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Recently a new Bitwise report revealed that as of the third quarter of 2025, 172 publicly traded companies now own more than one million Bitcoin (BTC) worth $117 billion. This is an increase of 39% in the number of companies (48 new) and 21% in the number of holdings compared to the previous quarter. Bitcoin has not only lived up to the title of “digital gold” it has long held, but has also firmly established itself as a mainstay of institutions’ financial strategies in the third quarter of 2025, despite sharp price fluctuations.
Summary
- Bitcoin’s institutional era has begun. Once a speculative asset, Bitcoin is now evolving into a yield-bearing instrument as institutions seek productive, compliant ways to deploy idle BTC capital.
- DeFi meets TradFi. Institutional Bitcoin integration requires permissioned, compliant infrastructure – custodial integration, in-kind BTC yield, and privacy-preserving auditability – not retail-style DeFi.
- The next phase is Bitcoin-native financing. With clear regulations and a maturing infrastructure, 2025 marks the convergence of Bitcoin, DeFi and institutional adoption into a unified on-chain financial system.
In less than two years after that, Bitcoin ETFs were spotted approved in the United States, Bitcoin has gone from a gamble to a hedge, praised for its scarcity, sovereignty and resilience after years of outright institutional criticism and skepticism. Now, institutional Bitcoin investing has quietly entered a new phase, shifting gears from mere exposure to returns – Bitcoin-native yield.
The great convergence
The first chapter of DeFi was more of a cypherpunk revolution. It started on Ethereum (ETH) as a wild and unregulated experiment that thrived on speculation, permissionless access, and pseudonymous wallets. Bitcoin was not part of the early DeFi revolution. It had to be a new monetary system, built on code and resistant to centralized control.
As they have evolved over the years, Bitcoin and DeFi have grown closer and closer. Bitcoin is now a yield-bearing asset valued by government bonds, institutions and nation states. DeFi, meanwhile, has made a global, permissionless financial infrastructure without centralized gatekeepers a reality.
Institutions stare at idle capital
Despite the limited capabilities of smart contracts, Bitcoin is the most secure, reliable and robust financial system available. For the average pension fund, any cryptocurrency that isn’t Bitcoin is just a speculative play at best. It is Bitcoin, and not the ‘non-Bitcoin’ chains, that will drive the next phase of the DeFi revolution.
Institutions hold not only ETFs, but also actual Bitcoin on their balance sheets, indicating that they are interested not only in exposure, but also in the benefits of on-chain infrastructure. Today, custodians manage more than $200 billion worth of Bitcoin for their institutional clients. Unfortunately, it has largely stood still.
Unlocking the full potential of institutional Bitcoin is what would really move DeFi, especially considering that the total value captured in DeFi is relatively small: approximately $156 billion.
Not in the retail way
Retail adoption will continue to grow, but right now the growth is focused on businesses because that’s the next uncharted territory. There is a growing institutional demand to convert Bitcoin into a productive, return-bearing asset. Their capital is inert, not due to a lack of will, but because the existing DeFi stack is incompatible with their operational reality. In the traditional banking system, people are used to earning a return on savings and being able to obtain credit. Those basic primitives just aren’t there yet for institutional Bitcoin.
Corporate bonds and custodians will not use public DeFi for their useless BTC. They can’t. Public, open DeFi has worked well for private users. But institutional financial needs are different, especially around compliance and privacy regulations.
In retail, people typically use a self-managed wallet that connects to dApps through a web browser. In contrast, all institutional digital assets, especially Bitcoin, are held by custodians who must adhere to strict compliance protocols.
A permitted place in the permissionless ecosystem
Bitcoin will always be permissionless. But now that the ecosystem has matured to some extent and institutions have become active participants, some of the financial applications built on top of Bitcoin may be allowed to serve their specific needs. As we move towards Bitcoin-native financial markets, some aspects of the BitcoinFi economy must adapt to meet the demands of regulated entities such as corporations and institutions.
Their primary requirements are:
- Custody integration: Institutions store crypto through custodians that provide additional security features such as recovery and multisig management. They will not use DeFi applications that require them to leave the custodian and move assets to a regular wallet.
- Bitcoin-native in-kind proceeds: The stakes are high for institutions, and they cannot take on the unnecessary risks associated with bridging BTC to another chain or earning returns on secondary, speculative tokens. They prefer proceeds in kind. That’s Bitcoin.
- Allowed DeFi: Institutions need privacy-preserving auditability that verifies compliance without exposing strategies. Shielded contracts on an authorized network guarantee that level of privacy while still being fully auditable. Embedding KYC/AML workflows at the protocol level facilitates access to superior financial products for the custodians that they currently do not have access to, including lending, lending, trading and returns.
The institutional integration should not be seen as a betrayal of DeFi’s cypherpunk origins. In fact, it is their validation as the institutionally focused features are built on the foundations laid by DeFi. They reflect the maturation of the industry and the next phase of adoption. The total value locked in the Bitcoin DeFi has shot up from $705 million in September 2024 to $8.49 billion by the end of September 2025.
Closing thoughts
DeFi demonstrated what was possible with on-chain finance, and now it has evolved from a retail-first experiment into a robust financial system that attracts smart money.
Combining compliance with on-chain innovation in a permissioned environment would truly open the institutional floodgates to deliver not only products, but the broader Bitcoin-powered financial system.
2025 is the year when regulatory clarity, Bitcoin-native DeFi infrastructure, and institutional frameworks finally align to drive the next phase of adoption.
