Bitcoin DeFi (BTCFi) demand is increasingly difficult to ignore as a structural problem, with activity shifting toward wrapped assets and institutional channels rather than native Layer 2 solutions. Despite improvements in uptime, transaction volume, and integrations on Bitcoin Layer 2 networks, the ecosystem has not attracted broad retail interest.
According to a Rootstock executive, demand is concentrated in small-but-deep pockets — a narrow base of capital-rich participants rather than a wide user base. This dynamic has failed to offset a broader downturn: total value locked across DeFi has plunged from roughly $180 billion to $70 billion in less than a year, per The Block.
The disconnect between infrastructure growth and actual usage suggests Bitcoin’s Layer 2 networks may be overbuilt relative to current market appetite. Institutional wrappers — such as tokenized BTC on Ethereum or other chains — continue to absorb much of the demand that might otherwise flow to native Bitcoin DeFi.
Some analysts argue the downturn is cyclical and that BTCFi demand will rebound when broader crypto markets recover. However, the persistent concentration of activity raises questions about whether native Bitcoin DeFi can achieve the scale its proponents envision without a structural shift in user behavior.