The next 12 months are set to bring significant shifts to the BTC-Fi space, as each protocol’s roadmap targets gaps in the market and tries to capture new segments. Here’s how their plans will likely reshape competition:
1. Market Segmentation Will Become More Defined
- Lorenzo Protocol will solidify its position as the go-to platform for institutional and risk-averse users. Its full decentralization transition, expanded insurance, and institutional portal will attract large-scale BTC holders who prioritize compliance, security, and structured yield. This could create a clear divide between Lorenzo and protocols focused on retail or niche use cases.
- Stacks will dominate the BTC-native dApp and mainstream adoption segment. With Stacks 3.0 and partnerships in gaming/metaverse, it will draw users interested in building or using Bitcoin-based applications beyond staking – potentially becoming the "Ethereum of Bitcoin" and reducing overlap with pure liquid staking protocols.
- Babylon Chain will lead in cross-chain restaking infrastructure. Its aggregation platform and risk mitigation tools will make it the top choice for protocols looking to integrate Bitcoin security, positioning it as a backbone for multi-chain ecosystems rather than a direct competitor for end-users.
- Merlin Chain will corner the retail DeFi and low-cost transactions market. Its zkRollup V2 upgrade and e-commerce partnerships will appeal to users prioritizing speed, affordability, and ease of use – potentially siphoning off casual BTC holders from other platforms.
2. Technological Convergence and Differentiation
- Convergence: All protocols are moving toward greater decentralization, ZK integration, and cross-chain capabilities. This will raise the bar for security and usability across the board, forcing smaller players to either innovate or exit the market. For example, Lorenzo’s ZK-enhanced enzoBTC and Merlin’s zkRollup V2 will make fast, private BTC transactions standard.
- Differentiation: Unique features will become critical for standing out:
- Lorenzo’s split-token (LPT/YAT) model and OTF products will remain a key differentiator for structured yield.
- Stacks’ Nakamoto Consensus will set it apart as the only protocol fully anchored to Bitcoin’s mining process.
- Babylon’s risk pool and decentralized custody network will make it the safest option for cross-chain restaking.
- Merlin’s DEX aggregation and e-commerce integrations will differentiate it as a user-friendly BTC payment and trading platform.
3. Institutional Adoption Will Drive Market Growth and Competition
- Lorenzo’s institutional portal and compliance tools, combined with Babylon’s regulatory-compliant restaking products, will accelerate institutional entry into BTC-Fi. This will expand the overall market size and create a new competitive layer focused on enterprise-grade features like KYC/AML integration, audit trails, and custom reporting.
- Traditional financial institutions may start to partner with these protocols to offer Bitcoin-based investment products – giving first-movers like Lorenzo and Babylon a significant advantage. Stacks and Merlin may also target this segment later by adapting their platforms for institutional use.
4. Ecosystem Integration Will Determine Long-Term Success
- Protocols with the most extensive partnerships will gain an edge. Lorenzo’s plan to integrate with Aave, Compound, and 10+ new blockchains will make its liquid BTC accessible across more DeFi platforms, increasing its utility and TVL.
- Stacks’ focus on developer grants and gaming partnerships will build a self-sustaining ecosystem of dApps, reducing reliance on external integrations.
- Babylon’s restaking aggregation platform will make it a hub for cross-chain collaboration, potentially leading to industry-wide standards for Bitcoin security.
- Merlin’s integration with payment providers and e-commerce platforms will bridge crypto and traditional markets, driving mainstream adoption that benefits the entire BTC-Fi space.
5. Potential Market Shifts to Watch
- If Lorenzo successfully completes its decentralization transition without disrupting service, it could challenge Babylon and Stacks for leadership in TVL.
- Stacks’ Nakamoto Consensus upgrade could attract users concerned about centralization in other protocols, shifting market share toward BTC-native infrastructure.
- Merlin’s retail-focused campaigns could make it the most widely used BTC layer 2, even if it doesn’t lead in TVL.
- A major security breach or regulatory action against any of the top protocols could create opportunities for competitors to gain ground – making robust security plans more critical than ever.
In short, the competitive landscape will move from a "race to build the best basic product" to a "battle for market segments and ecosystem dominance." Each protocol is positioning itself to lead in a specific area, which will likely result in a more diverse and mature BTC-Fi market by late 2026.
