Decentralized Finance (DeFi) services are built on blockchain technology and allow lending, borrowing, and trading without centralized intermediaries. But how has Bitcoin influenced the development of DeFi and enabled these services to thrive, and how does the Bitcoin price today affect the DeFi space overall?
Bitcoin’s role in DeFi
While Bitcoin doesn’t natively support smart contracts (self-executing agreements with terms written into the code), its wider role in blockchain has influenced the development of DeFi. Ethereum, for example, expanded on Bitcoin’s principles to create a platform capable of supporting complex DeFi applications. Although not built for DeFi, Bitcoin is used in it through various technical solutions.
It has been argued that the hesitation among mainstream institutions to accept a Bitcoin loan, for example, due to its volatility, makes it a poor asset for investment planning. However, the Bitcoin price today, available on finance sites such as Yahoo! Finance and Binance, suggests it is in a strong position, having recently climbed back above $100,000.
Integrating Bitcoin
Solutions like Wrapped Bitcoin (WBTC) have allowed Bitcoin to be utilized within DeFi. WBTC is an ERC-20 token on the Ethereum blockchain, backed 1:1 by Bitcoin. This integration bridges Bitcoin’s liquidity with Ethereum’s DeFi capabilities. It allows users to use Bitcoin’s value to lend, borrow, and yield farm (earn passive income by lending or providing liquidity) in DeFi.
Bitcoin’s influence on wider finance
The decentralized nature of Bitcoin offers financial alternatives to people without access to traditional banking. Bitcoin’s peer-to-peer transactions and function as a store of value is particularly beneficial in regions with unstable currencies and/or limited banking services. This aligns with DeFi’s goal of democratizing financial services, making them available to a broader population.
Outside of DeFi, Bitcoin has had a profound influence on the global financial landscape. Since its emergence in 2009, it’s become a cornerstone of modern finance. In 2025, this transformation has accelerated under the second Trump administration, which has positioned the United States as a cryptocurrency leader through some notable policy changes.
The most significant development came in March when Trump signed an executive order establishing a strategic Bitcoin reserve and digital asset stockpile. This unprecedented reserve includes the Bitcoin that the government seized through civil and criminal asset forfeitures. The White House noted that given Bitcoin has a fixed supply (21 million coins), “there is a strategic advantage to being among the first nations to create a Strategic Bitcoin Reserve” (per whitehouse.gov).
This signaled a reversal from previous administrations’ policies. Trump’s executive order revoked Executive Order 14067 (“Ensuring Responsible Development of Digital Assets”) and marked a break from the Biden administration’s restrictive stance toward crypto.
Under the previous administration, the Securities and Exchange Commission (SEC) had taken an aggressive enforcement approach that many in crypto viewed as hostile. The SEC cracked down on the industry in a bid to protect against fraud and money laundering, filing lawsuits against major exchanges such as Coinbase, alleging they were violating US securities laws.
Trump had vowed to replace the SEC chairman, Gary Gensler, on his first day in office. Gensler stepped down before Trump took office, with the latter subsequently nominating Paul Atkins.
The new administration has signaled its intent to take a far more hands-off approach, with the SEC closing investigations into companies like Opensea and Robinhood without taking further action and dismissing claims against Coinbase in early 2025. This regulatory shift has allowed the crypto market to flourish with more certainty and reduced fear of sudden enforcement actions.
Challenges
Despite Bitcoin’s contributions to a new financial landscape, its integration into DeFi presents some challenges. The reliance on intermediary tokens like WBTC introduces counterparty risks, as users must trust custodians to securely manage the underlying Bitcoin. The lack of native smart contract functionality limits Bitcoin’s direct participation in DeFi, necessitating these external solutions.
In the wider finance world, despite Trump’s enthusiastic support, challenges remain. The market experienced volatility following Trump’s April tariff announcements, with Bitcoin dropping 3.9% and Ether falling 5.2%, showing that broader economic instability can impact digital assets.
Some observers have pointed to other concerns. David Materazzi, CEO of Galileo FX, has said, “The biggest risk isn’t regulation, it’s quantum computing. Quantum computers are already running inside large corporations and big government labs. If that tech cracks Bitcoin’s encryption, it’s game over. Bitcoin goes to zero. That’s a bigger threat than anything else.”
The future of Bitcoin in DeFi
As DeFi evolves, developments such as sidechains and layer-two solutions aim to introduce smart capabilities to Bitcoin. This may eventually expand its role in DeFi and leverage Bitcoin’s security and widespread support, enabling more complex financial interactions.
Some DeFi platforms allow users to gain exposure to Bitcoin through synthetic assets (like Synthetix’s sBTC) or trade Bitcoin-based perpetual contracts (like on dYdX), while other platforms allow wrapped Bitcoin tokens (like WBTC or tBTC) to be used as collateral for DeFi activities. These typically don’t use native Bitcoin directly as collateral, but rather tokenized representations of Bitcoin on Ethereum or stablecoins.
Last word
Bitcoin wasn’t initially designed for DeFi but its foundational principles and popularity have influenced the DeFi landscape. Bitcoin continues to play a major role in shaping the future of financial services beyond traditional systems.
