Source: Cointelegraph
Original: “Can You Stake Bitcoin (BTC)? Here’s What You Need to Know”
Although Bitcoin (BTC) does not support native staking, holders can earn yields through centralized lending platforms, Wrapped Bitcoin (WBTC) on Ethereum, and Bitcoin-related networks like Babylon and Stacks.
WBTC allows BTC holders to participate in Ethereum-based DeFi platforms like Aave and Curve for lending, liquidity pools, and yield farming, but it introduces bridging and smart contract risks.
Protocols like Babylon and Stacks use native time-lock scripts or stacking mechanisms to provide rewards without removing BTC from the Bitcoin blockchain.
Custodial, smart contract, and regulatory risks still exist. The Bitcoin community remains divided on whether Bitcoin yield generation features align with its principles of decentralization and minimal trust.
Unlike proof-of-stake (PoS) blockchains like Ethereum or Cardano, Bitcoin relies on proof-of-work (PoW) mining to secure the network. However, with the rise of decentralized finance (DeFi) and second-layer innovations, Bitcoin (BTC) holders can now earn passive income through various yield generation methods. These methods include centralized lending, Wrapped Bitcoin (WBTC) on Ethereum, and second-layer solutions like Babylon and Stacks.
This article explores how to earn yields from BTC, the associated risks, and the technological advancements that facilitate these opportunities, all without altering the core Bitcoin protocol.
Staking and mining are two distinct consensus mechanisms used to secure blockchain networks and validate transactions.
Staking is the core mechanism of PoS blockchains like Ethereum and Solana. Participants become validators by locking up cryptocurrency, and they are randomly selected to create new blocks and confirm transactions, earning rewards. The more coins staked, the higher the probability of being selected.
Mining, used in PoW blockchains like Bitcoin and Litecoin, requires miners to use powerful computing devices to solve complex mathematical problems. The first miner to solve the problem has the right to add a new block and receive a reward. The mining process consumes significant energy and hardware resources.
Bitcoin's PoW design dictates that it does not support a staking mechanism. The network relies entirely on miners to ensure decentralization and security. In the traditional sense, there are no validators or staking rewards in the Bitcoin network. BTC's yield generation methods, such as lending or second-layer solutions, are fundamentally different from PoS staking.
Did you know? Some staking platforms offer liquid staking services, allowing users to receive tokens representing their staked assets (like stETH for Ether). This enables you to earn staking rewards while continuing to utilize your funds in DeFi protocols.
While the inability to natively stake BTC is limited by Bitcoin's PoW mechanism, there are still various alternatives to help BTC holders earn yields and create passive income. These methods often involve third-party platforms that use or bridge BTC to other blockchains.
Centralized lending platforms like Binance Earn, Nexo, and Ledn allow users to earn yields by depositing BTC, which the platforms then lend to institutional borrowers. In return, users receive interest paid daily or monthly. However, this method carries custodial risks, as users must trust the platform to maintain solvency and security. The collapses of institutions like Celsius and BlockFi have highlighted this risk.
WBTC is an ERC-20 token backed 1:1 by BTC and held by a centralized custodian (BitGo). It enables BTC holders to participate in the Ethereum-based DeFi ecosystem, such as lending on Aave, providing liquidity on Curve, or yield farming. This unlocks the potential of DeFi but also introduces BitGo custodial risks, bridging vulnerabilities, and smart contract security concerns.
Emerging second-layer network platforms like Babylon and Stacks also provide users with avenues to explore native Bitcoin yield opportunities. Babylon secures its PoS network by locking BTC in time-lock scripts, while Stacks employs a proof-of-transfer (PoX) model, allowing STX token holders to earn BTC rewards by locking their tokens. These platforms effectively expand Bitcoin's utility without leaving the Bitcoin ecosystem.
Did you know? After Ethereum completed its "merge" in 2022, it became the largest PoS network globally, successfully replacing traditional miners with validators. This technological transformation reportedly reduced its blockchain energy consumption by over 99.95%, making Ethereum one of the most environmentally friendly networks among major cryptocurrency networks today.
The process of earning BTC yields on centralized platforms is relatively straightforward. Investors simply need to choose a reputable platform, complete account creation and verification, deposit BTC assets, select flexible or fixed-term lending products, confirm the relevant terms, and regularly monitor their earnings. Typically, funds can be withdrawn after the term ends.
For example, Binance Earn offers a variety of yield options:
Simple Earn: Designed for beginners, it provides stable returns through flexible or locked savings products.
Dual Investment: A higher-risk product where returns depend on the settlement prices of two assets, exposing investors to market volatility risks.
On-chain Yield: Bridges funds to DeFi protocols like Aave, offering floating yields managed by Binance.
Yields and terms may vary based on specific options and market conditions. Simple Earn offers lower but predictable returns with a flexible withdrawal mechanism, while Dual Investment and On-chain Yield may provide higher but riskier returns, along with certain lock-up periods. Investors can visit the Binance Earn platform for the latest rate information.
After subscribing:
Simple Earn: Bitcoin (BTC) can be locked (fixed term) or withdrawable (flexible term), with interest paid daily or at the end of the term.
Dual Investment: Funds are committed to reach a target price and settlement date, with returns paid in the deposited asset or an alternative asset.
On-chain Yield: Funds are deployed to DeFi protocols, with Binance handling gas fees and smart contracts. Withdrawals may face delays due to liquidity or network issues.
Returns depend on the platform, BTC amount, and project terms.
WBTC allows BTC holders to earn yields on Ethereum's DeFi platforms (like Aave or Curve) by depositing WBTC into liquidity pools and earning interest or fees.
Steps to earn yields using WBTC, using Curve as an example:
Convert BTC to WBTC: Use a centralized exchange (CEX) (like Binance) or a decentralized bridge (like RenBridge) to convert BTC to WBTC, which is held by BitGo.
Transfer WBTC to a wallet: Move WBTC to a Web3 wallet like MetaMask, ensuring sufficient Ether (ETH) is available to pay gas fees.
Connect to a DeFi protocol: Visit Curve.fi and deposit WBTC into a liquidity pool through the platform interface.
Earn yields: By providing liquidity, you can earn interest or fees based on the performance of the liquidity pool.
Second-layer solutions like Babylon and Stacks generate yields by leveraging Bitcoin's security mechanisms. For example, Babylon secures its PoS network by locking BTC as collateral and connects to various blockchain networks in the Cosmos ecosystem. Babylon's Genesis mainnet successfully launched on April 10, 2025, with over 57,000 BTC staked, totaling approximately $4.6 billion in value.
Set up a compatible wallet: Choose a wallet that supports native SegWit (bc1q) or Taproot (bc1p) address formats, such as OKX or Phantom. Avoid wallets with Bitcoin inscription (Ordinals) features.
Access the Babylon staking app: Log into the Babylon Stake application platform, which has officially operated since the launch of the Genesis mainnet.
Connect your wallet: Link your BTC wallet to the platform and authorize necessary digital signature requests for platform interaction.
Select a finality provider: Choose from over 250 finality providers (e.g., Galaxy, Figment) responsible for securing the Babylon network.
Set transaction fees: Choose default or custom fees (higher fees ensure faster confirmation speeds) and enter the amount of Bitcoin (BTC) to lock.
Confirm and monitor: Lock BTC through the app and track the status in real-time within the Babylon staking terminal. Rewards include BABY tokens, distributed 50-50 between BTC and BABY stakers.
Did you know? In some countries, cryptocurrency earnings are taxed as income when received and as capital gains when sold. Tax treatment varies significantly by region, and it is advisable to consult a professional tax advisor.
Second-layer protocols significantly enhance Bitcoin's scalability and functionality. Babylon and Stacks introduce unique mechanisms that create yields while leveraging Bitcoin's security foundation.
Babylon locks BTC in self-custodied, time-lock scripts on the Bitcoin blockchain, using it as collateral to secure its PoS network, which is set to officially launch on April 10, 2025. This non-custodial model supports the Cosmos ecosystem without the need for bridging or wrapping mechanisms. BTC stakers can delegate to finality providers and earn BABY tokens, while BABY stakers support block production. This trustless system enables delegated voting and re-staking across PoS chains.
Stacking is the yield mechanism of Stacks, based on the proof-of-transfer (PoX) principle. STX token holders lock Stacks (STX) for about two weeks to support network consensus and earn BTC rewards paid by Stacks miners. This non-custodial process can be implemented through platforms like Okcoin or Xverse, creating an economic link to Bitcoin without locking BTC itself.
Coinbase Asset Management launched the Coinbase Bitcoin Yield Fund (CBYF) on May 1, aimed at providing sustainable Bitcoin-denominated returns for institutional investors outside the U.S.
The fund employs conservative cash and futures arbitrage strategies, fully capitalizing on price differences between spot and futures markets while avoiding high-risk operations like leveraged loans or options selling.
The target annual net return rate of CBYF is 4-8% (denominated in BTC), providing Bitcoin holders with a safer yield option—this feature is particularly important as Bitcoin, unlike other cryptocurrencies, does not have a native staking mechanism.
Due to reliance on third-party services or second-layer solutions, the risks associated with earning yields through BTC are fundamentally different from PoS staking:
Custodial risk: Centralized platforms (like Binance, Nexo) and WBTC custodians (BitGo) hold users' BTC, and in the event of bankruptcy, hacking, or regulatory shutdown, this could lead to asset loss.
Smart contract risk: WBTC bridges and DeFi platforms like Aave are susceptible to code vulnerabilities or malicious attacks.
Liquidity risk: BTC in periodically locked projects or low liquidity pools may not be withdrawable in a timely manner during market upheavals.
Network maturity: Emerging protocols like Babylon may face technical challenges or adoption bottlenecks.
Market risk: Price volatility during bear markets may completely offset yields.
Regulatory risk: Centralized platforms and custodians face KYC and AML compliance scrutiny, and yields may be subject to income tax or capital gains tax depending on different jurisdictions.
The Bitcoin yield ecosystem is rapidly evolving through second-layer protocols and DeFi innovations. Babylon and Stacks have pioneered trustless solutions that allow for BTC or STX locking without centralized custody. Future developments may include more non-custodial, Bitcoin-native systems that utilize cryptographic tools to unlock value while maintaining Bitcoin's censorship-resistant properties.
However, Bitcoin purists argue that yield generation mechanisms may dilute Bitcoin's core value as a hard currency, sparking in-depth discussions on how to balance utility and security.
Related: The physical infrastructure of Bitcoin (BTC) is the most undervalued strategic asset in the industry.
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