Several protocols in the Bitcoin ecosystem are looking to create a liquid staking token comparable to Lido’s extremely successful staked ETH (stETH).
The Bitcoin liquid staking ecosystem is in its very early stages.
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Posted October 30, 2024 at 12:33 pm EST.
Lido’s dominance of the Ethereum liquid staking market has lately inspired several emerging BTC liquid staking protocols to try to create their own Bitcoin-focused decentralized finance ecosystem.
Launched in 2020, Lido set the standard for creating a yield-bearing DeFi primitive and was the first liquid staking protocol to gain traction in terms of usage and integrations, said Jacob Phillips, the co-founder of Lombard, a new liquid staking provider focused on Bitcoin.
“DeFi protocols now routinely prefer [staked ETH] as collateral, viewing it as a better form of ETH that offers the same exposure plus staking yield,” Phillips told Unchained over Telegram. “Bitcoin LSTs like Lombard aim to replicate [Lido’s] playbook by creating a minimalist Bitcoin liquid staking token.”
The total liquid staking market on Ethereum stands at $37.9 billion and Lido accounts for $26.2 billion of that, or almost 70%, according to DefiLlama. By comparison, the BTC liquid staking market started taking shape this year and while there are no figures for the total market size, the top six protocols—Lombard, Solv Finance, PumpBTC, Bedrock, Echo Protocol, and Lorenzo—have only generated $3.5 billion in total value locked so far.
Read More: Lido Moves to Decentralize With Vote to Adopt New Community Staking Module
Rostyslav Shvets, the co-founder of BTC liquid staking protocol Stroom Network, which is still in testnet, told Unchained that liquid staking has attracted many competitors because “the killer feature of all crypto is yield on top of your assets.” Shvets, who was previously a product manager at Lido, explained that Stroom is trying to give users the chance to earn revenue from the Lightning Network, a Bitcoin L2, without locking up their BTC.
Liquid staking traditionally entails users earning a yield in exchange for locking their native tokens. They receive a “receipt token,” also known as a liquid staking token (LST), that represents a user’s initial principal plus rewards. Stakers can then use the LST in various DeFi protocols by using the tokens as liquidity for trading pools or as collateral for borrowing.
BTC staking typically refers to holders using their bitcoins as collateral assets to provide security for various proof-of-stake blockchains.
Lido’s yield comes from ETH emissions given to stakers who secure Ethereum. By comparison, the staking yield from emerging BTC staking protocols comes from points, since proof-of-stake networks using BTC as security collateral have yet to launch their mainnet.
Room for Bitcoin Staking to Grow
LSTs are part of the wider “Bitcoin Renaissance” that’s going on now in which developers are attempting to introduce smart contract functionality to Bitcoin, in order to allow for more complex operations on the network.
Read More: DeFi Protocols Such as Lido Are Generating More Fees Than Layer 1 Blockchains
“I think, [liquid staking and the Bitcoin Renaissance] will really be a catalyst for Bitcoin DeFi in becoming likely one of the biggest trends and movements in the market next cycle next year,” Alexei Zamyatin, the co-founder of hybrid layer 2 network Build on Bitcoin, also known as BOB, told Unchained. “People are hungry for using bitcoin—everybody has bitcoin. If you look at the ETH market, I would say 90%+ of ETH users that stake ETH also own bitcoin. So you have that market that is very used to staking… plus the millions of users in Bitcoin that do not stake anything yet.”
Crypto users have staked 34.9 million ETH tokens, worth about $93.4 billion and roughly 29% of the ETH supply. By contrast, staking on Bitcoin has just begun and is largely dependent on staking protocol Babylon, which has thus far accumulated just 23,889.1 bitcoins—less than one percent of BTC’s circulating supply.
Babylon’s staked BTC figure is also incredibly small compared to BTC’s market cap of $1.3 trillion, which Zamyatin said shows how Bitcoin liquid staking has plenty of room to grow. “If [Bitcoin LSTs] grow to the size of what you have on Ethereum… that’s a pretty exciting opportunity,” Zamyatin added.
Zamyatin told Unchained he wouldn’t be surprised if Lido was contemplating offering BTC staking itself, pointing to two signs. First of all, through Babylon, BTC stakers have delegated nearly 566 bitcoins worth about $38 million to blockchain infrastructure provider P2P.org, a node operator for Lido. Moreover, P2P’s founder Konstantin Lomashuk is also a co-founder of venture capital firm Cyber.Fund, which contributes to Lido DAO.
Lido did not respond to a request for comment for this article.
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