Bitcoin 
BTC/USD Bitcoin has been a great store of value, but a terrible yielding asset. Fortunately, the days of sub-0.5% BTC yields are coming to an end. Emerging opportunities in Bitcoin’s layer 2 (L2) and decentralized finance (DeFi) ecosystems are changing the game. Here’s how to prepare for the next BTC yield boom.
Bitcoin mining used to be the only way to earn meaningful BTC rewards. Regular holders had to settle for unreliable centralized finance (CeFi) platforms like the now-defunct Celsius and Voyager or pitiful DeFi yields. As of September 5, DeFi lending platform Aave was paying Wrapped Bitcoin (WBTC) depositors a meager 0.04% APR.
That’s changing. After years of quiet development, Bitcoin’s L2 scaling networks, such as Lightning Network, Core Chain, Rootstock (RIF), and Stacks (STX), are gaining traction. The total value locked (TVL) on Bitcoin’s L2s has surged to around $1.4 billion as of September 5, according to data from DefiLlama. That’s a nearly 275% increase since the beginning of the year and a tenfold increase since 2023.
Brendon Sedo of L2 Core DAO developer told Cointelegraph that he expects L2 Bitcoin to capture a significant portion of Bitcoin’s market cap, estimated at over $1 trillion, in the coming years.
Native Bitcoin Staking
Some L2s, including Core Chain, Babylon, and Spiderchain, are exploring native Bitcoin staking. Similar to proof-of-stake (PoS) networks like Ethereum, Bitcoin L2 stakers lock up BTC as collateral to secure the networks in exchange for rewards.
Meanwhile, liquid staking derivatives (LSD) protocols are increasing the yield of BTC staking to even more L2. These protocols issue tokenized claims on staking pools and include Core Earn, Bedrock, Stroom, and Pell Network.
It’s still early days. Spiderchain is still in testnet and Babylon hasn’t started issuing rewards yet. But CoreChain’s LSD, stBTC, is live and has a reward rate of 8.8%.
That’s significantly higher than PoS networks Solana (SOL) or Avalanche (AVAX) — which yield 6.85% and 7.83%, respectively — and much higher than Ethereum’s 3.4% APR as of September 5, according to StakingRewards.com.
It is crucial to note that Core Chain pays stakers in CORE, its native token, and not in BTC. Remember to always do your own research and think carefully if a cryptocurrency strategy is right for you before jumping in, otherwise you will lose money!
Bitcoin L2s aren’t limited to staking. Some, including RSK, Merlin, and Stacks, already host Bitcoin-native DeFi ecosystems, including decentralized exchanges (ALEX, Bitflow), lending protocols (MoneyOnChain, Zest), and all-in-one platforms like Sovryn. Merlin even offers a Bitcoin-native derivatives protocol, Surf.
The Lightning Network payment protocol launched in 2018 and remains venerable, with nearly $300 million in TVL, according to DefiLlama. Node operators, who provide BTC liquidity to Lightning payment channels in exchange for fees, earn an average of 5.62% APR in BTC, according to Magma, a marketplace for Lightning channels.
Similar to Bitcoin mining, Lightning nodes are dominated by professional shops, like LQWD Technologies Corp, and not retail holders.
Institutional interest
These BTC staking protocols won’t stay under the radar for long. Institutional staking services including Kiln and Figment already support staking of Stacks’ native token, STX, which pays out BTC rewards from network fees. They may soon add more networks.
In May, asset manager Valour launched the Valour Bitcoin Staking (BTC) SEK ETP, an exchange-traded product (ETP) listed on the Nordic Growth Market exchange. It stakes BTC on Core Chain. Valour launched a Core Chain validator node in June.
On September 3, asset manager 21.co launched its regulated BTC wrapper, 21.co Wrapped Bitcoin (21BTC). Expect more institutional liquidity to follow.
Wrapped Bitcoin
The most exciting opportunities for BTC in DeFi are on Ethereum. The launch of the EigenLayer re-staking protocol in 2023 has been a game changer for crypto, and BTC is no exception.
EigenLayer supports a growing constellation of “actively validated services” (AVS) — protocols that secure themselves using EigenLayer’s nearly $12 billion pool of staked ETH. In November, AVS will begin paying for this privilege from protocol revenue, generating a yield for restakers.
EigenDA, EigenLayer’s first and largest AVS, added native resttaking of L2 tokens in August. This effectively extended resttaking of Ether (ETH) and EigenLayer’s native EIGEN token to virtually any virtual asset, including wrapped BTC.
In August, liquid re-staking protocol Swell launched swBTC to pay for WBTC yield. Expect EigenLayer to add wrapped BTC re-staking soon.
Another interesting option is Synthetix (SNX), a DeFi derivatives platform that launched its next-generation V3 protocol on Arbitrum (ARB) in July. Unlike its competitors, Synthetix V3 is designed to accept virtually any token as collateral. Liquidity providers (LPs) earn trading fees, as well as additional incentives in SNX, Synthetix’s native token. Wrapped ETH LPs are earning 7.6% on Arbitrum as of September 5.
Only a handful of pools are currently live, and creating new pools requires approval from the Synthetix Governance Council. Still, expect to see WBTC pools on Synthetix v3 sooner rather than later.
One thing is for sure. Whether on an Ethereum scaling chain or on a Bitcoin L2, holding BTC is becoming more and more interesting. Stay vigilant, otherwise you risk missing out on an opportunity.
Alex O’Donnell is a senior editor at Cointelegraph. He previously founded DeFi developer Umami Labs and worked for seven years as a financial reporter at Reuters, where he covered mergers and acquisitions and IPOs. He is also head of cryptocurrency growth at Expert Dojo, a startup accelerator.
This article is provided for general informational purposes and is not intended to be, and should not be considered, legal or investment advice. The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
