How Bitcoin Is Being Put To Work

For many, the case for bitcoin has long rested on what it refuses to do. No coupon, no dividend, no counterparty, no promises — a scarce bearer asset whose entire return is price appreciation. Zero yield has always been a feature, and holders accepted, for the most part, nothing-per-annum as the price of asymmetric upside. That value proposition hasn’t gone anywhere. 

As exchange-traded fund (ETF) holders, corporate treasurers and income-benchmarked institutions continue to accumulate, however, demand is growing for ways to generate additional returns without selling the underlying. 

In response, a number of approaches have emerged around bitcoin yield products.

Bitcoin has no staking reward and no protocol income. Its issuance pays miners for security, not owners for loyalty. So every past attempt at “bitcoin yield” imported the return from somewhere else — and the risk along with it. In 2021, centralised lenders took BTC deposits (retail for Celsius and BlockFi; more institutional for Genesis), promised high yields and deployed the funds into loans, DeFi strategies and speculative positions. 

When crypto prices crashed in 2022 and lenders found that their counterparties defaulted, they faced bank-run-style withdrawals they could not meet. Income is always payment for a specific risk, and the central flaw in 2021-era lending was that depositors had no idea what the risk was or how to underwrite it. The new class of products inverts this: the risk is disclosed, native to the protocol and underwritten by the depositor before a single coin is committed.