BTCFi: Bitcoin DeFi with Ordinals, Runes & L2s
Bitcoin is no longer just digital gold—it's becoming a DeFi ecosystem. Learn how Ordinals, Runes, Lightning Network, and Bitcoin L2s are unlocking new opportunities on the most secure blockchain.
- BTCFi brings DeFi to Bitcoin through Ordinals (NFTs), Runes (tokens), and Layer 2 networks.
- Ordinals inscribe data directly onto Bitcoin satoshis—no bridges or sidechains required.
- Runes are Bitcoin's efficient fungible token standard, launched at the 2024 halving.
- Bitcoin L2s like Stacks and Lightning Network enable smart contracts and instant payments.
- Use Thrive to track BTCFi opportunities across Ordinals, Runes, and Bitcoin yield protocols.
What is BTCFi?
BTCFi (Bitcoin DeFi) encompasses all decentralized finance applications built on Bitcoin or Bitcoin Layer 2 networks. While Ethereum pioneered DeFi, Bitcoin's unparalleled security and network effects make it an increasingly attractive base layer for financial applications.
The BTCFi ecosystem has exploded since the 2023 introduction of Ordinals and the 2024 launch of Runes. These protocols prove that meaningful innovation is possible on Bitcoin without changing its core protocol. Combined with Lightning Network's payment scaling and emerging L2 solutions, Bitcoin is becoming a full-featured DeFi ecosystem.
Native Bitcoin
- • Ordinals (inscriptions/NFTs)
- • Runes (fungible tokens)
- • BRC-20 tokens (legacy)
- • Rare satoshis
Layer 2 Solutions
- • Lightning Network (payments)
- • Stacks (smart contracts)
- • Liquid Network (fast settlement)
- • Merlin, BOB (emerging L2s)
Why does BTCFi matter? Bitcoin holds over $1 trillion in market cap—mostly sitting idle. BTCFi unlocks productive use of this capital: earning yield, trading NFTs, creating tokens, and building applications on the most decentralized and secure blockchain in existence.
Ordinals: Bitcoin NFTs Explained
Ordinals revolutionized Bitcoin by enabling data to be inscribed directly onto individual satoshis (the smallest unit of Bitcoin, 1 BTC = 100,000,000 sats). Created by Casey Rodarmor in January 2023, Ordinals prove that Bitcoin can support NFTs without any protocol changes.
Every satoshi has a unique "ordinal number" based on the order it was mined. Inscriptions attach data—images, text, video, code—to specific satoshis. This data is permanently stored on the Bitcoin blockchain, making inscriptions more durable than NFTs on any other chain.
How Ordinals Work
Top Ordinals collections like Bitcoin Puppets, NodeMonkes, and Quantum Cats have achieved significant valuations. Unlike Ethereum NFTs, inscriptions are fully on-chain—no IPFS links that could break. This permanence appeals to collectors seeking the ultimate digital ownership.
To trade Ordinals, you'll need an Ordinals-compatible wallet (Xverse, UniSat, or Leather) and access to marketplaces like Magic Eden, OKX Ordinals, or UniSat Marketplace. Be aware that Bitcoin transaction fees can be significant during high-demand periods.
Runes: Fungible Tokens on Bitcoin
Runes is a fungible token protocol for Bitcoin, also created by Casey Rodarmor. Launched at the April 2024 Bitcoin halving, Runes provides an efficient way to create and transfer tokens directly on Bitcoin L1, improving upon the earlier BRC-20 standard.
While BRC-20 tokens (the first Bitcoin token standard) gained popularity in 2023, they're inefficient—creating significant UTXO bloat and requiring multiple transactions for simple transfers. Runes solves this with a cleaner design that minimizes blockchain overhead while enabling full token functionality.
| Feature | Runes | BRC-20 |
|---|---|---|
| Efficiency | Minimal UTXO bloat | Creates many UTXOs |
| Transfers | Single transaction | Multiple transactions |
| Creator | Casey Rodarmor | Domo |
| Status | Growing adoption | Legacy, declining |
Top Runes by market cap include DOG•GO•TO•THE•MOON, RSIC•GENESIS•RUNE, and various memecoins. The market is highly speculative and volatile—most Runes will likely go to zero, but successful projects can see significant gains. Trade with caution and position size accordingly.
To trade Runes, use UniSat Marketplace, Magic Eden, or OKX. Always verify Rune names carefully—scammers create similar-looking names to confuse traders. Check holder distribution and liquidity before significant positions.
Lightning Network: Instant Payments
The Lightning Network is Bitcoin's original Layer 2 scaling solution, enabling instant, near-free payments. While not traditionally considered "DeFi," Lightning is essential infrastructure for Bitcoin's financial ecosystem.
Lightning works by creating payment channels between users. These channels allow unlimited instant transactions off-chain, with final settlement on Bitcoin's main chain. The network routes payments through interconnected channels, enabling anyone to pay anyone without direct channel relationships.
Lightning Network Opportunities
Liquidity Providing
Run a Lightning node and earn routing fees (0.01-0.1% per transaction). Requires capital lockup and node management.
Instant Arbitrage
Lightning enables cross-exchange arbitrage with instant settlement. Small edges but scalable with automation.
Lightning capacity has grown to over $300 million, with thousands of nodes processing payments. For most users, wallets like Phoenix or Breez provide simple Lightning access without running infrastructure. Power users can operate their own nodes for maximum sovereignty and fee income.
Bitcoin L2s: Stacks, Merlin & More
Beyond Lightning, several Layer 2 networks are building full smart contract functionality on Bitcoin. These enable DeFi applications—DEXs, lending, NFTs—while inheriting Bitcoin's security guarantees to varying degrees.
Stacks (STX)
The most mature Bitcoin L2 with full smart contract support via Clarity language. Stacks blocks are anchored to Bitcoin, and the upcoming sBTC enables trustless two-way Bitcoin pegging. Major protocols include Alex (DEX/lending) and Arkadiko (stablecoin).
Merlin Chain
A ZK-rollup Bitcoin L2 that launched in 2024 with massive TVL inflows. EVM-compatible, enabling Ethereum DeFi protocols to deploy easily. Uses a federated bridge for BTC deposits—higher risk but more capital efficient than trustless alternatives.
Liquid Network
A federated sidechain by Blockstream focused on fast settlement and confidential transactions. Mainly used by exchanges and traders for quick Bitcoin transfers. L-BTC is the pegged Bitcoin on Liquid.
Each Bitcoin L2 has different trust assumptions. Stacks is the most decentralized with its Proof of Transfer mechanism. Federated bridges (Liquid, most new L2s) require trusting a set of operators. Understand these tradeoffs before bridging significant capital.
For more on cross-chain strategies and bridge security, see our Cross-Chain DeFi Guide.
Earning Yield on Bitcoin
Bitcoin holders can now earn yield without selling their BTC through several mechanisms:
Babylon Bitcoin Staking
Babylon enables native Bitcoin staking without wrapping or bridging. BTC holders can stake directly from their Bitcoin wallets to secure PoS chains and earn rewards. Still early but potentially revolutionary for BTC yield.
Lightning Liquidity
Providing liquidity to Lightning channels earns routing fees. Returns vary based on channel placement and network demand. Requires technical setup and active management.
Stacks DeFi (Alex, Arkadiko)
Bridge BTC to Stacks (as sBTC or xBTC) and participate in lending, LPing, and liquidity mining. Higher yields but adds bridge risk and smart contract exposure.
Bitcoin yield is generally lower than yields on other chains because BTC itself doesn't have native staking. However, for long-term BTC holders, even modest yields compound significantly over time. Always weigh yield against the risks of bridging, smart contracts, and counterparty exposure.
BTCFi Risks & Security
BTCFi is exciting but carries unique risks that differ from traditional DeFi:
Bridge & Custody Risk
Most Bitcoin L2s use federated bridges that require trusting operators. Unlike native Bitcoin, your BTC on L2s depends on bridge security. Major bridge hacks have occurred in crypto—diversify and don't over-concentrate on any single L2.
Fee Volatility
Bitcoin transaction fees can spike dramatically during high-demand periods (Ordinals mints, Runes launches). A transaction that costs $2 normally might cost $50+ during congestion. Plan accordingly and avoid urgent trades during spikes.
Nascent Ecosystem
BTCFi protocols are generally younger and less battle-tested than Ethereum equivalents. Bugs, exploits, and economic attacks are more likely. Start with small amounts and increase exposure as protocols prove themselves.
Market Liquidity
Ordinals and Runes markets can be illiquid. Large positions may be difficult to exit without significant slippage. Always check order book depth and recent volume before significant purchases.
For comprehensive security practices, see our Advanced Wallet Security Guide and Token Launch Strategies for evaluating new projects.
Interactive BTCFi Explorer
Explore Bitcoin L2s, Ordinals collections, and Runes tokens with our interactive dashboard:
Lightning Network
L2Native channels • $BTC
Stacks
L2sBTC (trustless) • $STX
RSK
SidechainFederated bridge • $RBTC
Liquid Network
SidechainFederated peg • $L-BTC
BOB
L2Hybrid bridge • $BOB
Merlin Chain
L2ZK bridge • $MERL