PriyankaBitcoin (BTC) has long been heralded as an exceptional store of value, but when it comes to generating yield, it has historically fallen short. Thankfully, the era of sub-0.5% BTC yields is coming to an end. The advent of Bitcoin’s layer-2 (L2) solutions and decentralized finance (DeFi) ecosystems are poised to revolutionize BTC yields. Here’s how you can gear up for this upcoming BTC yield surge.
For years, Bitcoin mining was the only viable way to earn substantial BTC rewards. Regular holders had to rely on dubious centralized finance (CeFi) platforms—like the now-defunct Celsius and Voyager—or settle for meager DeFi yields. As of September 5th, for instance, DeFi lending platform Aave was offering Wrapped Bitcoin (WBTC) depositors a paltry 0.04% APR.
However, this landscape is evolving. After years of development, Bitcoin’s L2 scaling networks—such as Lightning Network, Core Chain, Rootstock (RSK), and Stacks—are beginning to gain significant traction. According to DeFiLlama, the total value locked (TVL) in Bitcoin’s L2s surged to around $1.4 billion by September 5th, marking a nearly 275% increase year-to-date and a tenfold rise since 2023.
Brendon Sedo from L2 developer CoreDAO has expressed optimism about the future, stating that he expects Bitcoin L2s to capture a substantial share of Bitcoin’s $1+ trillion market capitalization in the coming years.
One promising avenue is Bitcoin-native staking. Several L2s—including Core Chain, Babylon, and Spiderchain—are exploring this concept. Similar to proof-of-stake (PoS) networks like Ethereum (ETH), Bitcoin L2 stakers lock up BTC as collateral to secure the networks and earn rewards in return.
Moreover, liquid staking derivatives (LSD) protocols are extending BTC staking yields to even more L2s. These protocols issue tokenized claims on staking pools and include platforms like Core Earn, Bedrock, Stroom, and Pell Network. Although still in its early stages—Spiderchain is in testnet and Babylon hasn’t started emitting rewards yet—CoreChain’s LSD, stBTC, is already live and offers an impressive 8.8% reward rate.
This rate is significantly higher than those offered by PoS networks like Solana (SOL) and Avalanche (AVAX), which yield 6.85% and 7.83%, respectively. It far exceeds Ethereum’s 3.4% APR as of September 5th, according to StakingRewards.com. It is important to note that Core Chain rewards stakers in CORE, its native token, rather than BTC. Always conduct thorough research before engaging in any cryptocurrency strategy to avoid financial losses.
Bitcoin L2s are not limited to staking. Networks such as RSK, Merlin, and Stacks already host Bitcoin-native DeFi ecosystems that include decentralized exchanges (like ALEX and Bitflow), lending protocols (such as MoneyOnChain and Zest), and comprehensive platforms like Sovryn. Merlin even boasts a Bitcoin-native derivatives protocol called Surf.
The Lightning Network payment protocol launched in 2018 remains robust, with nearly $300 million in TVL as reported by DeFiLlama. Node operators, who provide BTC liquidity to Lightning’s payment channels in exchange for fees, earn an average of 5.62% APR in BTC according to Magma, a marketplace for Lightning channels. Like Bitcoin mining, Lightning nodes are predominantly managed by professional firms such as LQWD Technologies Corp rather than individual retail holders.
Institutional interest in these BTC staking protocols is also growing. Institutional staking services like Kiln and Figment already support staking Stacks’ native token, STX, which pays rewards in BTC from network fees. More networks might be added soon.
In May, asset manager Valour launched the Valour Bitcoin Staking (BTC) SEK ETP on the Scandinavian exchange Nordic Growth Market, which stakes BTC on Core Chain. Valour further established a Core Chain validator node in June.
On September 3rd, asset manager 21.co introduced its regulated BTC wrapper, 21.co Wrapped Bitcoin (21BTC). More institutional liquidity is expected to follow.
The most exciting opportunities for BTC in DeFi currently reside on Ethereum. EigenLayer’s restaking protocol launch in 2023 has been transformative for the crypto space, including BTC.
EigenLayer supports a growing array of “actively validated services” (AVS)—protocols that secure themselves using EigenLayer’s nearly $12 billion pool of restaked ETH. Starting in November, AVSs will begin compensating for this privilege from protocol revenues, thereby generating yield for restakers.
EigenDA, EigenLayer’s first and largest AVS, added native L2 token restaking in August. This effectively expanded restaking from ETH and EigenLayer’s native EIGEN token to almost any virtual asset—including wrapped BTC.
In August, liquid restaking protocol Swell launched swBTC to pay yield on WBTC. Expect EigenLayer to add wrapped BTC restaking soon.
Another intriguing option is Synthetix (SNX), a DeFi derivatives platform that launched its next-gen V3 protocol on Arbitrum (ARB) in July. Unlike its competitors, Synthetix V3 is designed to accept almost any token as collateral. Liquidity providers (LPs) earn trading fees plus additional incentives in SNX, the native token of Synthetix. As of September 5th, wrapped ETH LPs are earning 7.6% on Arbitrum.
Currently, only a handful of pools are live on Synthetix V3, and creating new pools requires approval from Synthetix governance counsel. However, expect WBTC pools on Synthetix V3 sooner rather than later.
One thing is certain: whether on an Ethereum scaling chain or a Bitcoin L2 network, holding BTC is becoming far more rewarding. Stay alert and seize these opportunities before they pass you by.
