Bitcoin-based decentralized finance (DeFi) projects are pivoting toward institutional investors and long-term holders as a broad liquidity contraction reshapes the sector, according to Richard Green, Director of Institutions and Ecosystem at Rootstock Labs, the investment arm of the Bitcoin layer-2 network Rootstock (RIF).
In interviews with The Block, Green explained that a massive outflow of capital from DeFi markets has caused core user segments—crypto-native traders and hedge funds—to pull back significantly. Total value locked (TVL) across DeFi protocols has plummeted from around $180 billion in October 2023 to roughly $70 billion today, a drop of over 60% in six months. “The liquidity's gone,” Green said.
Rather than chasing a wide spectrum of retail users, projects like Rootstock are now concentrating on niche groups with deep, sustained demand, such as Bitcoin treasury firms, miners, institutional investors exploring tokenized fund strategies, and long-term BTC holders interested in lending and yield generation. “Where we're now positioning ourselves is not shallow and wide, it's very narrow and deep,” Green noted.
The strategic shift follows the recent shutdown of Bitcoin Layer 2 project Botanix, which cited insufficient demand and fees. However, Green does not view this as a sign that Bitcoin DeFi has disappeared. “There is demand in small pockets that is deep,” he emphasized, pointing to mining companies seeking BTC-backed loans and institutions experimenting with Bitcoin-based financial products.
The pivot reflects a broader maturation of the Bitcoin DeFi sector, with projects aiming to build more resilient infrastructure by targeting stable, predictable demand sources. The trend may, however, limit retail access to Bitcoin DeFi products in the short term, as offerings become tailored to accredited or sophisticated participants.
