Check out the current hottest Bitcoin liquidity staking protocols.

CN
9 months ago

With the rapid development of the Bitcoin liquidity staking ecosystem, various protocols are presenting exciting opportunities and unique features.

Author: Lorenzo Protocol

Translation: Mars Finance, Daisy

The field of Bitcoin liquidity staking protocols is rapidly expanding as the technological advancements of Bitcoin in recent years have progressed at a faster pace.

Liquidity staking protocols built on top of Bitcoin have only emerged in less than a year, but there are already a large number of staking protocols to consider when entering this new field.

In a simple review, the Bitcoin liquidity staking protocol is a system that allows Bitcoin holders to stake their Bitcoin in some way to earn rewards or returns while still maintaining underlying liquidity. Bitcoin is typically used to secure Proof of Stake (PoS) networks, but there are also other use cases, such as participating in equity-based oracle networks. Meanwhile, holders can still obtain the liquidity value equivalent to their staked Bitcoin in the form of derivative tokens.

In addition to enabling Bitcoin holders to generate returns at the underlying level, liquidity staking protocols also allow users to securely move Bitcoin to Bitcoin 2nd layer networks, unlocking Bitcoin for more flexible decentralized finance (DeFi) forms. Like any other category of DeFi protocols, different liquidity staking protocols on Bitcoin often focus on different segmented functionalities and attributes that set them apart from other options in the market. Furthermore, many liquidity staking protocols on Bitcoin are supported by Babylon, a protocol that processes Bitcoin staking protocols at the base layer of the Bitcoin blockchain.

Currently, some of the most well-known Bitcoin liquidity staking platforms are Lorenzo Protocol, Bedrock, Botanix, pSTAKE Finance, and UTXO Stack, but more platforms emerge every day. Let's take a closer look at the distinctive features of these Bitcoin staking solutions and how they differ from each other.

Lorenzo Protocol

Key Features

  • Liquidity staking tokens are divided into yield accumulation tokens and liquidity principal tokens
  • Supports circular and leveraged staking
  • Currently focused on Babylon but can also integrate with other high-quality Bitcoin staking projects
  • Implements a straightforward staking process through Bitcoin liquidity staking plans provided by professional providers
  • No minimum staking requirement
  • Already launched

Lorenzo Protocol aims to act as the primary layer for Bitcoin liquidity financing, facilitating the increasing global demand for Bitcoin through innovative Bitcoin 2nd layer networks that bring DeFi functionalities to the world's most popular and trusted cryptocurrency. Through Babylon's Bitcoin shared security protocol, Lorenzo can stake Bitcoin liquidity into PoS chains in exchange for returns.

Lorenzo also enhances Babylon's functionality by creating an efficient market for Bitcoin holders to find the best investment opportunities for their unused Bitcoin liquidity through its Bitcoin Liquidity Staking Plan (BLSP), outlining the use of staked Bitcoin and the related rewards. Each BLSP details the rules and rewards of staking and has a fixed staking period to maintain consistency.

Furthermore, Lorenzo tokenizes staked Bitcoin into Liquidity Principal Tokens (LPT), representing the right to reclaim the staked Bitcoin principal, and Yield Accumulation Tokens (YAT), representing the earnings generated by the staked Bitcoin collateral. This allows users to easily separate the underlying staked Bitcoin collateral from the earnings generated when using that liquidity in various DeFi applications.

Tokenizing staked Bitcoin into separate LPT and YAT tokens also supports circular and leveraged staking. Circular staking leverages external DEX partnerships, allowing users to stake BTC, borrow more BTC, and increase staking rewards. Leveraged staking simplifies the process by providing internal liquidity, allowing users to apply maximum leverage with a single click. Both products aim to improve capital efficiency and optimize staking returns.

While Bitcoin liquidity staking is still a new concept, Lorenzo is one of the few products that has already been launched, at least in its basic form. Additionally, Lorenzo has no minimum staking amount, aiming to democratize access to the Bitcoin staking process as user funds are pooled together.

Although Lorenzo is currently focused on Babylon, it can technically integrate with any other emerging Bitcoin staking projects.

Bedrock

Key Features

  • Offers BTC, ETH, and IOTX staking
  • Bitcoin integration limited to two ERC-20 tokens issued on the Ethereum network
  • Using Wrapped Bitcoin instead of native Bitcoin introduces high centralization
  • Liquidity re-staking tokens do not separate principal deposits and earnings
  • Utilizes Babylon

Bedrock is a multi-asset liquidity re-staking protocol developed in collaboration with the blockchain infrastructure company RockX. The project is supported by supporters including Babylon co-founder Fisher Yu, IoTeX founder Raullen Chai, and OKX Ventures.

Bedrock not only focuses on Bitcoin but also allows users to re-stake ETH and IOTX (IoTeX's native token). It is worth noting that Bitcoin integration is limited to Wrapped Bitcoin (wBTC) and FBTC users, which are Bitcoin-backed ERC-20 tokens issued on Ethereum. Through collaboration with Babylon, wBTC and FBTC holders can re-stake through Bedrock's uniBTC protocol. This integration allows wBTC and FBTC holders to earn staking rewards on the Ethereum network; however, it is important to note that wBTC is a highly centralized asset as BitGo is its sole custodian.

Bedrock's product suite includes Liquidity Re-staking Tokens (LRT) for wBTC, ETH, and IOTX. Bedrock maximizes the liquidity and value of these PoS tokens through its uniBTC, uniETH, and uniIOTX products using the universal (uni) standard. This universal token model ensures that staked PoS tokens in Bedrock represent not only principal assets but also all future staking rewards. The non-rebase nature of uniTokens means their value increases over time, not in quantity, allowing holders to benefit from the continuously growing value of each token while also earning additional points from EigenLayer and Bedrock's reward systems.

pSTAKE Finance

Key Features

  • Supported by Binance Labs
  • Built on Babylon
  • Bitcoin staking currently cannot be unstaked
  • 50 BTC deposit limit
  • Liquidity staking tokens to be launched on Ethereum in September 2024
  • Will add the ability to stake wBTC
  • Has its native token, PSTAKE

pSTAKE Finance is a Bitcoin yield and liquidity staking protocol supported by Binance Labs and built on Babylon. The protocol is now live with a maximum staking limit of 50 BTC. However, pSTAKE Finance stakers currently cannot unstake or withdraw their Bitcoin in the current first version of the protocol. Additionally, the protocol's liquidity staking aspect has not yet been launched, but pSTAKE Finance plans to offer LST on Ethereum starting from September 2024.

Similar to Lorenzo Protocol and Bedrock, the pSTAKE Finance platform enables users to deposit their Bitcoin and contribute to the security of various application chains, earning rewards through Babylon's Bitcoin staking protocol. As these PoS chains begin to utilize Bitcoin to ensure security, pSTAKE manages these rewards and distributes them to users.

Looking ahead, pSTAKE Finance plans to launch their V2, at which point yBTC LST will be introduced on Ethereum. This new token aims to provide automatically compounded Bitcoin yields and ultimately integrate into the major DeFi ecosystems across various blockchains. The protocol is committed to expanding its yield products and making Bitcoin more accessible, including options for staking wBTC and other Bitcoin derivatives.

Additionally, pSTAKE Finance is focused on developing its token economics and introducing fully non-custodial Bitcoin yield solutions to ensure user security and accessibility. pSTAKE Finance also has its native governance and incentive token, PSTAKE.

Swell Network

Key Features

  • Non-custodial staking: Swell allows users to stake WBTC directly from non-custodial wallets, ensuring full control of assets.
  • Yield generation: swBTC generates returns through re-staking protocols such as Symbiotic, EigenLayer, and Karak.
  • Liquidity: swBTC can be used as collateral in lending protocols.

Swell Network traditionally has been an Ethereum liquidity staking platform and recently launched a Bitcoin liquidity re-staking token called swBTC. This ERC-20 token provides liquidity for users who want to stake Wrapped Bitcoin in protocols such as Symbiotic, EigenLayer, or Karak without locking up their assets. With swBTC, users can earn native yields from re-staking platforms while utilizing the token across the entire DeFi ecosystem.

UTXO Stack

Key Features

  • Supported by ABCDE, OKX Ventures, CMS Holdings, and Matrixport
  • Upholds Bitcoin's roots, adopting the UTXO model
  • Integrated with the RGB++ protocol
  • Also integrated with Nervos Network, making it not just a Bitcoin-specific solution

UTXO Stack provides a technical framework for developers to easily deploy Bitcoin 2nd layer solutions using the Unspent Transaction Output (UTXO) architecture. It's worth noting that Bitcoin differs from most other Layer 1 cryptocurrency networks in that it uses this UTXO-based model instead of the more popular account-based setup. The Bitcoin liquidity staking protocol has garnered support from prominent cryptocurrency investors, including ABCDE, OKX Ventures, CMS Holdings, and Matrixport.

UTXO Stack integrates the RGB++ protocol to enhance the security of the Bitcoin 2nd layer network through re-staking Bitcoin, CKB (Nervos Network's native cryptocurrency), and Bitcoin L1 assets issued through RGB++. UTXO Stack aims to become the "OP Stack + EigenLayer" of the Bitcoin world.

The adoption of RGB++ is the most unique attribute of UTXO Stack. Unlike many existing solutions that heavily rely on Ethereum's EVM and bridging mechanisms, UTXO Stack and RGB++ maintain close ties to the Bitcoin main chain and UTXO model. RGB++ allows the issuance and management of assets on Bitcoin, with transactions executed on the Nervos Network and recorded as commitments on Bitcoin. One major benefit of this approach is the ability to achieve efficient "transaction folding" to reduce costs. However, the integration with Nervos Network may deter many Bitcoin purists.

Nomic

Key Features

  • Plans to collaborate with Babylon
  • Has an LST called stBTC (may be confused with Lorenzo's product of the same name)
  • Has its native token NOM, used to secure its Layer 1 network
  • Offers dual staking for Bitcoin and NOM
  • Works within the Cosmos ecosystem

Nomic is a Layer 1 blockchain network operating within the larger Cosmos ecosystem. Cosmos aims to create a more unified cryptocurrency ecosystem through interoperability across multiple blockchains, providing a viable roadmap for scaling that involves using separate chains for specific use cases.

The Nomic DAO Foundation plans to incorporate Babylon's Bitcoin staking protocol into its decentralized, non-custodial Bitcoin bridge. This integration will introduce a Liquidity Staking Token (LST) called stBTC, allowing Bitcoin holders to benefit from staking and liquidity. Nomic will enhance its security model through dual staking, leveraging staked Bitcoin and its native token NOM.

By leveraging Babylon's technology, stBTC will enable Bitcoin holders within the Cosmos ecosystem to earn yields while maintaining liquidity for use in DeFi protocols compatible with inter-blockchain communication (IBC). Nomic's approach allows real Bitcoin to be exchanged for nBTC tokens, which can freely move between IBC-compatible chains. These nBTC tokens are backed by real Bitcoin held in a reserve controlled by NOM token holders, who are also validators of the Nomic chain. Through this system, users can stake nBTC to mint stBTC. Staking rewards will be distributed through inter-chain account transactions via IBC.

stBTC has been launched on the testnet, allowing users to explore its functionality before its formal mainnet launch.

PumpBTC

Key Features

  • Built on Babylon
  • Current version uses WBTC, BTCB, and FBTC on alternative Layer 1 networks
  • Collaboration with cryptocurrency custodians Cobo and Coincover
  • Smart contract audit executed by BlockSec
  • PumpBTC points for additional rewards

PumpBTC plans to offer liquidity re-staking solutions through Babylon. PumpBTC aims to simplify and enhance Bitcoin holders' yields, allowing users to stake their Bitcoin and immediately receive liquidity tokens, bypassing the usual waiting period. Similar to other projects in this list, its goal is to bridge the worlds of DeFi and Bitcoin. PumpBTC describes itself as an efficient alternative to WBTC, providing native yield-bearing Bitcoin for DeFi ecosystems across multiple blockchains.

Currently, PumpBTC allows users to stake various Bitcoin derivative tokens issued on alternative Layer 1 networks such as Ethereum and Binance Smart Chain. Additionally, PumpBTC does not directly handle user funds, as this aspect of the protocol is managed by custodial partners Cobo and Coincover. While PumpBTC's smart contracts have been audited by blockchain security company BlockSec, the heavy reliance on multi-layer third-party custody may deter many Bitcoin purists who prefer to adhere to decentralized and permissionless financial principles. Nevertheless, PumpBTC claims that they will eventually add the ability to directly stake native Bitcoin in the protocol.

In addition to earning yields from staking Bitcoin through Babylon integration, users can also earn additional rewards through PumpBTC points. However, it is currently unclear the exact future utility of these points. In terms of total rewards, Bitcoin stakers can earn their base staking Annual Percentage Rate (APR), Babylon points, PumpBTC points, and FBTC points on one platform, with more rewards expected to be added in the future.

Lombard

Key Features

  • Supported by prominent industry leaders, including Franklin Templeton Investments and Polychain Capital
  • Built on Babylon
  • Currently focused on making LBTC the primary way for Bitcoin to be used in DeFi
  • In addition to Babylon staking rewards, Lombard points can also be earned
  • Supported by a security alliance composed of DeFi industry leaders
  • Currently in private testing phase

Lombard aims to establish a universal standard for Bitcoin and has the support of ecosystem partners. The protocol's main focus is to allow yield-generating Bitcoin to move seamlessly across chains without disrupting liquidity, potentially bringing a significant amount of untapped capital into DeFi.

Lombard's core product, Liquid Bitcoin (LBTC), offers 1:1 backed, yield-generating cross-chain Bitcoin, allowing holders to retain access to their capital while actively participating in DeFi activities such as staking and trading. Currently in phase 1 on the Ethereum mainnet, Lombard is undergoing private testing, allowing select users to stake Bitcoin and mint LBTC. In phase 2, Lombard will open LBTC to the public, setting deposit limits and a waitlist to manage demand and reward early participants.

The governance and promotion of LBTC also receive support from the security alliance, whose mission is to highly integrate Bitcoin tokens into existing DeFi protocols and blockchains. However, Lombard has not yet announced the specific members of the security alliance.

Bitcoin holders can earn a range of yields through Lombard, including PoS staking, Lombard rewards, and DeFi opportunities. Other DeFi protocols can also benefit from LBTC by creating new yield primitives, and target blockchains may see a significant influx of new liquidity, with billions of dollars of Bitcoin integrated into applications on these DeFi-focused chains.

Lombard's mission is to position Bitcoin not only as a store of value but also as a key participant in DeFi, usable for large-scale earning, staking, trading, and transfers. Their vision is to see Bitcoin as a universal DeFi primitive, the best collateral for the entire ecosystem, and to provide enhanced security for PoS networks through Bitcoin-backed stability.

Chakra

Key Features

  • Offers Bitcoin re-staking
  • Based on zero-knowledge proofs for self-custody staking
  • Creates ChakraBTC and ChakraETH
  • Chakra chain acts as a middleware chain between Bitcoin and its 2nd layer networks

As a Bitcoin re-staking protocol, Chakra strives to unleash the full economic potential of Bitcoin by protecting new chains and applications using advanced zero-knowledge proof (ZKP) technology. The core challenge Chakra addresses is how to allow Bitcoin holders to benefit from staking rewards without compromising the custody security of staked Bitcoin. This is achieved through self-custody staking driven by Cobo's Babylon and MPC-driven custody (multi-party computation).

Chakra provides a unique solution by enabling self-custody staking, allowing Bitcoin holders to stake assets without moving them out of their wallets. Time-locked scripts are also a building block of the Lightning Network, used to eliminate third-party risks sometimes associated with the staking process. Chakra also employs ZKP, particularly Scalable Transparent ARguments of Knowledge (STARK), to enhance the system's security and scalability.

Additionally, Chakra supports a range of services maintained by stakers, including applications in AI, DeFi, and gaming. It facilitates the creation of new Bitcoin 2nd layer networks and the development of Bitcoin-backed DeFi derivatives, expanding the utility and earning opportunities for Bitcoin holders. Most importantly, Chakra users can stake across various networks using the same collateral through Bitcoin re-staking.

Chakra describes itself as a modular settlement network for the Bitcoin DeFi ecosystem built around various different 2nd layer networks. It also interoperates across various 1st layer networks, with a focus on creating an aggregated financial layer for Bitcoin liquidity that can unify the entire space. The Chakra chain effectively acts as middleware between the base Bitcoin protocol and any blockchain seeking secure Bitcoin liquidity.

Solv Protocol

Key Features

  • Investors include Binance Labs and Blockchain Capital
  • UTXO-3525 supports cross-chain non-custodial Bitcoin swaps
  • Issues SolvBTC as a unified Bitcoin liquidity asset
  • Supports Bitcoin, Ethereum, BNB Chain, Botanix, and many other blockchains
  • Audited by five independent companies
  • Compliance Bridge supports traditional finance participation

Solv Protocol aims to establish a decentralized Bitcoin reserve that can be deployed across the entire DeFi space, which they refer to as "BTCFi". Through their SolvBTC token, they focus on unifying Bitcoin liquidity as an asset for all staking and other DeFi applications.

Solv Protocol is supported by a long list of prominent investors, including Binance Labs, Blockchain Capital, CMS Holdings, and Bing Ventures. Additionally, the protocol has undergone five independent security audits by companies such as Quantstamp and CertiK.

From a technical perspective, Solv's three key aspects are the Liquidity Consensus Network (LCN), UTXO-3525, and Compliance Bridge. The Liquidity Consensus Network manages the decentralized Bitcoin reserve held in the Solv Protocol through transparent, auditable records and cross-chain liquidity management. UTXO-3525 is a protocol for transferring assets from the base Bitcoin blockchain to EVM-compatible blockchains. In addition to native Bitcoin, UTXO-3525 can also handle assets issued on top of Bitcoin, such as Ordindal, Runes, and others. The Compliance Bridge enables traditional financial institutions to participate in the protocol while complying with their regulatory obligations. This includes the ability to tokenize U.S. spot Bitcoin exchange-traded fund tokens.

Currently, Solv Protocol has two independent LSTs, in the form of SolvBTC.BBN staked through Babylon and SolvBTC.ENA staked through Ethena. Additionally, Solv plans to enable Bitcoin earning opportunities through Ethereum, Binance Smart Chain, Botanix, and several other blockchains.

Acre

Key Features

  • Has a governance token called ACRE
  • Built on the tBTC decentralized Bitcoin bridge, not Babylon
  • Bitcoin stakers receive stBTC LST
  • Users can also earn Acre points
  • Currently running on Ethereum
  • Plans to integrate with the Mezo Bitcoin 2nd layer network

As a liquidity layer for the Bitcoin 2nd layer network, Acre provides Bitcoin onboarding and offboarding staking services. When Bitcoin is deposited into Acre, it mints stBTC, an LST that can be exchanged 1:1 for Bitcoin. The deposited Bitcoin is then invested in various yield-generating strategies on the Bitcoin 2nd layer network and DeFi platforms, with rewards accumulating into the stBTC token. This includes using the underlying Bitcoin as proof of stake assets to secure the Bitcoin 2nd layer network. The stBTC token contract is currently deployed on Ethereum. It is not repriced based on its accumulated rewards, meaning the value of stBTC should increase over time, not the quantity of stBTC held by users.

It is worth noting that Acre uses tBTC, a secure, decentralized Bitcoin bridge that can connect to Ethereum and other EVM-compatible blockchains. This is in stark contrast to other Bitcoin-backed tokens (such as WBTC) issued on EVM chains, which are fully centralized. Bitcoin deposited into Acre on the underlying blockchain is converted to tBTC before staking. tBTC has the support of leading DeFi projects and plays a crucial role in enabling cross-chain coordination and enhancing the functionality of Bitcoin within the Acre system.

Acre is governed by a decentralized autonomous organization (DAO) and operates under the governance of users holding ACRE tokens.

Current State of the Products

When discussing various liquidity staking platforms, the common themes and differences contribute to the distinctiveness of each platform.

Flexibility and Cross-Chain Integration

Most platforms emphasize cross-chain compatibility, allowing users to interact with multiple blockchain networks. For example, Chakra supports cross-chain liquidity flow, while Lombard supports staking across various networks, increasing opportunities for users to earn rewards. Similarly, Swell introduces re-staking functionality, enabling Wrapped Bitcoin holders to utilize liquidity.

Yield Optimization and Incentive Mechanisms

All major platforms focus on creating yield, but the Lorenzo protocol stands out with its leverage staking option. It allows users to borrow more BTC for further staking by using staked Bitcoin as collateral, maximizing the potential for yield. Lombard and Bedrock offer higher yields through partnerships, while PumpBTC combines real-time staking transparency and point aggregation to unlock additional rewards.

The Bright Future of BTCFi

With the rapid development of the Bitcoin liquidity staking ecosystem, various protocols present exciting opportunities and unique features.

These innovations enable Bitcoin holders to earn rewards while maintaining liquidity, opening doors to diverse DeFi applications within the Bitcoin ecosystem. The diversity of Bitcoin liquidity staking protocols not only enhances user choice but also stimulates further innovation in the Bitcoin DeFi space.

Looking ahead, the growth of Bitcoin liquidity staking protocols will redefine how Bitcoin holders interact with the broader blockchain ecosystem. As these platforms mature and expand, they are poised to unleash greater functionality and accessibility, making Bitcoin a more widely applicable and productive asset.

Given that this field is still in its very early stages, tracking the latest developments in Bitcoin staking is crucial. Nevertheless, the number of new projects in this field indicates a promising future for earning rewards through Bitcoin staking.

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