The Richard Green from RootstockLabs explains that Bitcoin DeFi allows BTC holders to borrow, lend, and earn profits while maintaining their Bitcoin exposure unchanged.

We see more and more Bitcoin treasury companies, miners, and long-term holders starting to use BTC as collateral, rather than just holding it on their balance sheets. What financial mechanisms and infrastructures make this possible today, and how does the Bitcoin-native approach differ from traditional custodial lending arrangements?

Bitcoin holders are now increasingly able to obtain liquidity without selling BTC. For miners and treasury companies, this may mean financing their operations while maintaining a position in Bitcoin, or earning profits to offset the annual custody fees of 10 to 50 basis points.

Traditionally, borrowing Bitcoin meant relying on lenders and custodians to manage the collateral. Bitcoin's native DeFi offers an alternative approach, which is to use smart contracts to manage loans and settlements, rather than relying entirely on intermediaries. This opens up new financing possibilities, but institutions still need to consider smart contracts, collateral, and custody risks, as well as bridging and counterparty risks.

2. Which sectors currently have the strongest demand for BTC mortgage loans and income strategies? Are miners mainly looking to finance their operating expenses, do treasury companies want to obtain liquidity without selling their holdings, or are long-term investors also increasingly viewing Bitcoin as a form of productive capital?

Miners and Bitcoin treasury companies have some of the most clear use cases for BTC collateral financing. Listed miners hold a total of over 103,000 BTC, while listed companies hold over 1.26 million BTC. Therefore, there are numerous holders who have a practical reason to put these assets to use. Miners have significant capital needs, so borrowing using BTC can provide funds for operations and expansion without having to sell coins. Treasury companies also have similar needs and at the same time hope to generate returns from their reserves.

Long-term investors are also interested, but I believe this transition is still in its early stages. For now, the strongest opportunities are still concentrated among those holders who have clear and specific financial reasons to make Bitcoin "work."

3. Throughout its history, Bitcoin has primarily been regarded as a tool for value storage, rather than a financial asset that generates returns. How has the emergence of Bitcoin DeFi changed this perception, and what technological advancements have made it possible to build lending markets, collateralized debt positions, and revenue-generating applications around BTC?

The role of Bitcoin as a store of value will not disappear, but we are beginning to see what happens when holders can make this capital work. Instead of just waiting for BTC to appreciate in value, they can now use it to borrow, lend, or earn returns by providing liquidity.

The key advancement is bringing smart contract functionality to Bitcoin through networks such as Rootstock. This enables the creation of lending markets, collateralized debt positions, and other DeFi applications without the need to alter Bitcoin's underlying protocol.

4. Rootstock adopts a Bitcoin sidechain architecture and merge-mining to combine the security of Bitcoin with smart contract functionality. Could you explain how its two-way anchoring, consensus mechanism, and compatibility with EVM work together, and what security assumptions institutions should understand before investing a large amount of BTC liquidity into this ecosystem?

The concept is to allow people to use Bitcoin for lending and other activities without changing Bitcoin itself. The two-way anchoring mentioned on Rootstock, which is also referred to as PowPeg in the following text, enables holders to exchange BTC for rBTC, to be used in financial applications on Rootstock, and then to exchange it back again.

Merger mining means that Bitcoin miners can use the same computing power they use to mine Bitcoin to help protect Rootstock; and since Rootstock is compatible with EVM, developers can use mature Ethereum tools to build applications without having to start from scratch.

5. The Economics of Mortgage Lending with BTC: When institutions borrow in Bitcoin, how are loan-to-value ratios, liquidation thresholds, interest rates, and mortgage requirements determined? How do these parameters change with the volatility of Bitcoin, and what mechanisms are in place to protect borrowers and lenders in the event of a sudden market downturn?

The starting point is the volatility of Bitcoin. Lenders need sufficient collateral to withstand significant price fluctuations, therefore the loan-to-value ratio and liquidation thresholds are set based on this risk. Interest rates also depend on borrowing demand, available liquidity, and lending patterns.

When Bitcoin experiences a significant decline, borrowers may quickly approach the liquidation line. Maintaining a healthy margin, closely monitoring positions, and using automated risk management tools can help both borrowers and lenders manage this exposure.

6. Many Bitcoin holders hope to obtain returns from BTC, but not all profit strategies carry the same risks. Where do the profits in Bitcoin DeFi actually come from – from lending demand, trading activity, liquidity provision, or protocol incentives? How can institutions distinguish between sustainable economic returns and temporarily incentive-driven profits?

Bitcoin itself does not generate earnings. In fact, Bitcoin has no inherent earnings, as its security budget is paid to miners, rather than to stakers as in proof-of-stake chains. Therefore, any earnings must come from someone paying for a certain service, whether it be borrowers paying interest, traders paying fees, or liquidity providers sharing the profits from activities. The protocol can also increase returns through token incentives, but once these incentives are exhausted, these rewards may disappear.

For institutions, I would first ask who is paying for the returns and why. If the returns rely heavily on token rewards rather than a genuine need for capital or liquidity, I would be cautious about whether such returns are sustainable.

One of the biggest obstacles for institutions to participate in decentralized lending has always been counterparty and custody risks. How do decentralized protocols reduce reliance on intermediaries, and what risks still exist regarding smart contracts, bridges, settlement, governance, and the underlying BTC custody model?

Decentralized lending protocols can manage collateral, loans, and liquidations through smart contracts, thereby reducing reliance on a single lender. However, risks still exist, and not all BTC are the same; the security of the bridges that connect them to the underlying Bitcoin is very important. Taking Rootstock as an example, PowPeg is a two-way bridge that locks BTC to support rBTC and releases BTC when exchanged back. Participants known as pegnatories run hardware security modules to protect signature keys and enforce rules. No single participant can transfer funds on their own.

Institutions still need to assess vulnerabilities in smart contracts, bridge and hosting security, governance permissions, as well as liquidation mechanisms under market pressure. Decentralization has changed the foundation of trust, but institutions still need to conduct due diligence and risk management as carefully as before.

Mining companies that hold large reserves of BTC also face capital-intensive operations and volatile revenue streams. Could BTC mortgage financing become an alternative to selling mined Bitcoin or issuing equity and debt? What additional infrastructure improvements are needed for miners to utilize decentralized Bitcoin lending markets on an institutional scale?

To achieve large-scale adoption, the economic viability must be able to compete with traditional financing methods. This means that there needs to be sufficient lending liquidity, reasonable borrowing costs, and loan terms that can adapt to the volatility of Bitcoin. As these markets mature, there are significant opportunities, among which credit secured by computing power is one direction that develops in parallel with direct BTC lending.

What are the biggest technical and operational gaps that prevent Bitcoin DeFi from meeting the expectations of institutional investors? In particular, how important are liquidity depth, transparent collateral management, transaction finality, risk monitoring, compliance frameworks, and integration with existing financial infrastructure?

The biggest gaps are more on the operational side rather than the technical side. First is security and incident response. Institutions need to see a clear and transparent process that explains what will happen when issues arise. Second is the trust in how collateral is handled; it needs to be isolated and not able to be re-pledged, and the liquidation rules must be clear from the beginning. There are already very strong institutional-level custodians, and as larger participants enter, liquidity will also follow.

Institutions need to know that they can borrow or exit positions on a meaningful scale without significantly affecting the market. They also require reliable risk monitoring, clear collateral requirements, and compliance processes that can work in conjunction with existing systems.

Technology is just one part of it. To attract more institutional capital to Bitcoin, it needs to be integrated into the ways financial institutions already manage risks, fulfill regulatory obligations, and operate on a daily basis.

Looking five years ahead, do you expect Bitcoin to evolve from a passive treasury reserve to a financial asset that is actively deployed for borrowing, lending, and generating income? What role might a Bitcoin network like Rootstock play in this transformation, and what else needs to happen for Bitcoin-based financial markets to compete with the mature US dollar lending market?

Bitcoin is about to turn eighteen, and it's starting to behave like a currency of that age. The first fifteen years were like adolescence, during which it had to prove that it could serve as a form of money. Now it's entering its adult phase, and the question is no longer whether to hold it or not, but rather what one can do with it. I expect that in the next five years, Bitcoin will become a financial asset that is used more actively. It remains an excellent long-term value storage tool, but hedge funds, family offices, and businesses are increasingly looking for ways to make better use of their holdings than just keeping a reserve that incurs maintenance fees while remaining idle.

Layer like Rootstock can serve as infrastructure channels, bringing tokenized products and profit opportunities to Bitcoin holders. The greatest opportunities lie in lending and using Bitcoin as collateral. To make these markets competitive with traditional finance, we need deeper liquidity, greater institutional participation, and a clearer regulatory framework. We are moving in that direction, but it won't happen overnight.

This opening statement is a quote that echoes the report's description of the first fifteen years as being characterized by the establishment of monetary attributes, and the following fifteen years as being defined by financial utility.

Amelia Tomasicchio

Digital marketing expert Amelia entered the fintech industry in 2014 after writing a paper on Bitcoin technology. Prior to that, she had contributed to several international cryptocurrency magazines and served as the Chief Marketing Officer for Eidoo. She is now a co-founder of The Cryptonomist and also a marketing instructor at Digital Coach in Milan. She has also published a book about NFT for an Italian publisher Mondadori and has helped artists and companies enter this field. As a consultant, Amelia has also participated in metaverse-related projects such as The Nemesis and OVER.