How to Prepare for the Coming Bitcoin Yield Boom

Bitcoin mining used to be the only way to earn meaningful BTC rewards. Regular holders had to settle for sketchy centralized finance (CeFi) platforms

Bitcoin (BTC) price action has been lackluster in 2023, but that could change soon as total value locked (TVL) on Bitcoin’s layer-2 (L2) scaling networks is surging.

Together with decentralized finance (DeFi) protocols, these L2s are introducing new ways to earn BTC yield. Here’s a closer look at how you can prepare for the coming Bitcoin yield boom.

Bitcoin mining used to be the only way to earn meaningful BTC rewards, but that changed in 2023 with the launch of Bitcoin-native staking on L2s. Now, regular holders can earn a yield on their BTC holdings without having to mine or participate in centralized finance (CeFi).

Regular holders had to settle for sketchy CeFi platforms — such as now-defunct Celsius and Voyager — or pitiful DeFi yields. As of Sept. 5, DeFi lending platform Aave was paying Wrapped Bitcoin (WBTC) depositors a measly 0.04% APR.

That’s changing. After years of quiet development, Bitcoin’s L2 scaling networks — such as Lightning Network, Core Chain, Rootstock (RSK), and Stacks — are gaining traction.

TVL on Bitcoin’s L2s surged to approximately $1.4 billion as of Sept. 5, according to data from DeFiLlama. That’s up nearly 275% year-to-date and tenfold since 2023.

On Sept. 5, Brendon Sedo of L2 developer CoreDAO told Cointelegraph he expects Bitcoin L2s to capture a significant portion of Bitcoin’s $1+ trillion market capitalization in the coming years.

Bitcoin-native staking}

Some L2s — including Core Chain, Babylon, and Spiderchain — are exploring Bitcoin-native staking. Similar to proof-of-stake (PoS) networks such as Ethereum (ETH), Bitcoin L2 stakers lock up BTC as collateral to secure the networks in exchange for rewards.

Meanwhile, liquid staking derivatives (LSD) protocols are bringing BTC staking yield to even more L2s. These protocols issue tokenized claims on staking pools and include Core Earn, Bedrock, Stroom, and Pell Network.

It’s still early. Spiderchain is still in testnet, and Babylon hasn’t started emitting rewards. But CoreChain’s LSD, stBTC, is live — and touts an 8.8% reward rate.

That’s considerably higher than PoS networks Solana (SOL) or Avalanche (AVAX) — which yield 6.85% and 7.83%, respectively — and far more than Ethereum’s 3.4% APR as of Sept. 5, according to StakingRewards.com.

Crucially, Core Chain pays stakers in CORE, its native token, not BTC. Remember, always do your own research and carefully consider whether a cryptocurrency strategy is right for you before aping in — or you’ll lose money!

Bitcoin DeFi}

Bitcoin L2s aren’t only about 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 touts a Bitcoin-native derivatives protocol, Surf.

Payment protocol Lightning Network launched in 2018 and remains venerable, with nearly $300 million in TVL, according to 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.

Similar to Bitcoin mining, Lightning nodes are dominated by professional shops — like LQWD Technologies Corp — 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 Stacks’ native token, STX, which pays rewards in BTC from network fees. They might add more networks soon.

In May, asset manager Valour launched the Valour Bitcoin Staking (BTC) SEK ETP, an exchange-traded product (ETP) listed on the Scandinavian exchange Nordic Growth Market. It stakes BTC on Core Chain. Valour launched a Core Chain validator node in June.

On Sept. 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 compelling possibilities for BTC in DeFi are on Ethereum. Restaking protocol EigenLayer’