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DeFi Protocols on Bitcoin Grow After Taproot and Inscriptions

Although other blockchains like Ethereum and Solana are more well-known for their decentralized finance (DeFi) applications, the oldest public blockchain in the world has been increasingly attracting DeFi protocols. For many Bitcoin investors, the possibility of generating yield on their coins has sparked a growing interest in these services.

Bitlayer's competitors in the Bitcoin DeFi space include BabylonChain, a proof-of-stake protocol that allows investors to stake Bitcoin; Stacks, which rewards Bitcoin miners; and BounceBit, a restaking protocol where users can delegate wrapped BTC to node operators.

As of Tuesday, the Bitlayer protocol has $384 million in total value locked (TVL) on the chain, generating $1.7 million in fees during June. The Babylon protocol far exceeds that amount, with $5.2 billion locked in its network.

Currently, there are nearly 30 DeFi projects in development within the Bitcoin ecosystem, a trend that has been accelerated by two key advancements: the Taproot upgrade and the introduction of Inscriptions.

Taproot, implemented in November 2021, improved Bitcoin's scripting capabilities, paving the way for more scalable and privacy-focused applications.

Inscriptions, popularized with the launch of the Ordinals protocol in early 2023, allowed users to embed arbitrary data, including images and code, directly onto the BTC network, unlocking new use cases for Bitcoin.