Bitcoin News Today: Bitcoin-backed DeFi reshapes lending with smart contracts and stablecoin growth

The rise of Bitcoin-backed finance is redefining traditional lending models as decentralized protocols gain traction, offering users greater control and transparency. Unlike centralized platforms, which act as intermediaries, decentralized finance (DeFi) leverages smart contracts to automate lending and borrowing processes. This shift is particularly notable as Bitcoin continues to hit record highs, enabling holders to access liquidity without selling their assets.

In centralized lending, users deposit Bitcoin with a platform, which acts as custodian and facilitates loans. However, this model introduces risks such as platform insolvency, hacking, or mismanagement. Decentralized alternatives, such as protocols on the Ethereum and Sui blockchains, eliminate intermediaries by using smart contracts to execute loan agreements once predefined conditions are met. This trustless system ensures full asset control for users while providing transparent, auditable records on the blockchain [1].

Volo, a liquid staking protocol on the Sui blockchain, exemplifies this trend with its Volo wBTC Vault. The vault integrates with the NAVI Protocol to offer high-yield DeFi strategies that optimize wBTC utility. Sui’s existing 1,000 BTC in liquidity, combined with NAVI’s stable lending pools, allows users to engage in leveraged positions and automated yield optimization with minimal friction. The integration enhances Sui’s position as a DeFi hub and showcases how Bitcoin can be leveraged in a secure and efficient manner [1].

Stablecoins also play a pivotal role in this transition. The total stablecoin transfer volume reached $27.6 trillion in 2024, surpassing the combined volume of Mastercard and Visa transactions. Stablecoins, pegged to reserve assets, offer price stability, fast transaction speeds, and low costs, making them ideal for cross-border payments, B2B settlements, and retail remittances. As infrastructure matures, the total value of issued stablecoins has doubled to $250 billion over the past two years. Analysts forecast this figure to exceed $400 billion by the end of 2025 and reach $2 trillion by 2028 [1].

Yield-bearing stablecoins further enhance Bitcoin-backed finance by generating returns through tokenized U.S. treasuries or delta-neutral strategies. These instruments allow users to maintain Bitcoin exposure while accessing real-time liquidity and accumulating returns. Similar to how money market funds emerged due to Regulation Q caps on bank deposits, stablecoin growth is being driven by increased regulatory clarity, particularly in 2025. Jurisdictional differences significantly influence the potential yield from these instruments [1].

By enabling on-chain, non-custodial lending and repayment, stablecoins facilitate seamless collateralization within DeFi protocols. This reduces costs, improves transparency, and enhances accessibility for Bitcoin-backed finance. As the ecosystem evolves, innovations like Volo’s vaults and NAVI’s lending pools are likely to drive further adoption, reinforcing the shift from traditional, centralized lending to decentralized, Bitcoin-backed finance [1].

Source: [1] The Shift from Centralized Lending to Decentralized Bitcoin-Backed Finance (https://coinmarketcap.com/community/articles/68948bd5ab27187a281f7a9a/)