Growing institutional participation in Bitcoin DeFi brings rigorous security audits and compliance frameworks, which is crucial for mainstream adoption. However, the added regulatory oversight and custodial requirements may raise barriers to entry for smaller developers who rely on open, permissionless protocols to innovate quickly.
As a result, while institutional engagement can strengthen the ecosystem’s legitimacy, it risks centralizing development power and reducing the diversity of experiments. If smaller teams struggle to compete under heavier compliance burdens, the pace of creative, community-driven DeFi innovation on Bitcoin could slow down.
