Staking involves locking up tokens to support a blockchain network and earn rewards. It’s designed to incentivize certain behaviors, though it also faces criticism. Users should understand where staking returns come from to avoid unsustainable Ponzi schemes or centralization risks. The BTCFi space has seen various staking infrastructures emerge, such as StakeStone and Stacks, which attract capital through staking yields, invite codes, and point systems. With growing talent and investment, the BTCFi sector is poised for significant growth.
Understanding Staking
The Original Concept of Staking
The idea of staking dates back to 2011 on Bitcoin Talk forums. It gained prominence with Proof-of-Stake (PoS) networks, first implemented in Peercoin and now widely used in Ethereum, Solana, Cosmos, and other blockchains.
In this context, staking means locking a certain amount of tokens to support network operations and security—and being rewarded for it. In PoS systems, staking often involves validating transactions, participating in consensus, and enhancing network security. By staking, users align their interests with the network’s health: if the network fails, their staked assets may lose value.
Think of it like owning company shares. You invest capital and contribute to operations. If you act against the company’s interests, your shares may lose value or be penalized. Alternatively, you can delegate your stake to others (e.g., via protocols like Lido) and share the rewards.
A recent trend is "re-staking," popularized by EigenLayer. It lets users stake their already-staked Ethereum (in the form of liquid staking tokens) to secure other decentralized services and earn extra yields. Babylon, a Bitcoin staking project, adopts a similar approach. Essentially, re-staking allows Ethereum’s security to be "borrowed" by other services—though it introduces new complexities and centralization risks.
The Expanded Meaning of Staking
As blockchain and DeFi evolved, the term "staking" broadened to include any form of token locking, often associated with "farming." These mechanisms may not directly contribute to network security but offer benefits like earning yields, gaining exclusive access, or enhancing governance rights.
Such locking mechanisms can incentivize specific behaviors, helping projects bootstrap communities, increase TVL (Total Value Locked), and drive token appreciation.
However, this expanded definition has drawn criticism. Some argue it dilutes the original meaning of staking. Others warn that projects may misuse staking to create unsustainable Ponzi schemes or increase centralization risks. There are also concerns about liquidity manipulation and market exploitation.
As a user, it’s crucial to identify the source of staking returns. For instance, bank fixed deposits generate returns from interest on loans. In crypto, returns should ideally come from legitimate sources like transaction fees or network rewards—not from new users’ deposits.
In short, extended forms of staking may not always enhance network security or functionality. They can be centralizing or even predatory—but they can also support project growth and token liquidity.
Staking in the Bitcoin Ecosystem
Previously, Bitcoin holders could only participate in DeFi by wrapping BTC into ERC-20 tokens (like wBTC) and bridging to Ethereum. Today, the Bitcoin ecosystem is flourishing, with many teams building staking-related services. Below are three notable examples.
Babylon and BounceBit
Babylon is a Bitcoin staking protocol that recently launched its public testnet. Similar to EigenLayer, it extends Bitcoin’s security to other PoS networks (e.g., Bitcoin L2s), with stakers earning rewards from those networks.
Since Bitcoin doesn’t natively support smart contracts, Babylon uses cryptographic techniques and Bitcoin scripts to enable staking. Its key innovation is "extractable one-time signatures" (EOTS), which ensure that a private key can sign only once. If a staker acts maliciously (e.g., double-signing), their private key is exposed, and their BTC can be sent to a burn address.
This allows Bitcoin to be staked without bridging—making it a more trust-minimized solution.
BounceBit, launched by Bounce Finance, is another prominent project. It brands itself as "BTC re-staking infrastructure" and operates as a dual-token PoS chain. Unlike many L2s, it focuses on staking yields and user incentives (e.g., invite codes and points) to attract TVL quickly.
According to reports, BounceBit implements re-staking by having users bridge BTC to its chain. The bridge’s security is maintained by validators, aligning it with overall network security. However, technical details are still scarce. Staking rewards reportedly come from three sources: PoS validation, CeFi yields, and future DeFi activities.
B² Network, Merlin Chain, and StakeStone
B² Network and Merlin Chain are ZK-Rollup-based Bitcoin L2s compatible with EVM. Both encourage users to lock funds to earn future token airdrops—similar to yield farming rather than traditional PoS staking.
Notably, both L2s are supported by StakeStone, a protocol aiming to create a universal standard for liquidity staking tokens (LSTs). It unifies various LSTs into a single token format, simplifying cross-chain liquidity.
Stacks
After its Nakamoto upgrade, Stacks solidified its position as a Bitcoin L2. It enables smart contracts on Bitcoin using the Clarity language, allowing trustless use of BTC as an asset.
Some misunderstand Stacks as involving Bitcoin staking—but that’s not the case. Stacks uses Proof-of-Transfer (PoX), a consensus mechanism derived from Proof-of-Burn (PoB). In PoX, miners send BTC to a designated address (which is burned) to prove commitment to the network. They then earn STX tokens as rewards.
Meanwhile, STX holders can stake their tokens (via "Stacking") to help secure the network and earn Bitcoin rewards from miners. This creates a dual-economic loop, with Stacks smart contracts handling execution and Bitcoin storing data hashes via OP_RETURN.
Frequently Asked Questions
What is the main purpose of staking in blockchain?
Staking primarily helps secure Proof-of-Stake networks by incentivizing users to lock tokens and validate transactions. In return, stakers earn rewards, usually in the form of native tokens.
How does Bitcoin staking differ from Ethereum staking?
Bitcoin wasn’t designed for staking, so projects like Babylon use creative cryptographic methods to enable it. Ethereum, being natively PoS, allows direct staking with clear reward mechanisms.
Are there risks to staking in Bitcoin L2s?
Yes. Some projects may offer high yields without sustainable models. Always research whether returns come from real revenue or new user deposits. Also, consider smart contract risks and centralization issues.
What is liquid staking?
Liquid staking lets you stake tokens and receive a liquid counterpart (e.g., stETH for Ethereum). You can use these tokens in DeFi while still earning staking yields.
Can I stake Bitcoin without bridging?
Yes. Protocols like Babylon allow native Bitcoin staking without wrapping or bridging. This reduces trust assumptions and enhances security.
What is re-staking?
Re-staking involves staking already-staked tokens (e.g., liquid staking tokens) to secure additional services. It can boost yields but adds complexity and risk.
Conclusion
The Bitcoin staking landscape is evolving along two paths: one focuses on native technical innovation for maximum security, while the other prioritizes rapid growth and user acquisition. Both aim to advance BTCFi—Bitcoin’s decentralized finance ecosystem.
We’re still in the early stages, but the current cycle brings more talent and capital than ever before. The dawn of BTCFi is on the horizon, and promising projects are likely to emerge from both approaches.
For those exploring Bitcoin staking, always verify the source of yields and understand the underlying mechanisms. 👉 Explore secure staking strategies to make informed decisions and maximize returns safely.