Key takeaways
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Though Bitcoin doesn’t support native staking, holders can earn yield through centralized lending platforms, Wrapped Bitcoin (WBTC) on Ethereum, and Bitcoin-related networks like Babylon and Stacks.
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WBTC allows BTC holders to participate in lending, liquidity pools and yield farming on Ethereum-based DeFi platforms like Aave and Curve but introduces bridge and smart contract risks.
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Protocols like Babylon and Stacks use mechanisms like native time-locked scripts or stacking to offer rewards without removing BTC from the Bitcoin blockchain.
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Custodial, smart contract and regulatory risks persist. Bitcoin’s community also remains divided on whether Bitcoin yield generation features align with its decentralized and trust-minimized ethos.
Unlike proof-of-stake (PoS) blockchains like Ethereum or Cardano, Bitcoin relies on proof-of-work (PoW) mining for network security. However, with the rise of decentralized finance (DeFi) and layer-2 innovations, Bitcoin (BTC) holders can now generate passive income through various yield-generating methods. These include centralized lending, Wrapped Bitcoin (WBTC) on Ethereum, and layer-2 solutions like Babylon and Stacks.
This article explores how to earn yield on BTC, the risks involved and the technological advancements enabling these opportunities, all without altering Bitcoin’s core protocol.
Staking vs. mining
Staking and mining are two distinct consensus mechanisms used to secure blockchain networks and validate transactions.
Staking is central to PoS blockchains like Ethereum and Solana. Participants lock up cryptocurrency to become validators, who are randomly selected to create new blocks and confirm transactions, earning rewards. The more coins staked, the higher the chance of selection.
Mining, used by PoW blockchains like Bitcoin and Litecoin, involves miners solving complex mathematical puzzles with powerful computers. The first to solve the puzzle adds a new block and receives a reward. Mining demands significant energy and hardware.
Bitcoin’s PoW design means it does not support staking. The network relies entirely on miners to ensure decentralization and security. There are no validators or staking rewards in the traditional sense. Yield-generating methods for BTC, such as lending or layer-2 solutions, are not equivalent to PoS staking.
Did you know? Some staking platforms offer liquid staking, where you get a token representing your staked asset (like stETH for Ether). This lets you earn staking rewards and still use your capital in DeFi protocols.
Ways to earn yield on Bitcoin
While you cannot natively stake BTC due to its PoW mechanism, there are alternative methods to help you earn yield on your BTC holdings and make passive income. These methods often involve using third-party platforms or bridging BTC to other blockchains.
Centralized lending platforms
Centralized lending platforms like Binance Earn, Nexo and Ledn enable you to earn with BTC deposited, which the platform lends to institutional borrowers. In return, you receive interest, which might be paid daily or monthly. But this method involves custodial risk, as users must trust the platform to remain solvent and secure. The collapse of firms like Celsius and BlockFi has highlighted this vulnerability.
WBTC on Ethereum
WBTC is an ERC-20 token backed 1:1 by BTC, held by a centralized custodian (BitGo). It enables BTC holders to engage in Ethereum-based DeFi protocols, such as lending on Aave, providing liquidity on Curve or yield farming. This unlocks DeFi’s potential but introduces risks from BitGo’s custody, bridge vulnerabilities and smart contract bugs.
Bitcoin layer-2 platforms
Emerging layer-2 platforms such as Babylon and Stacks also enable you to explore Bitcoin-native yield opportunities. Babylon locks BTC in time-locked scripts to secure its PoS network, while Stacks uses a proof-of-transfer (PoX) model where STX tokenholders lock tokens to earn BTC rewards. These platforms expand Bitcoin’s utility without leaving its ecosystem entirely.
Did you know? Ethereum became the largest PoS network in 2022 after “the Merge,” replacing miners with validators. This move reportedly reduced the blockchain’s energy consumption by over 99.95%, making it one of the greenest major crypto networks.
How to earn yield with BTC on a centralized lending platform
Earning yield on BTC via centralized platforms is straightforward. Choose a reputable platform, create a verified account, deposit BTC, select a flexible or fixed-term lending option, confirm terms, and monitor earnings. Funds can typically be withdrawn after the term.
Using Binance Earn as an example, the platform offers multiple yield options:
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Simple Earn: Beginner-friendly, offering stable yields through flexible or locked savings products.
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Dual Investment: Higher-risk, with returns based on the settlement price of two assets, exposing users to market volatility.
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On-chain Yield: Bridges funds to DeFi protocols like Aave, with variable yields managed by Binance.
Yields and terms vary by option and market conditions. Simple Earn offers lower, predictable returns with flexible withdrawals, while Dual Investment and On-chain Yield may yield higher but riskier returns with locked terms. Check Binance Earn for current rates.
After subscribing:
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Simple Earn: BTC is locked (fixed term) or withdrawable (flexible term), with interest paid daily or at term’s end.
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Dual Investment: Funds are committed to a target price and settlement date, with yields paid in the deposited or alternative asset.
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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.
Rewards depend on the platform, BTC amount and program terms.
How to earn yield with WBTC on Ethereum
WBTC allows BTC holders to earn yield on Ethereum’s DeFi platforms, such as Aave or Curve, by depositing WBTC into liquidity pools and earning interest or fees.
Steps to earn yield with WBTC, using Curve as an example:
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Convert BTC to WBTC: Use a centralized exchange (CEX) (e.g., Binance) or decentralized bridge (e.g., RenBridge) to convert BTC to WBTC, custodied by BitGo.
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Transfer WBTC to a wallet: Move WBTC to a Web3 wallet like MetaMask and make sure you have enough Ether (ETH) for gas fees.
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Connect to a DeFi protocol: Visit Curve.fi and deposit WBTC into a liquidity pool via the platform’s interface.
How to earn yield using Bitcoin layer 2s
Layer-2 solutions like Babylon and Stacks enable yield generation by leveraging Bitcoin’s security. Babylon, for example, locks BTC as collateral to secure its PoS network, connecting to Cosmos zones (interconnected blockchains). Babylon’s Genesis mainnet launched on April 10, 2025, with over 57,000 BTC staked, valued at approximately $4.6 billion.
Steps to earn yield with Babylon:
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Set up a compatible wallet: Use a wallet like OKX or Phantom, supporting Native SegWit (bc1q) or Taproot (bc1p) addresses. Avoid wallets with Bitcoin Inscriptions (Ordinals).
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Access the Babylon stake app: Visit the Babylon Stake app, which is active post-Genesis launch.
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Connect your wallet: Link your BTC wallet and approve digital signature requests for platform interaction.
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Choose a finality provider: Select from over 250 finality providers (e.g., Galaxy, Figment) that secure Babylon’s network.
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Set transaction fees: Choose default or custom fees (higher fees ensure faster confirmation) and enter the BTC amount to lock.
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Confirm and monitor: Lock BTC via the app and track status in the Babylon Staking Terminal. Rewards include BABY tokens, split 50-50 between BTC and BABY stakers.
Did you know? In some countries, crypto yield rewards are taxed as income upon receipt and as capital gains when sold. Tax treatment varies, so consult a professional.
Innovative mechanisms in Bitcoin layer-2 protocols
Layer-2 protocols enhance Bitcoin’s scalability and functionality. Babylon and Stacks introduce unique mechanisms to generate yield while leveraging Bitcoin’s security.
Native time-locked scripts in Babylon Protocol
Babylon locks BTC in self-custodial, time-locked scripts on the Bitcoin blockchain, using it as collateral to secure its PoS network, launched on April 10, 2025. This non-custodial model supports Cosmos zones without requiring bridges or wrapping. BTC stakers delegate to Finality Providers, earning BABY tokens, while BABY stakers support block production. This trustless system enables delegated voting and restaking across PoS chains.
Stacking in the Stacks Protocol
Stacking is Stacks’ yield mechanism, using proof-of-transfer (PoX). STX tokenholders lock Stacks (STX) for ~2 weeks to support network consensus, earning BTC rewards paid by Stacks miners. This non-custodial process, available via platforms like Okcoin or Xverse, creates an economic link to Bitcoin without locking BTC itself.
Coinbase Bitcoin Yield Fund (CBYF) Explained
Coinbase Asset Management has launched the Coinbase Bitcoin Yield Fund (CBYF) on May 1, aiming to deliver sustainable Bitcoin-denominated returns for institutional investors outside the US.
The fund uses a conservative cash-and-carry arbitrage strategy, capitalizing on price gaps between spot and futures markets, while steering clear of high-risk tactics like leveraged loans or call selling.
Targeting annual net returns of 4–8% in BTC, CBYF offers a safer alternative for earning yield on Bitcoin — an asset that lacks native staking options unlike other cryptocurrencies.
Risks involved in earning yield with BTC
Generating yield on BTC involves risks distinct from PoS staking due to reliance on third-party services or layer 2s:
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Custodial risk: Centralized platforms (e.g., Binance, Nexo) and WBTC’s custodian (BitGo) hold BTC, risking losses if they face insolvency, hacks or regulatory shutdowns.
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Smart contract risk: WBTC bridges and DeFi platforms like Aave are vulnerable to bugs or exploits.
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Liquidity risk: Locked BTC in fixed-term programs or low-liquidity pools may be inaccessible during market shifts.
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Network maturity: Newer protocols like Babylon may face technical or adoption challenges.
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Market risk: Price volatility can offset yield during bear markets.
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Regulatory risk: Centralized platforms and custodians face Know Your Customer (KYC) and Anti-Money Laundering (AML) scrutiny, and yield may be taxed as income or capital gains, depending on jurisdiction.
How earning yield with BTC may evolve
Bitcoin’s yield landscape is evolving through layer-2 and DeFi innovations. Babylon and Stacks pioneer trustless solutions, locking BTC or STX without centralized custodians. Future advancements may include more non-custodial, Bitcoin-native systems using cryptographic tools to unlock value while preserving Bitcoin’s censorship resistance.
However, purists argue that yield generation risks diluting Bitcoin’s role as hard money, sparking debates over balancing utility and security.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
