Bitcoin holders have long sought ways to generate yield on their holdings, and while native staking isn’t an option due to Bitcoin’s proof-of-work (PoW) consensus, alternatives are emerging. As of May 2025, investors can explore yield opportunities through centralized lending platforms, Wrapped Bitcoin (WBTC) on Ethereum, and innovative layer-2 solutions like Babylon and Stacks.
Centralized Lending and WBTC on Ethereum
Centralized platforms such as Binance Earn, Nexo, and Ledn provide an avenue for Bitcoin holders to earn interest by lending their BTC. These platforms lend out deposited Bitcoin to institutional borrowers, offering returns that vary depending on the terms selected. Yet, this method carries custodial risks—highlighted by the collapse of firms like Celsius and BlockFi—that could jeopardize user funds if the platform becomes insolvent.
For those looking to tap into the thriving Ethereum decentralized finance (DeFi) ecosystem, Wrapped Bitcoin (WBTC) presents a compelling option. WBTC is an ERC-20 token pegged 1:1 with Bitcoin, enabling holders to participate in DeFi protocols like Aave and Curve. However, this introduces risks associated with custody (handled by BitGo) and potential vulnerabilities in smart contracts and bridges. As explored in Bitcoin DeFi will have 300M users, beating Ethereum and Solana: Exec, the potential for Bitcoin DeFi to surpass other platforms is a testament to its growing appeal.
Layer-2 Solutions: Babylon and Stacks
Emerging layer-2 platforms, including Babylon and Stacks, are changing the game for Bitcoin yield generation by leveraging Bitcoin’s security without needing to alter its core protocol. Babylon, which launched its mainnet in April 2025, uses native time-locked scripts to secure its proof-of-stake (PoS) network, allowing BTC holders to stake and earn BABY tokens. This setup aims to offer yield opportunities while maintaining decentralization and security.
Stacks, on the other hand, employs a proof-of-transfer (PoX) model where STX holders lock tokens for a set period, earning BTC rewards from Stacks miners. This approach creates an economic link to Bitcoin without the necessity of locking Bitcoin itself. According to industry analyst Rachel Lim, “Stacks and Babylon are pioneering solutions that harness Bitcoin’s robustness while expanding its utility—it’s a fascinating evolution.” This aligns with Franklin Templeton’s recent backing of Bitcoin DeFi, as detailed in Franklin Templeton Backs Bitcoin DeFi Push, Citing ‘New Utility’ for Investors, highlighting the institutional interest in these innovative solutions.
Risks and the Road Ahead
Despite the promise of these yield-generating methods, they come with inherent risks. Custodial and regulatory challenges loom over centralized platforms, while smart contract bugs and market volatility pose threats to WBTC users. Furthermore, the nascent state of layer-2 protocols like Babylon means technical hurdles and adoption issues could arise.
Looking forward, the Bitcoin yield landscape is poised for further innovation. As non-custodial, Bitcoin-native systems develop, utilizing cryptographic tools to unlock value while preserving Bitcoin’s censorship resistance may become more commonplace. However, the Bitcoin community remains divided, with some purists concerned that yield generation could dilute Bitcoin’s role as a form of “hard money.”
This ongoing debate over utility versus security will likely shape the future of Bitcoin yield strategies, sparking discussions about the balance between embracing new financial opportunities and maintaining Bitcoin’s foundational principles.
Source
This article is based on: Can you stake Bitcoin (BTC)? Here’s what you need to know
Further Reading
Deepen your understanding with these related articles:
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- US crypto groups urge SEC for clarity on staking
- Tokenized Apollo Credit Fund Makes DeFi Debut With Levered-Yield Strategy by Securitize, Gauntlet
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
