The narrative around Bitcoin has evolved far beyond its original identity as "digital gold." While its role as a store of value remains foundational, the growing demand for capital efficiency is driving innovation in how BTC can generate yield—without compromising security. At the heart of this transformation lies Bitcoin staking, particularly through emerging re-staking protocols that are redefining liquidity, security, and utility across decentralized finance (DeFi).
With Babylon’s mainnet launch catalyzing unprecedented network activity and sparking a surge in Bitcoin transaction fees, the ecosystem is witnessing a pivotal shift. Users are no longer limited to passive holding; they can now actively participate in securing networks, earning rewards, and unlocking new financial primitives.
This article explores the current state of Bitcoin staking and re-staking, examines key players shaping the landscape, and analyzes the broader implications for capital efficiency, cross-chain interoperability, and the future of BTCFi.
Understanding Bitcoin Liquid Staking
Bitcoin operates on a Proof-of-Work (PoW) consensus mechanism, where miners secure the network using computational power. Unlike PoS chains, Bitcoin natively does not support staking. However, new protocols are bridging this gap by enabling liquid staking—a mechanism that allows users to lock up BTC and receive a yield-bearing, tradable token in return.
These liquid staking tokens (LSTs) represent ownership of staked Bitcoin and can be used across DeFi applications such as lending markets, stablecoin collateralization, and liquidity pools. The goal is simple: enhance capital efficiency while preserving Bitcoin’s economic security.
There are three primary models currently being used to achieve Bitcoin liquid staking:
1. On-Chain Self-Custody (Non-Custodial)
This approach keeps Bitcoin on its native chain while leveraging cryptographic techniques like time-locked scripts and one-time signatures (EOTS) to enable remote staking. Projects like Babylon use this model to allow BTC holders to secure external PoS chains without moving assets off Bitcoin.
✅ Advantages: High decentralization, no reliance on custodians
❌ Challenges: Complex implementation, latency in cross-chain synchronization
2. Centralized Custody Model
In this setup, users deposit BTC into regulated custodial accounts. The custodian then issues a wrapped version (e.g., wBTC) on another chain, which can be staked or used in DeFi.
✅ Advantages: Fast deployment, familiar user experience
❌ Challenges: Lower decentralization, counterparty risk
👉 Discover how decentralized staking platforms are reshaping BTC yield opportunities.
3. MPC & Cross-Chain Bridge Model
Using Multi-Party Computation (MPC) wallets and cross-chain bridges, this hybrid model offers partial decentralization. BTC is held in multi-sig vaults and bridged to other chains where it can be re-staked or utilized in DeFi.
✅ Advantages: Balance between security and usability
❌ Challenges: Bridge vulnerabilities remain a systemic risk
Each model presents trade-offs between security, decentralization, and ease of use—highlighting the need for continued innovation in trust-minimized architectures.
Babylon: Securing PoS Chains with Bitcoin
Babylon stands at the forefront of Bitcoin re-staking innovation. It enables Bitcoin holders to stake their BTC natively—without wrapping or transferring custody—and use it to provide economic security to PoS blockchains like Cosmos SDK-based chains.
Launched on August 22, Babylon’s first-phase mainnet enabled 1,000 BTC to be staked within just six blocks. This surge caused Bitcoin transaction fees to spike above 1,000 sat/vB, compared to typical rates below 5 sat/vB—a clear signal of intense demand.
How Babylon Works
Users send a transaction with two UTXO outputs:
- One locked via time-lock script (recoverable after unstaking)
- One sent to an EOTS-compliant temporary address
- If the validator behaves honestly on the PoS chain, they earn rewards.
- Misbehavior leads to private key exposure and slashing of staked BTC.
This mechanism eliminates traditional cross-chain bridges, reducing attack surfaces while maintaining alignment with Bitcoin’s security model.
Babylon’s architecture consists of three layers:
- Bitcoin Layer: Provides timestamping and finality.
- Control Layer: Babylon’s own PoS chain connecting Bitcoin and consumer chains.
- Data Layer: PoS chains ("consumers") that leverage Bitcoin’s security.
By acting as a trust-minimized intermediary—similar to EigenLayer but anchored to Bitcoin—Babylon unlocks a new paradigm: Bitcoin as a security layer for other blockchains.
Key Players in the Bitcoin Re-Staking Ecosystem
Chakra: ZK-Powered Re-Staking
Chakra leverages STARK zero-knowledge proofs to enable secure, private re-staking. It integrates with Babylon and allows users to stake BTC without relinquishing control. The protocol issues ChakraBTC, which can be deployed across BTC L2s via lightweight clients.
Backed by StarkWare and other major investors, Chakra emphasizes modular settlement and privacy-preserving validation.
Lombard: Bridging Babylon to Ethereum
Lombard introduces LBTC, a 1:1 BTC-backed liquidity token minted on Ethereum after staking BTC via Babylon. This enables seamless integration with Ethereum’s DeFi ecosystem while allowing users to earn Babylon staking rewards.
With $16M raised in seed funding from Polychain Capital and OKX Ventures, Lombard aims to become a core liquidity rail between Bitcoin and EVM chains.
👉 Explore how next-gen liquidity layers are transforming Bitcoin DeFi.
Lorenzo: L2-as-a-Service with Yield Separation
Lorenzo offers fast L2 deployment services built on Babylon. It mints stBTC for stakers and innovatively splits yield into two tokens:
- LPT (Liquidity Principal Token): Represents principal
- YAT (Yield Accruing Token): Tracks accumulated rewards
This separation enables flexible trading and compounding strategies. Lorenzo also supports BNB Chain integration and launched its mainnet in August 2024.
Solv Protocol: Cross-Chain Yield Aggregation
Solv Protocol functions as a multi-chain yield distribution layer, tokenizing staking and re-staking returns across ecosystems. It partnered with Copper for institutional custody and became the largest participant in Babylon’s initial staking round with 250 BTC committed.
Its deep integrations with MerlinChain, GMX, and BNB Chain highlight its role as a yield infrastructure backbone.
Other Notable Protocols
| Project | Key Feature |
|---|---|
| BounceBit | CeFi-focused; uses BBTC and stBBTC under a dual PoS structure |
| Bedrock | Issues uniBTC by proxy-staking WBTC into Babylon |
| Uniport | zk-Rollup chain using UBTC; plans transition to multi-sig contracts |
| PumpBTC | Partners with Cobo/Coincover; supports EVM/L2 usage |
| pSTAKE Finance | Launching yBTC on Ethereum for auto-compounding yields |
| StakeStone | Deploys STONEBTC across chains including Berachain |
| Stroom Network | Brings liquid staking to Lightning Network with lnBTC |
Frequently Asked Questions
Q: Can you really stake native Bitcoin?
A: Not directly on Bitcoin’s base layer. However, protocols like Babylon allow you to "remotely stake" BTC by locking it natively and using cryptographic proofs to participate in PoS consensus elsewhere—effectively creating staking-like yield without altering Bitcoin’s core protocol.
Q: Is Bitcoin re-staking safe?
A: Security depends on the model. Non-custodial solutions like Babylon offer high trustlessness, while custodial or bridge-based models introduce counterparty risks. Always assess the protocol’s slashing mechanisms, audit history, and decentralization level before participating.
Q: What is the difference between LST and LRT?
A: A Liquid Staking Token (LST) represents staked assets (e.g., stBTC). A Liquid Re-Staking Token (LRT) goes further by allowing those staked assets to be re-deployed across multiple protocols or chains—amplifying capital efficiency.
Q: How does re-staking increase Bitcoin's utility?
A: By unlocking yield without sacrificing self-custody, re-staking transforms BTC from a static store of value into an active financial asset. It also enhances security for other blockchains by leveraging Bitcoin’s immense hash power economically.
Q: Are there risks of over-collateralization or systemic failure?
A: Yes. If multiple protocols rely on interconnected re-staking layers, cascading failures could occur during market stress. Diversification and protocol audits are essential risk mitigation strategies.
The Future of BTCFi
As ArkStream Capital noted, BTC liquidity release may unlock over $100 billion in value. With current estimates suggesting only ~1% of BTC supply actively engaged in DeFi, the upside potential is massive.
Three trends will shape the next phase:
- Cross-Chain Interoperability: Seamless movement of staked BTC across L1s and L2s via ZK proofs and light clients.
- CeDeFi Convergence: Hybrid models combining centralized custody efficiency with decentralized transparency will attract institutional capital.
- Derivatives Expansion: As re-staking matures, we’ll see options, futures, and structured products built around LRTs—fueling deeper markets.
Bitcoin is no longer just digital gold—it’s becoming the foundation of a new decentralized financial stack.
👉 Start exploring secure, high-yield staking platforms today.