Making Bitcoin work
July 2026
Michael Egorov, founder of Curve Finance and Yield Basis, sits down with Karl Loomes to discuss the rise of BTCFi, the challenges of generating sustainable yield, the role of Bitcoin as collateral, and the infrastructure developments needed before institutions can confidently deploy it
Image: coloures-pic/stock.adobe.com
Institutional investors now hold significant amounts of Bitcoin through ETFs, funds, and corporate treasuries. Why do you believe ownership alone is not enough for Bitcoin to mature as a financial asset, and what capabilities are still missing?
The thing about Bitcoin is that for a long time, it was intentionally passive. You held it, you didn't touch it, and you certainly didn't expect it to generate yield. In part, that was because earning meaningful returns on Bitcoin in DeFi was extremely difficult. Even the best opportunities rarely offered more than one to two per cent annual yield while introducing additional risks.
Today, however, both the technology and the mindset are changing. Institutional investors no longer see Bitcoin simply as an asset to accumulate. They increasingly want to use it without selling it.
The next stage of Bitcoin's evolution isn't simply about holding the asset — it's about building the financial infrastructure around it. That means reliable lending markets, deep onchain liquidity, efficient collateral management and predictable ways to put Bitcoin to productive use. Ownership was the first stage. Financial utility is the next one, even if that utility happens on another, non-Bitcoin chain.
Recent periods of market volatility have tested both traditional and digital asset infrastructure. What weaknesses or inefficiencies in the current Bitcoin ecosystem do these events continue to expose?
Bitcoin price so far seems fairly well predicted by its scarcity going up, but more importantly, the relative pace of price changes even in this model is slowing down, which causes volatility to decline. And with BTC becoming less volatile over time, it has contributed to the increased adoption of the asset among institutional investors.
Periods of market stress tend to expose weaknesses not in Bitcoin itself, but in the infrastructure built around it. One of the clearest examples is how Bitcoin is still used on institutional balance sheets. When BTC simply sits passively on corporate balance sheets, it does not generate cash flow, yield, or liquidity on its own.
That means companies holding large Bitcoin reserves have to eventually sell parts of it to fund their obligations.
This becomes particularly clear during periods of deleveraging. If BTC functions purely as a reserve asset, spot sales remain the primary liquidity mechanism whenever companies come under pressure. And when market conditions are tight, even relatively small treasury sales can have a long-reaching effect, as investors start pricing in the possibility of additional forced selling across the market.
Making Bitcoin productive changes that equation. Onchain systems focused on capital-efficient BTC deployment allow Bitcoin holders to generate yield or access liquidity without fully exiting positions. This reduces dependence on spot sales and gives institutional treasury managers more flexibility during volatile periods. Right now, we can see clearly that there’s a growing demand for infrastructure that gives Bitcoin a more productive role.
The concept of BTCFi has gained traction over the past year. How do you define BTCFi, and why do you see it as the next stage of institutional Bitcoin adoption rather than simply another DeFi trend?
BTCFi should not be viewed simply as DeFi with Bitcoin added to it. Bitcoin developed first as a store-of-value asset, while much of DeFi was built around assets that already had native financial utility. BTCFi is the process of building that missing financial layer around Bitcoin — lending, liquidity, market-making and collateral infrastructure — while preserving Bitcoin’s core role as long-term collateral and reserve asset.
This financial layer was always here in one or another form, but the minimalistic nature of the Bitcoin protocol made it very hard to implement it in a decentralised (e.g. completely non-custodial) manner.
Slowly, however, non-custodial possibilities for Bitcoin are appearing.
It could come as a fully trustless bridging of Bitcoin on Ethereum and other chains, enabling already-built infrastructure to use Bitcoin trustlessly. Or it could enable building more Bitcoin-native infrastructure for lending, market-making, trading, or yield generation.
Generating native yield on Bitcoin has so far been incredibly difficult, but the problem is being worked on. Yield Basis, for example, enables exactly that for different crypto assets, with Bitcoin being the main one.
Different pieces of BTCFi are appearing everywhere across the crypto ecosystem, but it’s trustless solutions that could truly make all the difference — that could enable all that infrastructure to operate with absolutely no intermediaries between the Bitcoin blockchain and the end users.
Many institutions remain cautious about deploying Bitcoin beyond passive exposure. What developments in risk management, custody, compliance, or market infrastructure are required before institutions are comfortable using Bitcoin as productive capital?
The issue of why institutions prefer raw BTC is a multi-faceted one, so let’s cover it in steps.
The main reason for their behaviour comes down to risks — if you try to hold Bitcoin in a ‘non-boring’ way, using it to earn yield somewhere, you inevitably stack up layers of risk:
The custody risk of Bitcoin wrappers (very real for WBTC and cbBTC)
The technical risks with smart contracts on the platform where you earn yield (e.g. hacks)
The additional custody risks if the platform where you earn yield is not fully decentralised (including whether the team can be trusted and whether their control over the keys is secure — this has been the main source of hacks this year)
And it all comes with a question: does the yield on your Bitcoin adequately compensate for all those risks?
On Aave, for example, you’d earn maybe 0.5 per cent per year on Bitcoin if you were lucky.
You can, of course, do more if you borrow against Bitcoin and earn yield on dollars, but then you also stack up liquidation risk and the risk of another platform on top of everything else. Is it worth it?
So it’s a typical risk/reward balance, which can be solved by either increasing reward — which is what we do at Yield Basis — or decreasing risks — which is what the whole industry does, and what I am also highly committed to with all my projects. Or better yet, both.
On top of these, there are also regulatory risks to think about. Does the regulator fully greenlight the participation of these institutions in DeFi or not? Or is it a grey area with no clear answer? And, once again, is the yield good enough to compensate for the legal risks?
Yield generation has long been a challenge for Bitcoin compared with other digital assets. How can BTCFi create sustainable yield opportunities without introducing the types of risks that have undermined previous crypto lending models?
The caveat is that yield should be sustainable and real, rather than coming from token emissions.
If you look at market-making, it could allow for quite good natural yield, but impermanent loss has been a problem for a long time. Solving it is a challenging task, and in some cases, it’s not even possible. It is achievable with Bitcoin, and maybe for some other crypto assets, because their volatility profile allows for it. But if you had an asset that only moved slowly upward without fluctuating along the way, then you probably wouldn’t be able to earn anything on top of that growth.
So in reality, it’s these fluctuations — the very thing people are usually scared of — that actually create the opportunity to earn yield. On a fundamental level, this system makes money through market-making. And if the asset isn’t moving up and down, then you’re not really market-making; you’re just selling it and buying it back. But you wouldn’t really earn anything if the price only moved upward in a straight line.
Arguably, if Bitcoin behaved like that, maybe everyone would be constantly trying to buy it. But in reality, it’s volatile — and, like I said, mathematically, that’s exactly where the opportunity for market-making comes from. BTCFi can generate yield through trading activity and liquidity provision.
When yield comes from market activity rather than credit expansion, the risk profile becomes fundamentally different.
Another popular — probably the most popular — yield generation mechanism currently available in the market is lending. However, lending of Bitcoin doesn’t pay much while introducing risks which are, in my opinion, fundamentally larger than the risks that come with market-making.
But whichever yield generation mechanism we talk about, one needs to make them as trustless as possible in order to eliminate custody risk, which is — and always has been — the biggest vulnerability.
Traditional finance increasingly focuses on capital efficiency and collateral mobility. What role could Bitcoin play as collateral across financial markets, and what barriers currently prevent that vision from becoming reality?
Interestingly, Bitcoin is still not used as collateral as much as it could be, especially when compared to other major assets. From an economic perspective, that’s a lot of potential that’s still going untapped and a lot of value that’s sitting idle.
The economy needs more collateral — it’s what allows the system to create credit and move capital more actively, after all. And Bitcoin is a strong candidate here.
Arguably, the biggest barrier to that is the trust risks that come with wrapped Bitcoin assets and the smart contract risks I mentioned earlier. Each wrapper and lending protocol has its own trust assumptions, which means that using native BTC as collateral in a trust-minimised way could theoretically see much greater adoption. This is why leading US banks provide centralised loans against BTC held in custody — they can offer a significantly lower risk profile for clients.
But it’s important to keep in mind the debt that is created through collateralised lending. If the price of Bitcoin drops, that debt has to be liquidated somehow, and that’s where onchain liquidity is critical.
Markets need to be deep enough to absorb sell-offs quickly and without breaking, which, in turn, means that protocols need to rethink how their liquidity is designed.
The broader point here is that as collateral-based models continue to grow, liquidity infrastructure needs to evolve along with them. Otherwise, the next growth stage can’t be supported reliably.
How do you see the relationship between Bitcoin, stablecoins, and tokenised real-world assets evolving over the next five years? Will these markets develop separately, or do you expect them to become increasingly interconnected?
Some stablecoins are already interconnected with BTC — they are called collateral debt positions (CDPs). Curve’s own crvUSD, for example, is one of those. Also, Vitalik Buterin just recently proposed an option-backed stablecoin design, which would also be interconnected with crypto assets like BTC.
Real-world assets (RWAs) are still new in DeFi, but they make sense as decentralised finance allows for some really nice financial engineering without relying on added intermediaries.
So I can quite easily see tokenised RWAs powering stablecoin protocols and working alongside Bitcoin in DeFi in future.
Looking ahead, what milestones should institutional investors watch for as indicators that Bitcoin is evolving from a store-of-value asset into a fully integrated component of the global financial system?
In principle, even as a store of value, Bitcoin will eventually be fully integrated into the global financial system.
But I would say that this integration will be increasing as the volatility of Bitcoin goes down, and also as Bitcoin itself becomes more programmable in a trustless way.
This is what BTCFi is all about, ultimately — turning Bitcoin into a productive asset while preserving the qualities that made it attractive and valuable in the first place.
The thing about Bitcoin is that for a long time, it was intentionally passive. You held it, you didn't touch it, and you certainly didn't expect it to generate yield. In part, that was because earning meaningful returns on Bitcoin in DeFi was extremely difficult. Even the best opportunities rarely offered more than one to two per cent annual yield while introducing additional risks.
Today, however, both the technology and the mindset are changing. Institutional investors no longer see Bitcoin simply as an asset to accumulate. They increasingly want to use it without selling it.
The next stage of Bitcoin's evolution isn't simply about holding the asset — it's about building the financial infrastructure around it. That means reliable lending markets, deep onchain liquidity, efficient collateral management and predictable ways to put Bitcoin to productive use. Ownership was the first stage. Financial utility is the next one, even if that utility happens on another, non-Bitcoin chain.
Recent periods of market volatility have tested both traditional and digital asset infrastructure. What weaknesses or inefficiencies in the current Bitcoin ecosystem do these events continue to expose?
Bitcoin price so far seems fairly well predicted by its scarcity going up, but more importantly, the relative pace of price changes even in this model is slowing down, which causes volatility to decline. And with BTC becoming less volatile over time, it has contributed to the increased adoption of the asset among institutional investors.
Periods of market stress tend to expose weaknesses not in Bitcoin itself, but in the infrastructure built around it. One of the clearest examples is how Bitcoin is still used on institutional balance sheets. When BTC simply sits passively on corporate balance sheets, it does not generate cash flow, yield, or liquidity on its own.
That means companies holding large Bitcoin reserves have to eventually sell parts of it to fund their obligations.
This becomes particularly clear during periods of deleveraging. If BTC functions purely as a reserve asset, spot sales remain the primary liquidity mechanism whenever companies come under pressure. And when market conditions are tight, even relatively small treasury sales can have a long-reaching effect, as investors start pricing in the possibility of additional forced selling across the market.
Making Bitcoin productive changes that equation. Onchain systems focused on capital-efficient BTC deployment allow Bitcoin holders to generate yield or access liquidity without fully exiting positions. This reduces dependence on spot sales and gives institutional treasury managers more flexibility during volatile periods. Right now, we can see clearly that there’s a growing demand for infrastructure that gives Bitcoin a more productive role.
The concept of BTCFi has gained traction over the past year. How do you define BTCFi, and why do you see it as the next stage of institutional Bitcoin adoption rather than simply another DeFi trend?
BTCFi should not be viewed simply as DeFi with Bitcoin added to it. Bitcoin developed first as a store-of-value asset, while much of DeFi was built around assets that already had native financial utility. BTCFi is the process of building that missing financial layer around Bitcoin — lending, liquidity, market-making and collateral infrastructure — while preserving Bitcoin’s core role as long-term collateral and reserve asset.
This financial layer was always here in one or another form, but the minimalistic nature of the Bitcoin protocol made it very hard to implement it in a decentralised (e.g. completely non-custodial) manner.
Slowly, however, non-custodial possibilities for Bitcoin are appearing.
It could come as a fully trustless bridging of Bitcoin on Ethereum and other chains, enabling already-built infrastructure to use Bitcoin trustlessly. Or it could enable building more Bitcoin-native infrastructure for lending, market-making, trading, or yield generation.
Generating native yield on Bitcoin has so far been incredibly difficult, but the problem is being worked on. Yield Basis, for example, enables exactly that for different crypto assets, with Bitcoin being the main one.
Different pieces of BTCFi are appearing everywhere across the crypto ecosystem, but it’s trustless solutions that could truly make all the difference — that could enable all that infrastructure to operate with absolutely no intermediaries between the Bitcoin blockchain and the end users.
Many institutions remain cautious about deploying Bitcoin beyond passive exposure. What developments in risk management, custody, compliance, or market infrastructure are required before institutions are comfortable using Bitcoin as productive capital?
The issue of why institutions prefer raw BTC is a multi-faceted one, so let’s cover it in steps.
The main reason for their behaviour comes down to risks — if you try to hold Bitcoin in a ‘non-boring’ way, using it to earn yield somewhere, you inevitably stack up layers of risk:
The custody risk of Bitcoin wrappers (very real for WBTC and cbBTC)
The technical risks with smart contracts on the platform where you earn yield (e.g. hacks)
The additional custody risks if the platform where you earn yield is not fully decentralised (including whether the team can be trusted and whether their control over the keys is secure — this has been the main source of hacks this year)
And it all comes with a question: does the yield on your Bitcoin adequately compensate for all those risks?
On Aave, for example, you’d earn maybe 0.5 per cent per year on Bitcoin if you were lucky.
You can, of course, do more if you borrow against Bitcoin and earn yield on dollars, but then you also stack up liquidation risk and the risk of another platform on top of everything else. Is it worth it?
So it’s a typical risk/reward balance, which can be solved by either increasing reward — which is what we do at Yield Basis — or decreasing risks — which is what the whole industry does, and what I am also highly committed to with all my projects. Or better yet, both.
On top of these, there are also regulatory risks to think about. Does the regulator fully greenlight the participation of these institutions in DeFi or not? Or is it a grey area with no clear answer? And, once again, is the yield good enough to compensate for the legal risks?
Yield generation has long been a challenge for Bitcoin compared with other digital assets. How can BTCFi create sustainable yield opportunities without introducing the types of risks that have undermined previous crypto lending models?
The caveat is that yield should be sustainable and real, rather than coming from token emissions.
If you look at market-making, it could allow for quite good natural yield, but impermanent loss has been a problem for a long time. Solving it is a challenging task, and in some cases, it’s not even possible. It is achievable with Bitcoin, and maybe for some other crypto assets, because their volatility profile allows for it. But if you had an asset that only moved slowly upward without fluctuating along the way, then you probably wouldn’t be able to earn anything on top of that growth.
So in reality, it’s these fluctuations — the very thing people are usually scared of — that actually create the opportunity to earn yield. On a fundamental level, this system makes money through market-making. And if the asset isn’t moving up and down, then you’re not really market-making; you’re just selling it and buying it back. But you wouldn’t really earn anything if the price only moved upward in a straight line.
Arguably, if Bitcoin behaved like that, maybe everyone would be constantly trying to buy it. But in reality, it’s volatile — and, like I said, mathematically, that’s exactly where the opportunity for market-making comes from. BTCFi can generate yield through trading activity and liquidity provision.
When yield comes from market activity rather than credit expansion, the risk profile becomes fundamentally different.
Another popular — probably the most popular — yield generation mechanism currently available in the market is lending. However, lending of Bitcoin doesn’t pay much while introducing risks which are, in my opinion, fundamentally larger than the risks that come with market-making.
But whichever yield generation mechanism we talk about, one needs to make them as trustless as possible in order to eliminate custody risk, which is — and always has been — the biggest vulnerability.
Traditional finance increasingly focuses on capital efficiency and collateral mobility. What role could Bitcoin play as collateral across financial markets, and what barriers currently prevent that vision from becoming reality?
Interestingly, Bitcoin is still not used as collateral as much as it could be, especially when compared to other major assets. From an economic perspective, that’s a lot of potential that’s still going untapped and a lot of value that’s sitting idle.
The economy needs more collateral — it’s what allows the system to create credit and move capital more actively, after all. And Bitcoin is a strong candidate here.
Arguably, the biggest barrier to that is the trust risks that come with wrapped Bitcoin assets and the smart contract risks I mentioned earlier. Each wrapper and lending protocol has its own trust assumptions, which means that using native BTC as collateral in a trust-minimised way could theoretically see much greater adoption. This is why leading US banks provide centralised loans against BTC held in custody — they can offer a significantly lower risk profile for clients.
But it’s important to keep in mind the debt that is created through collateralised lending. If the price of Bitcoin drops, that debt has to be liquidated somehow, and that’s where onchain liquidity is critical.
Markets need to be deep enough to absorb sell-offs quickly and without breaking, which, in turn, means that protocols need to rethink how their liquidity is designed.
The broader point here is that as collateral-based models continue to grow, liquidity infrastructure needs to evolve along with them. Otherwise, the next growth stage can’t be supported reliably.
How do you see the relationship between Bitcoin, stablecoins, and tokenised real-world assets evolving over the next five years? Will these markets develop separately, or do you expect them to become increasingly interconnected?
Some stablecoins are already interconnected with BTC — they are called collateral debt positions (CDPs). Curve’s own crvUSD, for example, is one of those. Also, Vitalik Buterin just recently proposed an option-backed stablecoin design, which would also be interconnected with crypto assets like BTC.
Real-world assets (RWAs) are still new in DeFi, but they make sense as decentralised finance allows for some really nice financial engineering without relying on added intermediaries.
So I can quite easily see tokenised RWAs powering stablecoin protocols and working alongside Bitcoin in DeFi in future.
Looking ahead, what milestones should institutional investors watch for as indicators that Bitcoin is evolving from a store-of-value asset into a fully integrated component of the global financial system?
In principle, even as a store of value, Bitcoin will eventually be fully integrated into the global financial system.
But I would say that this integration will be increasing as the volatility of Bitcoin goes down, and also as Bitcoin itself becomes more programmable in a trustless way.
This is what BTCFi is all about, ultimately — turning Bitcoin into a productive asset while preserving the qualities that made it attractive and valuable in the first place.
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