Bitcoin is like digital gold. Individuals, corporate firms and nations love it because it’s very decentralized and secure.
But it has a small problem: it mostly just sits there. You can hold it, send it, or maybe wait for the price to go up, and that’s all. There’s no DeFi or way to earn passive income on your Bitcoin because you cannot build apps directly on Bitcoin. What if you put Bitcoin on other smart contract blockchains like Sui where DeFi is thriving? Then you’ll have BTC-Fi.

​
What is BTC-Fi

BTC-Fi (short for Bitcoin DeFi) is what happens when you bring Bitcoin into the world of decentralized finance.
You take that idle Bitcoin and wrap it into a token that can move around DeFi apps. That way, you get the best of both worlds. The value and security of Bitcoin. The utility and yield opportunities of DeFi.
For example, you can wrap BTC to xBTC or wBTC on Sui and use it to earn, swap, borrow and provide liquidity while earning passive income instead of keeping it idle.

​
Why BTC-Fi Is Important

Bitcoin is the most valuable crypto by market cap. Currently the Bitcoin Dominance is greater than 50% meaning that Bitcoin is more valuable than every other crypto project combined.
Billions of dollars in BTC are sitting idle: not earning, not flowing, not building. That’s a massive opportunity cost. Unlocking all that capital into DeFi would create more liquidity and opportunities for Bitcoin holders and all DeFi participants. More Bitcoin in DeFi means more liquidity for the ecosystem. More options for BTC holders. And a stronger, more composable financial system. So, yeah, BTC-Fi bridges the gap between the most valuable crypto and the most advanced protocols to improve DeFi significantly. That’s a big deal.

​
How BTC-Fi Works

BTC-Fi systems are different from each other by implementation, but how most of them work is:
  1. First, you’ll lock your Bitcoin to a bridge protocol or custodian. They’ll hold it in a reserve. You want a secure verifiable protocol.
Once the BTC is locked, you receive an equivalent amount of a wrapped token on the target chain. These wrapped tokens are pegged 1:1 to your real Bitcoin and you can use them in DeFi.
  1. Now you can use the wrapped BTC in DeFi. Lend it on lending protocols to earn interest. Borrow stablecoins against your it as collateral. Swap it for other assets on DEXs like Cetus or Nexa. Provide liquidity and earn trading fees.
  2. When you’re done, you can reverse the process: Return your wrapped token to the protocol for your original Bitcoin on the Bitcoin network.
Your wrapped BTC behaves like any other token on-chain, but with the value of Bitcoin behind it.

​
The Problems with BTC-Fi

BTC-Fi is powerful, but it’s hardly perfect. Many protocols have tried building BTC-Fi directly on Bitcoin but that didn’t work. Maximalists argue that adding complexity to Bitcoin has implications. Some people confidently hold Bitcoin because the protocol is “simple”. It doesn’t try to do anything other than being good money. There’s also the part where most smart contract solutions introduce attack vectors that didn’t exist before: more code, more bugs, more ways to lose money. Since Bitcoin doesn’t support DeFi, for BTC-Fi, we need bridges and wrappers to bring BTC into DeFi ecosystems, and that adds risk. Most Wrapped BTC Is Custodial. Take wBTC, the most common wrapped Bitcoin. It’s backed 1:1 by BTC held in custody by a central provider. That’s relatively centralized, and if the custodian fails, freezes funds, or gets hacked, your wBTC/BTC could lose value. There’s also the part where there are many versions of wrapped Bitcoin: wBTC, tBTC, BTC.b, xBTC floating across many blockchains and that splits liquidity.