Castle Labs maps Bitcoin’s yield market, from CeFi failures to Stacks’ native-finance pitch
Castle Labs argues that Bitcoin has reached institutional scale without developing a comparable native yield layer. In its review of the BTC on-chain finance market, the firm says only about 311,000 BTC out of roughly 20.05 million active supply — around 1.5% — currently earns any form of yield. The rest, despite Bitcoin’s roughly $1.3 trillion market capitalization and growing role in corporate treasuries, ETFs, and portfolios, remains largely idle.
The report breaks the market into three broad routes: failed centralized lending models such as Celsius, BlockFi, and Voyager; BTC deployed into DeFi through wrapped, bridged, or liquid staking-style assets like WBTC, cbBTC, tBTC, and LBTC; and Bitcoin L2 or staking protocols including Babylon, Lombard, Stacks, Rootstock, and BOB. Castle Labs compares the trust assumptions behind each approach, focusing on custody risk, bridge signer risk, smart contract exposure, and slashing.
It then uses Stacks as a case study for what it calls a closer-to-Bitcoin model. The paper outlines Stacks’ Bitcoin-anchored finality, the 15-signer sBTC bridge, the proposed PoX-5 upgrade that would let BTC holders earn BTC-denominated yield while keeping coins locked on Bitcoin L1, and an application layer built around Zest, Bitflow, Hermetica, and StackingDAO’s planned stBTC product.
