A look at the most popular Bitcoin liquidity staking protocols

Author: Lorenzo Protocol Translation: Mars Finance, Daisy

The field of Bitcoin liquidity staking protocols is expanding rapidly, as Bitcoin's technical development has generally progressed faster in the past few years.

Liquidity staking protocols built on top of Bitcoin are less than a year old, but there are already a large number of staking protocols to consider when venturing into this new space.

To briefly recap, Bitcoin liquidity staking protocols are systems that allow Bitcoin holders to stake their Bitcoin in a way that allows them to receive rewards or yields while still gaining access to underlying liquidity. Bitcoin is commonly used to secure Proof of Stake (PoS) networks, but other use cases exist as well, such as participating in stake-based oracle networks. At the same time, holders can still receive liquidity value equivalent to their staked Bitcoin in the form of derivative tokens.

In addition to enabling Bitcoin holders to generate yield on the underlying layer, liquidity staking protocols also allow users to securely transfer Bitcoin to the Bitcoin Layer 2 network, unlocking Bitcoin for use in more flexible forms of decentralized finance (DeFi). As with any other category of DeFi protocols, different liquidity staking protocols on Bitcoin tend to focus on different niche features and attributes that differentiate them from other options on the market. Additionally, many of the liquidity staking protocols on Bitcoin are supported by the creation of Babylon, a protocol that handles Bitcoin staking protocols on the underlying Bitcoin blockchain.

Currently, some of the most well-known Bitcoin liquidity staking platforms are Lorenzo Protocol, Bedrock, Botanix, pSTAKE Finance, and UTXO Stack, but more are popping up every day. Let’s take a closer look at what each of these Bitcoin staking solutions has to offer, and how they differ from each other.

Lorenzo Protocol

Main Features

• Liquidity staking tokens are divided into yield accumulation tokens and liquidity principal tokens

• Supports circular and leveraged staking

• Currently focused on Babylon, but can also be integrated with other high-quality Bitcoin staking projects

• Simple and easy-to-understand staking process through Bitcoin liquidity staking programs provided by professional providers

• No minimum staking requirements

• Already launched

The Lorenzo Protocol is designed to serve as the primary layer of Bitcoin liquidity financing through the innovative Bitcoin 2 The growing global demand for Bitcoin is facilitated by layer networks that bring DeFi capabilities to the world’s most popular and trusted cryptocurrency. Through Babylon’s Bitcoin Shared Security Protocol, Lorenzo enables the staking of Bitcoin liquidity into proof-of-stake chains in exchange for yield.

Lorenzo also takes Babylon’s functionality to the next level by creating an efficient marketplace for Bitcoin holders to find the best investment opportunities for their unused Bitcoin liquidity through its Bitcoin Liquidity Staking Program (BLSP), where projects can outline what staked Bitcoin can be used for and the associated rewards for stakers. Each BLSP details the rules and rewards for staking and has a fixed staking period for consistency.

In addition, Lorenzo tokenizes staked Bitcoin into Liquid Principal Tokens (LPT), representing the right to recover the staked Bitcoin principal, and Yield Accumulation Tokens (YAT), representing the yield generated by that staked Bitcoin collateral. This allows users to easily separate the underlying Bitcoin collateral from the yield generated when using that liquidity in various DeFi applications.

Tokenizing staked Bitcoin into separate LPT and YAT tokens also enables circular and leveraged staking. Circular staking leverages external DEX partnerships to allow users to stake BTC, borrow more BTC, and increase staking rewards. Leveraged staking simplifies the process by providing internal liquidity, allowing users to apply maximum leverage with a single click. Both products are designed to improve capital efficiency and optimize staking returns.

While liquidity staking for Bitcoin is still a new concept, Lorenzo is one of the few products that is already live, at least in a basic form. Additionally, Lorenzo has no minimum staking amount as user funds are pooled together, aiming to democratize access to the Bitcoin staking process.

While Lorenzo is currently focused on Babylon, it can technically integrate with any other Bitcoin staking project that emerges.

Bedrock

Key Features

• BTC, ETH and IOTX staking available

• Bitcoin integration is limited to two ERC-20 tokens issued on the Ethereum network

• Using Wrapped Bitcoin instead of native Bitcoin introduces a high degree of centralization

• Liquid re-hypothecation tokens do not separate principal deposits and returns

• Using Babylon

Bedrock is a multi-asset liquidity re-hypothecation protocol developed in partnership with blockchain infrastructure company RockX. Backers of the project include Babylon co-founder Fisher Yu, IoTeX founder Raullen Chai, and OKX Ventures.

Bedrock is not only focused on Bitcoin, but also allows users to re-stake ETH and IOTX (IoTeX's native token). Notably, the Bitcoin integration is limited to users of Wrapped Bitcoin (wBTC) and FBTC, which are ERC-20 tokens backed by Bitcoin on Ethereum. wBTC is re-staked through Bedrock's uniBTC protocol through a partnership with Babylon. This integration allows wBTC and FBTC holders to earn staking rewards on the Ethereum network; however, it is important to note that wBTC is a highly centralized asset as BitGo is its sole custodian.

Bedrock's product suite includes Liquid Re-Staking Tokens (LRT) for wBTC, ETH, and IOTX. Bedrock leverages the universal (uni) standard to maximize the liquidity and value of these PoS tokens through its uniBTC, uniETH, and uniIOTX products. This universal token model ensures that staked PoS tokens in Bedrock represent not only the principal asset, but also all future staking rewards. The non-rebasing nature of uniTokens means that their value increases over time, not quantity, allowing holders to benefit from the growing value of each token while also earning additional points from EigenLayer and Bedrock's reward systems.

pSTAKE Finance

Key Features

• Backed by Binance Labs

• Built on Babylon

• Bitcoin cannot be unstaked at the moment

• 50 Bitcoin deposit cap

• Liquidity staking tokens will be launched on Ethereum in September 2024

• Will add the ability to stake wBTC

• Has its own native token, PSTAKE

pSTAKE Finance is a Bitcoin yield and liquidity staking protocol, backed by Binance Labs and built on Babylon. The protocol is live now with a maximum stake of 50 Bitcoin. However, pSTAKE Finance stakers are currently unable to unstake or withdraw their Bitcoin in the current first version of the protocol. Additionally, the liquidity staking aspect of the protocol is not live yet, but pSTAKE Finance plans to offer LST on Ethereum starting in September 2024.

Much like Lorenzo Protocol and Bedrock, the pSTAKE Finance platform enables users to deposit their Bitcoin and contribute to the security of various application chains, earning rewards through the Babylon Bitcoin staking protocol. As these PoS chains begin to leverage Bitcoin for security, pSTAKE will manage these yields and distribute them to users.

Looking forward, pSTAKE Finance plans to launch their V2, at which time yBTC LST will be available on Ethereum. This new token is designed to provide automatically compounded Bitcoin yields and will eventually be integrated into major DeFi ecosystems across blockchains. The protocol is committed to expanding its yield offerings and making Bitcoin more accessible, including the option to stake wBTC and other Bitcoin derivatives.

In addition, pSTAKE Finance is focused on evolving its token economics and launching a fully self-custodial Bitcoin yield solution, ensuring security and accessibility for users. pSTAKE Finance also has its own native governance and incentive token, PSTAKE.

Swell Network

Key Features

• Non-custodial Staking: Swell allows users to stake WBTC directly from non-custodial wallets, ensuring full control of the asset.

• Yield Generation: swBTC generates yield through re-staking protocols such as Symbiotic, EigenLayer, and Karak.

• Liquidity: swBTC can be used as collateral in lending protocols

Swell Network, traditionally an Ethereum liquidity staking platform, recently launched a Bitcoin liquidity re-staking token called swBTC. This ERC-20 token provides liquidity to users who want to stake Wrapped Bitcoin in protocols such as Symbiotic, EigenLayer or Karak without locking up assets. With swBTC, users can earn native yields from the re-staking platform while leveraging the token across the DeFi ecosystem.

UTXO Stack

Key Features

• Backed by ABCDE, OKX Ventures, CMS Holdings and Matrixport

• Staying true to Bitcoin’s roots with a UTXO model

• Integrated with RGB++ protocol

• Also integrated with Nervos Network, so it’s not a Bitcoin-only solution

UTXO Stack provides developers with a technical framework that enables them to easily launch Bitcoin layer 2 solutions using the Unspent Transaction Output (UTXO) architecture. It is worth noting that Bitcoin itself differs from most other layer 1 cryptocurrency networks in that it uses this UTXO-based model instead of the more popular account-based setup. The Bitcoin Liquidity Staking Protocol is backed by prominent cryptocurrency investors, including ABCDE, OKX Ventures, CMS Holdings, and Matrixport.

UTXO Stack integrates the RGB++ protocol to enhance the security of the Bitcoin layer 2 network through a combination of re-staking Bitcoin, CKB (the native cryptocurrency of the Nervos Network), and Bitcoin L1 assets issued through RGB++. UTXO Stack attempts to be the "OP Stack + EigenLayer" of the Bitcoin world.

UTXO Stack's adoption of RGB++ is its most unique attribute. Unlike many existing solutions that rely heavily on the Ethereum EVM and bridging mechanisms, UTXO Stack and RGB++ maintain a close connection with the Bitcoin main chain and the UTXO model. RGB++ allows assets to be issued and managed on Bitcoin, with transactions executed on the Nervos Network and recorded as commitments on Bitcoin. A major benefit of this approach is that it enables efficient "transaction folding" to reduce fees. Of course, integration with the Nervos Network will put off many Bitcoin purists.

Nomic

Key Features

• Plans to collaborate with Babylon

• Have an LST called stBTC (may be confused with Lorenzo’s product of the same name)

• Have its own native token NOM, which is used to secure its Layer 1 network

• Bitcoin and NOM will offer dual staking

• Working in the Cosmos Ecosystem

Nomic is a Layer 1 blockchain network that operates within the larger Cosmos ecosystem. Cosmos aims to create a more unified cryptocurrency ecosystem through interoperability across multiple blockchains, in addition to offering a viable expansion roadmap that involves the use of separate chains for different specific use cases.

The Nomic DAO Foundation plans to incorporate Babylon’s Bitcoin staking protocol into its decentralized, non-custodial Bitcoin bridge. The integration will introduce an LST called stBTC, allowing Bitcoin holders to benefit from both staking and liquidity. Nomic will enhance its security model with dual staking support, leveraging both staked Bitcoin and its native token NOM.

By leveraging Babylon’s technology, stBTC will enable Bitcoin holders in the Cosmos ecosystem to earn yield while maintaining liquidity for Inter-Blockchain Communication (IBC)-compatible DeFi protocols. Nomic’s approach allows real Bitcoin to be redeemed for nBTC tokens, which can be freely transferred between IBC-compatible chains. These nBTC tokens are backed by real Bitcoin in reserves controlled by NOM token holders, who are also validators of the Nomic chain. Through this system, users can stake nBTC to mint stBTC. Staking rewards will be distributed through IBC inter-chain account transactions.

stBTC is currently available on the testnet, allowing users to explore its functionality before its official mainnet launch.

PumpBTC

Key Features

• Built on Babylon

• Current version uses WBTC, BTCB and FBTC on alternative layer 1 networks

• Partnership with crypto custodians Cobo and Coincover

• Smart contract audits performed by BlockSec

• PumpBTC points can earn additional rewards

PumpBTC plans to provide liquidity re-hypothecation solutions through Babylon. PumpBTC aims to simplify and improve yield for Bitcoin holders, allowing users to stake their Bitcoin and receive liquidity tokens instantly, bypassing the usual waiting period. Much like the other projects on this list, its goal is to connect the worlds of DeFi and Bitcoin, with PumpBTC describing itself as an effective alternative to WBTC, providing a native, yield-generating Bitcoin to the DeFi ecosystem across multiple blockchains.

Currently, PumpBTC allows users to deposit their Bitcoin for staking via various Bitcoin-derived tokens issued on alternative layer 1 networks such as Ethereum and Binance Smart Chain. Additionally, PumpBTC does not handle user funds directly, as that aspect of the protocol is handled by custodial partners Cobo and Coincover. While the PumpBTC smart contracts have been audited by blockchain security firm BlockSec, this heavy reliance on multiple layers of third-party custodians may put off many Bitcoin purists who prefer to adhere to the principles of decentralized and permissionless finance. Nonetheless, PumpBTC claims that they will eventually add the ability to directly stake native Bitcoin to the protocol.

In addition to the yield that PumpBTC users can earn on their staked Bitcoin through the Babylon integration, users can also earn additional rewards through PumpBTC Points. That being said, the exact future utility of these points is unclear at this time. In terms of total rewards, Bitcoin stakers can earn their base staked Annual Percentage Yield (APR), Babylon Points, PumpBTC Points, and FBTC Points on one platform, with more rewards expected to be added in the future.

Lombard

Key Features

• Backed by notable industry leaders, including Franklin Templeton Investments and Polychain Capital

• Based on Babylon

• Currently focused on making LBTC the primary use of Bitcoin in DeFi

• Earn Lombard Points in addition to Babylon staking rewards

• Backed by a secure alliance of DeFi industry leaders

• Currently in private beta

Lombard Aims to establish a universal standard for Bitcoin and is supported by ecosystem partners. The main focus of the protocol is to allow yield-generating Bitcoin to move seamlessly across chains without disrupting liquidity, potentially bringing a large amount of new untapped capital into DeFi.

Lombard's core product, Liquid Bitcoin (LBTC), provides 1:1 backed, yield-generating, cross-chain liquid Bitcoin, allowing holders to both retain access to their capital and actively participate in DeFi activities such as staking and trading. Currently in Phase 1 on the Ethereum mainnet, Lombard is conducting private testing, where some users can stake Bitcoin and mint LBTC. In Phase 2, Lombard will open LBTC to the public and set deposit caps and waitlists to manage demand and reward early participants.

LBTC's governance and promotion are also supported by the Security Alliance, whose mission is to highly integrate Bitcoin tokens into existing DeFi protocols and blockchains. Despite this, Lombard has not yet announced the specific members of the Security Alliance.

Bitcoin holders can earn a range of yields through Lombard, including PoS staking, Lombard rewards, and DeFi opportunities. Other DeFi protocols can also benefit from LBTC by creating new yield primitives, and target blockchains may see a large amount of new liquidity, with billions of dollars of Bitcoin integrated into applications on these DeFi-focused chains.

Lombard's mission is to position Bitcoin as not only a store of value, but also a key player in DeFi, which can be used to earn, stake, trade, and transfer at scale. Their vision is to treat Bitcoin as a universal DeFi primitive, as the best collateral for the entire ecosystem, and provide enhanced security for PoS networks through Bitcoin-backed stability.

Chakra

Main Features

• Provide Bitcoin Re-staking

• Enable self-custodial staking based on zero-knowledge proofs

• Create ChakraBTC and ChakraETH

• Chakra Chain acts as a middleware chain between Bitcoin and its 2nd layer network

As a Bitcoin re-staking protocol, Chakra seeks to unlock the full economic potential of Bitcoin by leveraging advanced zero-knowledge proof (ZKP) technology to secure new chains and applications. The core challenge that Chakra solves is how to allow Bitcoin holders to benefit from staking returns without compromising the custody security of staked Bitcoin. This is achieved through Cobo’s Babylon-powered self-custody and MPC-powered custody (multi-party computation).

Chakra provides a unique solution by enabling self-custody staking, allowing Bitcoin holders to stake their assets without having to move them out of their wallets. Timelock scripts are also a building block of the Lightning Network, used to eliminate the third-party risk sometimes associated with the staking process. Chakra also employs ZKPs, specifically Scalable Transparent Arguments of Knowledge (STARKs), to increase the security and scalability of the system.

In addition, Chakra supports a range of services maintained by stakers, including applications in AI, DeFi, and gaming. It facilitates the creation of new Bitcoin layer 2 networks and the development of DeFi Bitcoin-backed derivatives, thereby expanding the utility and yield opportunities for Bitcoin holders. Most importantly, Chakra users are able to stake on a variety of different networks simultaneously using the same collateral through Bitcoin re-staking.

Chakra describes itself as a modular settlement network for the Bitcoin DeFi ecosystem built around a variety of different layer 2 networks. It is also interoperable across various layer 1 networks, with a focus on creating an aggregated financial layer that can unify Bitcoin liquidity across the space. The Chakra chain effectively acts as a middleware between the base Bitcoin protocol and any blockchain that wants to gain secure Bitcoin liquidity.

Solv Protocol

Main Features

• Investors include Binance Labs and Blockchain Capital

• UTXO-3525 supports cross-chain non-custodial Bitcoin swaps

• Issuance of SolvBTC as a unified Bitcoin liquidity asset

• Supports Bitcoin, Ethereum, BNB Chain, Botanix and many other blockchains

• Audited by five independent companies

• Compliance Bridge supports the participation of traditional finance

Solv Protocol aims to build a blockchain that can be deployed throughout the DeFi Solv is a decentralized Bitcoin reserve for the space, which they call "BTCFi". Through their SolvBTC token, they are focused on unifying Bitcoin liquidity into one asset that can be used for all staking and other DeFi applications.

A long list of well-known investors supports the Solv protocol, including Binance Labs, Blockchain Capital, CMS Holdings, and Bing Ventures. In addition, the protocol has undergone five independent security audits from companies such as Quantstamp, CertiK, and others.

From a technical perspective, the three key aspects of Solv are the Liquidity Consensus Network (LCN), UTXO-3525, and the Compliance Bridge. The Liquidity Consensus Network manages the decentralized Bitcoin reserves held in the Solv protocol through transparent, auditable records and cross-chain liquidity management. UTXO-3525 is a protocol for transferring assets from the base Bitcoin blockchain to EVM-compatible blockchains. In addition to native Bitcoin, UTXO-3525 can also handle Ordindal, Runes, and other assets issued on top of Bitcoin. The compliance bridge is used to enable traditional financial institutions to participate in the protocol while complying with their regulatory obligations. This includes the ability to tokenize US spot Bitcoin exchange-traded funds.

Currently, Solv Protocol has two independent LSTs in the form of SolvBTC.BBN for Bitcoin staked through Babylon and SolvBTC.ENA for Bitcoin staked through Ethena. In addition, Solv plans to enable Bitcoin yield opportunities through Ethereum, Binance Smart Chain, Botanix, and a few other blockchains.

Acre

Main Features

• Has a governance token called ACRE

• Built on the tBTC decentralized Bitcoin bridge, not Babylon

• Bitcoin stakers earn stBTC LST

• Users can also earn Acre points

• Currently running on Ethereum

• Planned integration with the Mezo Bitcoin Layer 2 network

As the liquidity layer for the Bitcoin Layer 2 network, Acre Provides Bitcoin deposit and Bitcoin withdrawal pledge services. When Bitcoin is deposited into Acre, it mints stBTC, a LST that can be redeemed for Bitcoin 1:1. The deposited Bitcoin is then invested in various yield-generating strategies on the Bitcoin Layer 2 network and DeFi platforms, and the rewards are accumulated in stBTC tokens. This includes using the underlying Bitcoin as a proof-of-stake asset to provide security for the Bitcoin Layer 2 network. The stBTC token contract is currently deployed on Ethereum. It is not repriced based on its accumulated returns, which means that the value of stBTC should increase over time, not the number of stBTC held by users.

It is worth noting that Acre uses tBTC, a secure, decentralized Bitcoin bridge that connects to Ethereum and other EVM-compatible blockchains. This is in stark contrast to other Bitcoin-backed tokens issued on the EVM chain, such as WBTC, which are completely centralized. Bitcoin deposited into Acre through the underlying blockchain is converted to tBTC before staking. tBTC is backed by leading DeFi projects and plays a vital role in enabling cross-chain coordination and enhancing the functionality of Bitcoin within the Acre system.

Acre is governed by a decentralized autonomous organization (DAO) and operates under the governance of users who hold ACRE tokens.

State of the Product Today

When examining the various liquidity staking platforms discussed, common themes and distinctions set each platform apart.

Flexibility and Cross-Chain Integration

Most platforms emphasize cross-chain compatibility, allowing users to interact with multiple blockchain networks. For example, Chakra supports cross-chain liquidity flows, while Lombard supports staking across various networks, increasing users' opportunities to earn yield. Similarly, Swell introduced a re-staking feature that enables Wrapped Bitcoin holders to tap into liquidity.

Yield Optimization and Reward Mechanism

All major platforms focus on generating yield, but the Lorenzo Protocol stands out with its leveraged staking option. It enables users to maximize their yield potential by using staked Bitcoin as collateral to borrow more BTC for further staking. Lombard and Bedrock offer higher yields through partnerships, while PumpBTC combines real-time staking transparency and point aggregation to unlock additional rewards.

A Bright Future for BTCFi

As the Bitcoin liquidity staking ecosystem rapidly evolves, various protocols present exciting opportunities and unique features.

These innovations enable Bitcoin holders to earn yield while maintaining liquidity, opening the door to a diverse range of DeFi applications in the Bitcoin ecosystem. The diversity of Bitcoin liquidity staking protocols not only enhances user choice, but also stimulates further innovation in the Bitcoin DeFi space.

Looking forward, the growth of Bitcoin liquidity staking protocols will redefine how Bitcoin holders interact with the broader blockchain ecosystem. As these platforms mature and scale, they are expected to unlock greater functionality and accessibility, making Bitcoin an even more versatile and productive asset.

As this space is still in its very early stages and many protocols have yet to launch, it is critical to track the latest developments in this new area of ​​Bitcoin scaling. That being said, the number of new projects in this space suggests that there is a bright future for earning yield through Bitcoin staking.