Bitcoin Staking Surpasses $4 Billion With 1-2% Yield

Bitcoin, the world's largest cryptocurrency by market capitalization, has recently surpassed $2 trillion, with over 50 million bitcoin addresses holding a balance. Unlike traditional currencies, Bitcoin does not offer interest on holdings. However, two distinct pathways have emerged to change this: native Bitcoin staking and liquid staking tokens (LSTs).

Native Bitcoin staking involves locking BTC in the Babylon protocol, which allows holders to earn fees by delegating their coins to Bitcoin-Secured Networks. These networks pay out fees in BTC, producing a yield of roughly 1-2%. The protocol has seen significant adoption, with over $4 billion in BTC staked since its launch in late 2024. Key features of this method include no wrapping or bridges, meaning BTC never leaves its native chain. However, the main risks involve protocol bugs or slashing if a delegated validator misbehaves. Additionally, staked coins remain immobile until an unbonding timer expires.

Liquid staking tokens, such as LBTC from Lombard Finance, address the issue of lock-ups by issuing a transferable asset that represents the underlying stake plus its future rewards. Users can stake BTC through Lombard’s Babylon contracts and receive LBTC on an EVM chain. The seven-day exit period allows users to burn LBTC to trigger the same unbond period as native Babylon staking. LBTC offers real liquidity, with daily on-chain volume averaging over $200 million and sufficient liquidity to facilitate transactions up to $30 million without significant slippage. However, holders must trust Lombard’s mint-and-burn smart contracts and the Babylon validator set.

LBTC's real superpower is capital efficiency, allowing users to post LBTC as collateral, spin it into DeFi pools, or sell it on a DEX while the original BTC keeps working. This flexibility makes LBTC an attractive option for those seeking to maximize their returns while maintaining liquidity.

Vaulting strategies, such as those offered by Lombard, aim to simplify the process of earning yield on Bitcoin. Lombard's Sentora DeFi vault, for example, accepts either wBTC or LBTC and targets an APY of approximately 6%, significantly higher than plain staking. The vault automatically executes various strategies, including over-collateralized lending, Pendle yield trading, and delta-neutral borrows, all managed by Sentora’s real-time DeFi risk engine. This automated approach requires no manual action from users or vault managers, making it a convenient option for those looking to earn yield without the complexity of managing multiple strategies.

In summary, Bitcoin holders now have multiple options to earn yield on their holdings, ranging from native staking to liquid staking tokens and vaulted strategies. Each method comes with its own set of risks and rewards, allowing investors to choose the approach that best fits their needs and risk appetite. As the adoption of these strategies continues to grow, it is likely that further innovations will emerge, pushing the boundaries of what is possible in the Bitcoin staking ecosystem.