Transitioning from Exposure to Yield: Institutional Capital Activates Bitcoin-Native DeFi

A new report from Bitwise has highlighted that public companies holding Bitcoin have surged significantly, establishing Bitcoin as a key asset for institutions. This article explores how institutional investors are shifting from mere exposure to seeking yield through Bitcoin-natives decentralized finance (DeFi), marking a critical evolution in the cryptocurrency landscape.

Key Takeaways

As of Q3 2025, 172 public companies hold over 1 million Bitcoin, amounting to $117 billion, marking substantial growth in both company count and holdings.
Bitcoin, once criticized, has evolved into a secure and trusted asset for institutional investors, leading to the rise of Bitcoin-native yield.
The convergence of Bitcoin and DeFi is transforming how institutions view idle capital, with significant room for growth in the DeFi sector.
Institutional investors face unique challenges in the DeFi landscape, necessitating a tailored approach to yield and compliance.
The development of permissioned DeFi solutions is essential to meet the needs of these regulated entities, while still retaining the foundational ethos of DeFi.

Now, institutional Bitcoin holdings have quietly entered a new phase, shifting gears from mere exposure to yield — Bitcoin-native yield.

The Great Convergence

The initial phase of decentralized finance (DeFi) was characterized by a cypherpunk ethos, primarily flourishing on Ethereum (ETH) as an unregulated experiment thriving on speculative trading and pseudonymous wallets. During this time, Bitcoin was absent from the DeFi scene, instead envisioned as a new monetary system designed to resist centralized control.

Over the years, however, Bitcoin and DeFi have increasingly merged. Bitcoin has gained recognition as a yield-bearing asset highly sought after by corporate treasuries, financial institutions, and nation-states. At the same time, DeFi has created a global and permissionless financial infrastructure that operates without centralized authorities.

Institutions Eye Idle Capital

Despite Bitcoin's limitations in smart contract functionality, it remains the most secure and reliable financial system available. For many pension funds, any cryptocurrency other than Bitcoin is considered merely speculative. As such, it is Bitcoin—rather than alternative cryptocurrencies—that is destined to drive the next wave of DeFi innovation.

Institutions are not only investing in Bitcoin ETFs but are also incorporating actual Bitcoin into their balance sheets, indicating a shift towards leveraging on-chain infrastructure for tangible benefits. Custodians are currently managing over $200 billion worth of Bitcoin on behalf of institutional clients, although much of it remains unused.

Unlocking the potential of this dormant institutional Bitcoin could transform the DeFi sector, particularly as the overall value locked in DeFi is comparatively small, hovering around $156 billion.

Not the Retail Way

Although retail adoption of cryptocurrency is expanding, the current growth focus is on corporations as an untapped market. Institutions increasingly seek to transform their Bitcoin holdings into productive, yield-generating assets. However, their capital remains inactive—not due to a lack of desire but because existing DeFi platforms do not align with their operational needs.

In the traditional banking system, individuals are accustomed to earning interest on savings and accessing credit. Such basic functionalities are not yet available for institutional Bitcoin holders. Corporate treasuries and custodians are unlikely to utilize public DeFi for their dormant BTC holdings since the needs of institutional investors—especially in compliance and privacy—differ significantly from those of retail users.

In contrast to retail users, who often connect self-custody wallets to decentralized applications (dApps) through a web browser, institutional digital assets, particularly Bitcoin, are stored with custodians subject to rigorous compliance standards.

A Permissioned Space Within a Permissionless Ecosystem

Bitcoin will always maintain its permissionless nature. However, as the ecosystem evolves and institutions become more actively involved, some financial applications built on Bitcoin may require permissions to cater to specific institutional needs.

As we near the establishment of Bitcoin-native financial markets, certain aspects of the Bitcoin finance (BitcoinFi) ecosystem must adapt to fulfill the requirements of regulated entities such as corporations and financial institutions. Key necessities include:

Building institutional integrations that honor and enhance DeFi's cypherpunk roots. This development validates DeFi's philosophy as institutional-focused capabilities arise from the foundational principles laid down by DeFi, demonstrating industry's growth and the onset of broader adoption.
The total value locked in the Bitcoin DeFi has soared from $705 million in September 2024 to an impressive $8.49 billion by the end of September 2025.

Closing Thoughts

DeFi showcased the capabilities of on-chain finance and has matured from a retail-centric experiment into a formidable financial framework that attracts significant institutional interest.

By merging compliance with on-chain innovations in a permissioned context, we can potentially unlock institutional engagement, paving the way not only for yield products but for a comprehensive Bitcoin-powered financial ecosystem.

With regulatory clarity, the establishment of Bitcoin-native DeFi infrastructure, and frameworks tailored for institutions, 2025 marks a pivotal year for the next phase of cryptocurrency adoption.