Bitcoin Staking: A New Frontier of Yield Generation

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Staking Bitcoin?

It might sound impossible, given Bitcoin is all about Proof-of-Work, but thousands are already earning rewards.

Here’s what you need to know.

Bitcoin Staking Explained

This year, staking has largely been an Ethereum story, with ETH re-staking gaining traction. The concept of re-staking, popularized by EigenLayer and Ether.Fi, allows stakers to use their already-staked ETH to secure additional services, earning extra rewards. By mid-2024, EigenLayer boasted over $20 billion in TVL — a clear sign of how much demand there is for unlocking additional yield.

Now, Bitcoin is getting in on the action. Projects like Babylon and Lombard Finance are paving the way for Bitcoin holders to put their BTC to work. With Bitcoin's $2 trillion market cap, imagine the impact of staking even a fraction of it.

If Bitcoin achieves a staked percentage similar to Ethereum's ~29%, we could see more than $580 billion worth of BTC brought on-chain. 

How Bitcoin Liquid Staking Works

Unlike Ethereum’s re-staking model, which uses previously-staked assets, Bitcoin’s staking framework is built around the concept of liquid staking tokens or LSTs. These tokens provide yield-bearing, liquid representations of staked BTC, enabling users to put their BTC to work in DeFi and earn rewards.

Babylon

Babylon forms the backbone of Bitcoin staking, offering a secure, decentralized way for holders to stake their assets without losing custody. Operating within the Cosmos ecosystem, Babylon recently completed a $70 million funding round and has since attract a vibrant community of users, playing a central role in expanding Bitcoin’s utility beyond its traditional store-of-value function. Babylon participants currently earn points, with the potential for token rewards in the future.

Lombard Finance

Lombard Finance builds on Babylon’s foundation as a liquid staking provider. Its token, LBTC, represents staked BTC and offers both native staking rewards and expanded utility across DeFi platforms like Pendle and Morpho. Here’s how liquid staking typically works on Lombard: 

  1. Bitcoin holders transfer their BTC to secure Babylon protocol addresses, where it is safeguarded by decentralized custody systems.
  2. Users receive liquid staking tokens (LBTC) pegged to Bitcoin’s value. These tokens serve as placeholders for the staked BTC.
  3. While the original BTC remains locked in reserve, LBTC holders earn staking rewards, which can be further compounded through DeFi strategies.
  4. Protocols integrate these reserves into cross-chain ecosystems, enabling BTC to secure decentralized applications and networks beyond Bitcoin’s native blockchain.

A Massive Opportunity for Bitcoiners

Bitcoin staking is still in its infancy, but the potential is enormous. Babylon, Lombard Finance, and Ether.Fi are laying the groundwork for a trustless, self-custodial staking future for BTC holders. For users, the opportunity to generate yield without centralized intermediaries is a compelling shift.

We’re keeping a close eye on this space and look forward to supporting BTC staking on CoinList in the near future.

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