Layer 2 networks

Bitcoin processes about 7 transactions per second on the base layer. Layer 2 networks handle transactions off-chain and settle to Bitcoin for finality.

Lightning Network

The oldest and most widely deployed Bitcoin L2. Lightning uses payment channels between pairs of nodes. Multi-hop routing allows payments to traverse the network without a direct channel between sender and receiver. Transactions settle in milliseconds with fees in the single-digit satoshi range. Lightning is optimized for payments, not programmable smart contracts. Full Layer 2 guide.

Stacks

Stacks (formerly Blockstack) runs smart contracts that settle to Bitcoin via Proof of Transfer consensus. Miners spend BTC to mine STX blocks. Smart contracts written in Clarity (a decidable language) can read Bitcoin state. The sBTC peg mechanism allows BTC to move between Bitcoin and Stacks without a federated multisig.

Other approaches

BOB (Build on Bitcoin) is an Ethereum rollup that settles to Bitcoin. It uses a hybrid architecture: EVM-compatible smart contracts for developer tooling, with Bitcoin as the security layer. RSK uses merged mining, sharing hashrate with Bitcoin miners. Liquid Network is a federated sidechain from Blockstream designed for traders and exchanges. Drivechains (BIP-300/301) propose trustless two-way pegs but require a Bitcoin soft fork.

Ordinals and inscriptions

Casey Rodarmor launched the Ordinals protocol in January 2023. It assigns a serial number to every satoshi based on when it was mined. This numbering (ordinal theory) makes individual satoshis identifiable and trackable across transactions.

Inscriptions are arbitrary data written to a satoshi using the witness field of a Bitcoin transaction. Images, text, HTML, JavaScript, SVGs. The data is stored on-chain permanently. An inscription is not a token or a smart contract; it is raw data attached to a specific satoshi. The witness data benefits from SegWit's 75% fee discount compared to regular transaction data.

The first Ordinals collections reached the market in February 2023. By late 2023, over 50 million inscriptions had been created. The Bitcoin blockchain grew from about 450 GB to over 600 GB that year, partly due to inscription data. The practical limit on inscription size is the 4 MB block weight limit. Full Ordinals guide.

Recursive inscriptions reference other inscriptions by their ID. An SVG inscription can call a JavaScript library stored in another inscription. This enables modular on-chain applications without re-uploading shared code. A front-end framework inscribed once can be reused by any subsequent inscription.

Ordinal wallets directory | Ordinals marketplaces directory.

Runes and fungible tokens

Casey Rodarmor also created the Runes protocol, which launched at the Bitcoin halving in April 2024. Runes use Bitcoin's UTXO model for fungible tokens. Each UTXO can carry a Runes balance alongside its BTC value.

Before Runes, BRC-20 was the dominant Bitcoin token standard. BRC-20 uses Ordinals inscriptions to track token balances in JSON data. Each transfer requires a new inscription, which creates chain bloat. BRC-20 transactions contributed to sustained Bitcoin mempool congestion throughout 2023.

Runes encode transfers in OP_RETURN data (80 bytes) rather than full inscriptions. This is more space-efficient and aligns with Bitcoin's UTXO architecture. A Rune has a name, a supply, divisibility, and a symbol. No transfer hooks, no approval patterns, no programmable logic. What you gain in efficiency, you lose in programmability compared to Ethereum's ERC-20.

Other Bitcoin token standards include RGB (client-side validated state on Lightning) and Taproot Assets (formerly Taro, from Lightning Labs). Both use Taproot for more efficient on-chain footprints but have smaller ecosystems than Runes. Full Runes guide | Runes projects directory.

Bitcoin DeFi

DeFi on Bitcoin operates differently from Ethereum DeFi. Bitcoin Script is not Turing-complete. Smart contracts require Layer 2 networks (Stacks, BOB, RSK) or bridges to EVM chains.

Liquid staking and restaking

The largest Bitcoin DeFi category by TVL. Babylon enables BTC holders to lock their Bitcoin to provide economic security to proof-of-stake chains. SolvBTC wraps BTC into a liquid staking token that can be used as collateral elsewhere. These protocols give BTC holders yield without selling their Bitcoin.

Lending

Lending on Bitcoin uses Stacks-based protocols or wrapped BTC on Ethereum. Wrapped BTC (WBTC, cbBTC, tBTC) is the dominant pattern: BTC is locked with a custodian or bridge, an ERC-20 representation is minted on Ethereum, and that token is deposited as collateral into Morpho, Aave, or Compound vaults. This gives BTC holders access to Ethereum's lending markets but adds bridge and custody risk.

DEX trading

DEX trading on Bitcoin uses atomic swaps or Stacks-based AMMs. Volume is low compared to Ethereum or Solana DEXes. Most BTC spot trading happens on centralized exchanges. Lightning Network enables fast BTC transfers between exchanges but does not support on-chain AMM-style trading.

Data sources

Protocol data on this map comes from DeFiLlama's protocol and chain endpoints. TVL, pool counts, and category classifications are updated every 6 hours through the DIA data pipeline. The protocol table on this page shows all protocols with "Bitcoin" in their chain list on DeFiLlama.

Educational content (guides on Layer 2s, Ordinals, Runes) is maintained in Notion and rendered through the DIA Notion API integration. Directory data (Runes projects, Ordinal wallets, Ordinals marketplaces) is sourced from Notion databases with structured metadata.

For full transparency on data collection and methodology, see the Data Sources page.