What you need to know about Bitcoin staking

The following is a guest post by Vincent Maliepaard, Marketing Director at IntoTheBlock.

When you first hear about Bitcoin staking, you might assume there’s a mistake, given Bitcoin’s Proof of Work (PoW) mechanism. However, Bitcoin staking is indeed a reality, with thousands of addresses participating and generating returns on their assets. Here’s what you need to know.

Bitcoin Staking Explained

Staking traditionally refers to the process where holders of a cryptocurrency lock up their funds to participate in network operations, such as transaction validation on Proof of Stake (PoS) blockchains. Bitcoin, however, operates on a PoW consensus mechanism, which does not natively support staking. This dynamic has changed with the introduction of Bitcoin staking through platforms offering Bitcoin-based Liquid Staking Tokens (LSTs). These platforms enable BTC holders to engage in staking activities indirectly.

EigenLayer, Babylon, and AVS’s

On Ethereum, the concept of “restaking” was introduced in 2023 with EigenLayer, which gained significant traction by mid-2024, reaching a total value locked (TVL) of over $20 billion in June. Normally, staking ETH helps secure the Ethereum network, rewarding stakers in return. EigenLayer extends this concept by allowing users to “restake” their ETH to secure additional services, earning extra rewards.

Initially coined as Active Validated Services (AVS) on Eigenlayer, these applications by different terms depending on their associated (re)staking platform. AVSs are applications or services that can be secured with restaked ETH. This concept is now being extended to the Bitcoin blockchain and BTC-pegged tokens. Babylon is leading this effort, building an architecture that allows applications to leverage Bitcoin’s crypto-economic security. Meanwhile, on the Ethereum side, Symbiotic and soon Eigenlayer are restaking protocols accepting tokens such as Wrapped Bitcoin (WBTC) as collateral to support applications that seek to utilize these assets for enhanced security.

Understanding Bitcoin Staking

In Bitcoin staking, users deposit their BTC into a staking protocol and receive Liquid Staking Tokens (LSTs) in return. These LSTs represent the staked BTC but often offer enhanced liquidity and other functionalities. This allows participants to engage in DeFi activities without sacrificing staking rewards.

Currently, the most popular Bitcoin LST is LBTC, originating from the Lombard protocol. Here’s a breakdown of how it…