The intersection of Bitcoin decentralized finance (DeFi) with this moment is a strange one. Jason, writing for MetaBlock X, explores this intriguing divergence: While mining participation is experiencing a significant upswing, the total value locked (TVL) within the ecosystem is simultaneously decreasing. This article looks at the possible causes of this phenomenon. It especially focuses on Rootstock, today one of the largest platforms in the nascent Bitcoin DeFi space, and what it means for the future.
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The DeFi landscape on Bitcoin is experiencing an interesting, although confusing, phenomenon. On one hand, mining participation is through the roof which is a great sign that many are interested in helping to secure and support these networks. Rootstock, a platform built to introduce Ethereum-like smart contract functionality to Bitcoin, is a prominent example of this trend. As a result, the merged mining participation of Rootstock, in the first quarter of 2025, hit an all-time high of 81%. Today, the overwhelming majority of Bitcoin miners are mining Rootstock. As you would expect, they are making the most of their current assets to collect more rewards. Rootstock’s hash power has recently soared to record heights, surging above 740 exahashes per second. It even exceeded the all-time Bitcoin network hashrate high set in October of 2024! This increase is largely due to the adoption of large mining pools including Foundry and SpiderPool. Since then, their tireless work has lowered the barrier for miners to participate in merged mining.
The total value locked (TVL) in today’s Bitcoin DeFi ecosystem is sinking. TVL represents the total value of assets locked in DeFi protocols, and a decrease typically indicates reduced user activity or confidence in the ecosystem. According to recent data, Bitcoin DeFi ecosystem’s TVL decreased over the last week by 20% to $179.9 million. The increasing mining participation but decreasing TVL raises important issues. We need to find out what this will mean for the health and long-term prospects of Bitcoin DeFi. What factors are driving this trend? Is this simply a short-term blip, or does it reflect a more profound challenge lurking under the hood of the ecosystem? Whether you’re already participating in Bitcoin DeFi or just thinking about getting started, it’s important to understand these dynamics.
Factors Contributing to the Surge
There are a few reasons explaining the increase in mining activity on Rootstock. For one of the most important, the economic incentive. Combined mining allows Bitcoin miners to earn additional rewards with minimal effort. They are able to generate Rootstock’s native tokens, RBTC and RIF, at almost no additional marginal costs. They’ve already made their investment in the hardware infrastructure and energy that’s required to mine Bitcoin. The implication is that the marginal cost of adding Rootstock mining is very low. This creates a strong incentive for merge-mining, as miners can earn more profits.
The other reason is the growing awareness of and adoption to Rootstock as the leading platform for Bitcoin DeFi. As more developers create applications on Rootstock, users start to interact with these applications more and more. This increase creates more market demand for RBTC and RIF, incentivizing more miners to participate in merged mining. Foundry and SpiderPool, two major mining pools, have worked quickly to allow miners to plug in without disruption. This partnership allows them to easily tap into merged mining opportunities. These pools address the technical challenges of merged mining in a big way. In doing so, they simplify the entry process for a greater number of potential miners, regardless of their technical knowledge.
Market Reactions and Predictions
The market response to this divergence has been unpredictable at best. Other analysts view this increase in mining participation as healthy market creation. Importantly, they see it as a sign of robust long-term potential for Rootstock and Bitcoin DeFi. To counter, they claim that increased mining security reinforces the network’s resilience. This resilience against malicious attacks, as well as other unforeseen commercial factors, is critical to building user trust and ultimately winning user adoption. Others are more skeptical, citing the shrinking TVL as evidence that something is seriously wrong under the hood in the whole ecosystem. This reduction in TVL could be due to a combination of reasons. It might be the absence of strong use cases for Bitcoin DeFi, increased fears over security and scalability, or a waning of investor enthusiasm.
Forecasts for the future of Bitcoin DeFi are just as diverse. Some argue that Bitcoin DeFi has the potential to overhaul the traditional financial industry’s fundamental architecture. It holds the potential to bring the benefits of decentralization and transparency to a much wider audience. They see a future where Bitcoin is not just a store of value. Rather, it will open the door to a host of new financial applications, such as lending, borrowing, and trading. Others are more doubtful. They claim that Bitcoin DeFi confronts several significant obstacles, including regulatory ambiguity, technical barriers to entry, and strong competition from other DeFi ecosystems. The onus is now on Bitcoin DeFi to address these challenges and find true success. It has to concisely communicate its worth to users right from the start.
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This concurrent increase in TVL, even with all this new mining activity, paints a much more nuanced picture. Five reasons may be the cause of this drop off. It may be an indicator that users are pulling their assets from Bitcoin DeFi protocols. They’re concerned about security and future vulnerabilities. Because DeFi protocols can be complicated and are still relatively new on the scene, they are susceptible to hacks and other security weaknesses. The potential for losing one’s money in a given DeFi protocol is deterring many users. Indeed, the value total locked (TVL) is dropping.
Alternatively, it could be the case that no strong use cases really exist for Bitcoin DeFi and that’s why it hasn’t taken off. There are a growing number of Bitcoin DeFi applications today. Most of them are still in their early development stages and don’t yet hold a candle to those existing in other DeFi ecosystems in functionality or user experience. This might be because its overall user experience, or UX, is intimidating newbies thus scaring potential users away, creating stagnation or TVL decline. The general market sentiment for cryptocurrencies as a whole can be a determining factor as well. When there’s uncertainty or a downturn in the market, investors have a tendency to want to remove their assets from DeFi protocols. Instead they like fleeing to safe harbors such as stable coins or traditional financial assets.
Overview of Recent Trends
Here's a breakdown of key observations:
- Increased Mining Participation: The surge in merged mining on Rootstock indicates a growing interest in securing and supporting the network. This is a positive sign for the long-term health and stability of the platform.
- Decreased TVL: The decline in TVL suggests that users may be withdrawing their assets from Bitcoin DeFi protocols, potentially due to concerns about security, lack of compelling use cases, or market uncertainty.
- Integration of Major Mining Pools: The integration of Foundry and SpiderPool has made it easier for miners to participate in merged mining, contributing to the surge in mining participation.
- Rootstock's Token Ecosystem: The Rootstock ecosystem operates with two key tokens: RBTC, which is pegged to Bitcoin and used as the primary currency within the ecosystem, and RIF, which is used for governance and accessing various services on the platform.
Implications for Future Market Movements
The gap between growing cyclical mining attendance and falling TVL has serious consequences for the evolution of Bitcoin DeFi. If the trend of declining TVL continues, it could stifle the growth and development of the ecosystem, making it difficult to attract new users and developers. On the other hand, if the ecosystem can overcome its challenges and offer compelling use cases for Bitcoin DeFi, the increased mining security could provide a solid foundation for future growth.
The future of Bitcoin DeFi will depend on its capacity to address user and investor concerns to the core. It has to constantly improve itself, create new uses, and of course fight tooth and nail with other DeFi ecosystems. The positive user experience that has resulted from this trend has created a demand for more secure, easier to use, unique applications to keep users coming and going. It further highlights the need to educate users on both the risks and benefits of engaging in Bitcoin DeFi. MetaBlock X is constantly watching the new waves of trends in Bitcoin DeFi. We share practical guidance and recommendations to get you up to speed on this fast-changing landscape.
