Bitcoin-based decentralized finance projects are narrowing their focus to niche user groups as liquidity continues to drain from the overall DeFi sector, according to Rootstock Labs Director of Institutional & Ecosystem Richard Green.
Speaking with The Block at last week's BTC Prague conference, Green said the crypto-native traders and hedge funds that used to be the easiest customers to pitch Bitcoin DeFi products to have mostly stepped back as capital flows out of the DeFi markets.
"What we've seen within the DeFi space is a massive loss of liquidity and a big pullback on that," Green said.
According to Green, and also in line with data from The Block, total value locked across DeFi protocols has fallen from roughly $180 billion last October to around $70 billion today.
"The liquidity's gone," he said.
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It has forced projects like Rootstock to rethink how it looks at growth. Rather than going after a wide spectrum of crypto users, Green said the company is zooming in and focusing on specific groups like bitcoin treasury firms, miners, and long-term bitcoin holders who are interested in BTC lending and yield-generating products.
"Where we're now positioning ourselves is not shallow and wide, it's very narrow and deep," Green said.
This comes less than a week after Bitcoin Layer 2 project Botanix announced it would be shutting down its network, citing dwindling demand for Bitcoin-native DeFi and insufficient fees to keep operations going.
But Green said he doesn't see the closure as evidence that Bitcoin DeFi has completely disappeared.
"I don't think it is necessarily a sign that there is no demand for BTCFi products," Green said. "There is demand in small pockets that is deep."
Inside those pockets, Green pointed to mining companies seeking bitcoin-backed loans and institutional investors exploring tokenized fund strategies tied to bitcoin.
And as ETFs continue to grow as the primary gateway for new bitcoin investors, Green says Bitcoin DeFi projects will need to work harder to educate and give users a reason to move from passive exposure to deploying their BTC onchain.
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