think that’s something that’s been an inspiration and folks have been again experimenting over the past year, even when things weren’t in a bull market in general.

Crypto Briefing – If the price can be used as a parameter, Bitcoin is seen as the most secure and reliable blockchain in crypto. However, up until now, we didn’t have a decentralized ecosystem built on it. Now that Bitcoin have DeFi capacities as other blockchains also have, such as Ethereum and Solana, what role do you see it playing in the DeFi ecosystem?

Mark Hendrickson – I think what we’ve seen mostly and what I would expect to continue seeing is projects that originate from other chains, such as Ethereum, Solana, or whatever it is, who have taken up an interest in Bitcoin-based solutions, not trying to shift everything over at once.

Instead, they say: “okay, we’re going to experiment with a particular project in the Bitcoin space and cut our teeth on just how it works with Bitcoin,” and sort of relearn how Bitcoin works as far as the fundamentals, plus the new protocols have been developed on top of it, and essentially get familiar with the primitives. So Bitcoin-based functionality on L1 over the past year has been mostly powered by PSPTs, which are partially signed Bitcoin transactions. And so these projects have to figure out, okay, how those work, how do we actually construct those? How do we actually pull those up into our applications?

So, projects are not looking and saying “let’s just take everything we’ve already done and just crank it into the new sort of way of doing things on Bitcoin.” But they’re saying “let’s start with something relatively small and then see if we can cultivate it from there, and compare and contrast the methodologies that are available across chains.”