The success of spot Bitcoin (BTC) exchange-traded funds (ETFs) and main BTC treasury firms marked one other step within the institutional adoption of crypto.
US-traded spot Bitcoin ETFs captured $518 million on Sept. 29 and have amassed $57.3 billion in internet flows since their launch in January 2024, in keeping with Farside Traders information.
BlackRock’s iShares Bitcoin Belief (IBIT) crossed $80 billion in property by July 2025, turning into the quickest ETF to succeed in that threshold in simply 374 buying and selling days. Including to the stellar efficiency, names reminiscent of Harvard Administration Co. and the Abu Dhabi sovereign wealth fund Mubadala disclosed investments in Bitcoin by way of IBIT.
The digital asset treasury motion expanded in tandem with the adoption of ETFs. Technique elevated its Bitcoin holdings to 649,031 BTC price $72.67 billion as of Sept. 29. In the meantime, Metaplanet up-sized its share providing to $1.4 billion in September to fund aggressive Bitcoin acquisitions, concentrating on 210,000 BTC by 2027.
Establishments now face a alternative between chilly storage and yield technology. Max Gokhman, deputy CIO at Franklin Templeton Funding Options, famous that yield is a significant driver for institutional adoption of crypto.
And the SEC is clearing pathways for yield by way of regulated merchandise. On Aug. 6, a workers assertion confirmed that liquid staking tokens don’t represent securities by default, whereas the Sept. 17 generic itemizing requirements expedited crypto ETF approvals.
As extra altcoin ETFs are set to launch within the US, doubtlessly providing yields by way of staking, establishments will achieve publicity to the returns that crypto has to supply. This modification would possibly influence how Wall Avenue sees Bitcoin.
Bitcoin choices fragment throughout chains
Bitcoin is scattered throughout 365,958.79 BTC in artificial types totaling $41.8 billion as of Sept. 30, in keeping with Bitcoin Layers.
As Bitcoin doesn’t have native sensible contract capabilities, the thought of an artificial token, generally known as a wrapper, is to permit the utilization of BTC in DeFi protocols constructed on different blockchains.
Babylon leads native staking with 58,271.77 BTC, producing a 0.29% APR by way of a self-custodial protocol that secures proof-of-stake chains.
Utilizing Babylon’s infrastructure, chains and purposes can faucet a safety layer maintained by BTC staking.
Lombard’s LBTC token transforms Bitcoin right into a liquid staking asset with 0.82% APY and $1.3 billion in complete worth locked (TVL), suitable with Ethereum, Base, Solana, BNB Good Chain, Katana, Sonic, Starknet, and Sui by way of native Chainlink and canonical bridge integrations.
Threshold operates tBTC v2 throughout Ethereum, Starknet, Sui, and MezoChain with 6,335.31 tBTC bridged and $717.7 million in TVL.
| Protocol | TVL | Yield/APR | Appropriate Networks |
| Babylon | $6.61 billion | 0.29% APR | Bitcoin native (secures PoS chains by way of Bitcoin staking) |
| Lombard (LBTC) | $1.3 billion | 0.82% APY | 13 networks: Ethereum, Base, Solana, BNB Good Chain, Katana, Sonic, Starknet, Sui, and others |
| Threshold (tBTC v2) | $717.7 million | N/A | 4 networks: Ethereum, Starknet, Sui, MezoChain |
| Solv Protocol (solvBTC) | $1.7 billion | 0.79%-13.28% APY | 12 networks: Arbitrum, Mantle, Bitcoin mainnet, and others |
| b14g | $300 million | ~5% APR (common) | A number of networks (dual-staking with native tokens) |
| Zeus Community (zBTC) | $58.7 million | 4.52% APY | Bitcoin-to-Solana bridge (by way of Multi-Occasion Computation) |
| Thorchain | $74 million | N/A | Cross-chain native swaps (a number of blockchains) |
| Lightning Community | $438 million | N/A | Bitcoin Layer-2 fee channels |
Solv Protocol provides its solvBTC throughout 12 chains, together with Arbitrum, Mantle, and the Bitcoin mainnet, with $1.7 billion in complete worth locked (TVL).
In the meantime, b14g provides a median of 5% APR by way of dual-staking mechanisms that mix BTC with native protocol tokens, throughout a $300 million TVL.
Zeus Community bridges Bitcoin to Solana by way of the zBTC wrapper, with $58.7 million in TVL utilizing Multi-Occasion Computation for trustless cross-chain interoperability. It provides 4.52% APY on staking by way of Fragmetric.
Thorchain facilitates native Bitcoin swaps for property throughout completely different chains with $74 million locked. Bitcoin bridges processed $1.87 million in September 2025.
Relating to chains with the biggest quantities of wrappers, Ethereum holds 178,458.67 BTC as of Sept. 30, adopted by BNB Good Chain at 24,082.67 BTC and Base at 21,647.85 BTC.
In addition to the wrapper domination in established blockchains, Lightning Community presents itself as a big rail for BTC utilization.
Lightning maintains $438 million in TVL regardless of a 20% decline in public capability from 5,400 BTC in late 2023 to 4,200 BTC by August 2025.
Coinbase reported that 15% of Bitcoin withdrawals had been routed by way of Lightning by mid-2025, and CoinGate documented that Lightning accounted for 16% of Bitcoin orders in 2024, in comparison with 6.5% two years prior.
Moreover, Tether deployed USDT over Lightning by way of Taproot Belongings in January 2025, enabling dollar-denominated funds with out locking BTC in channels.
Sensible difficulties
Regardless of the plurality of networks and wrappers that establishments might use so as to add composability to Bitcoin in the event that they want to, the important thing level of entry stays by way of ETFs.
Utilizing BlackRock’s IBIT S-1 submitting for example, the doc specifies that Coinbase Custody Belief Firm holds Bitcoin in segregated chilly storage wallets with multi-signature authentication, separate from all different Coinbase property.
In January 2025, BlackRock filed an modification to IBIT’s construction to permit in-kind creation and redemption, requiring Coinbase Custody to course of withdrawals to public blockchain addresses inside 12 hours.
At present, there may be restricted room to include yield pathways into Bitcoin ETFs, which might contain exploring the DeFi ecosystem utilizing BTC.
| Protocol | Construction Sort | Custody Mannequin | Belief Assumptions |
| Babylon | Bitcoin-native staking protocol | Self-custodial (non-custodial time-locks on Bitcoin) | Belief-minimized: Makes use of Bitcoin’s native time-lock scripting. BTC stays on Bitcoin blockchain in person’s management. Depends on Bitcoin’s safety mannequin. No bridging, wrapping, or third-party custody. Slashing potential for validator misbehavior. |
| Lombard (LBTC) | Liquid staking token (LST) constructed on Babylon | Consortium mannequin with decentralized custody | Federated belief: Constructed on Babylon’s safety layer. Makes use of Safety Consortium of institutional custodians. Multi-party validation required for minting/burning LBTC. Depends on finality suppliers and signers. Proof-of-reserves by way of Chainlink/Redstone oracles. 9-day unbonding interval (Babylon 7-day + Lombard 2-day rebalancing). |
| Threshold (tBTC v2) | Decentralized bridge protocol | Distributed multi-signature custody (100-of-100 threshold) | Sincere-majority assumption: Randomly chosen group of 100+ node operators maintain keys by way of threshold cryptography. Requires 51-of-100 signers to approve operations. Depends on probabilistic safety and staked T tokens for financial safety. Ahead safety protects current deposits. SPV proofs confirm Bitcoin state. No single custodian controls funds. |
| Solv Protocol | Multi-chain Bitcoin LST platform | Varies by integration | Multi-chain belief: Depends on safety of every built-in chain (12 chains). Cross-chain bridge dependencies. Structured product framework with yield aggregation. Belief assumptions fluctuate by vacation spot chain and vault technique. |
| b14g | Bitcoin restaking protocol | Twin-staking (BTC + native token) | Merge restaking mannequin: Combines staked BTC with protocol native tokens. No BTC slashing danger (solely native token topic to slashing). Depends on safety of underlying networks being secured. Belief distributed throughout validator units. |
| Zeus Community | Cross-chain bridge (Bitcoin to Solana) | Multi-Occasion Computation (MPC) custody | Federated MPC belief: Makes use of threshold signature scheme requiring a number of events to cooperate. Decentralized node community manages zBTC minting/burning. Belief distributed throughout validator set. Is determined by Solana community safety for vacation spot property. |
| Thorchain | Decentralized liquidity protocol | Threshold Signature Scheme (TSS) with bonded validators | Financial safety mannequin: Validators put up bonds (2-3x worth of pooled property). Steady Liquidity Swimming pools (CLPs) allow native swaps. Slashing mechanism for malicious conduct. Belief distributed throughout economically incentivized validator set. No wrapped tokens—native asset swaps. |
| Lightning Community | Bitcoin Layer-2 fee channels | Self-custodial (channel-based) | Channel counterparty belief: Customers preserve custody by way of pre-funded fee channels. Bilateral belief between channel companions. Can route by way of a number of channels. Time-locked sensible contracts implement settlement. Belief-minimized for direct channels; routing provides complexity. No bridging or wrapping. |
Moreover, the Monetary Motion Job Drive’s Journey Rule mandates monetary establishments and Digital Asset Service Suppliers to transmit originator and beneficiary figuring out info with digital forex transactions.
This normal requires end-to-end transparency to help regulation enforcement and mitigate monetary crime dangers. ETF issuers should preserve segregated custody with regulated entities which can be able to producing audit trails that fulfill the journey rule necessities.
Wrapped Bitcoin protocols introduce belief assumptions that battle with institutional custody requirements.
Threshold’s tBTC depends on decentralized node operators to keep up the bridge between Bitcoin and Ethereum, making a multi-signature custodial mannequin the place no single entity controls funds.
Though that is optimistic from a decentralization perspective, it introduces a safety dependency on the integrity of the validator set. Lombard makes use of Babylon’s Bitcoin Staking Protocol, mixed with a consortium mannequin for custody, which distributes danger throughout a number of events.
Once more, there may be an effort to decentralize single factors of failure; nonetheless, this provides coordination necessities that complicate audit procedures.
A Bitcoin ETF holding LBTC on Base would face scrutiny on Optimism’s fraud-proof system, Base’s sequencer centralization, and the bridge’s oracle dependencies.
Every wrapped BTC variant trades off safety assumptions. BitGo’s wBTC makes use of centralized custody with authorized agreements, whereas Threshold’s tBTC distributes custody throughout validators, who should preserve uptime and cling to sincere conduct.
These layered dangers multiply audit surfaces past what segregated chilly storage presents.
Yield profiles and cost-benefit
Babylon’s 0.29% APR on staked Bitcoin compares unfavourably to Ethereum’s 3.2% staking yield or Solana’s 7.1% APY accessible by way of liquid staking derivatives.
Lombard’s 0.82% return requires establishments to simply accept publicity to 13 completely different blockchain networks, every with distinct safety fashions and potential failure modes.
These examples reveal the problem {that a} 1% yield benefit on a 5% Bitcoin allocation contributes simply 5 foundation factors to complete portfolio returns.
Establishments would possibly discover inadequate compensation for introducing bridge danger, oracle dependencies, and cross-chain settlement complexity.
Franklin Templeton’s Gokhman noticed that establishments more and more view Bitcoin as a cyclical, high-beta danger asset that correlates with conventional monetary markets as institutional adoption grows.
This framing means that portfolio managers want to separate their Bitcoin holdings from yield technology, sustaining BTC as a pure publicity play whereas sourcing returns from property with extra established DeFi infrastructure.
An establishment might maintain Bitcoin by way of IBIT’s segregated chilly storage whereas deploying capital into Ethereum ETFs that may doubtlessly supply staking yields by way of confirmed liquid staking tokens accepted by the SEC’s August 2025 steering.
Dividing publicity requires allocating capital throughout a number of positions however preserves custody readability and simplifies compliance reporting.
The choice of bridging Bitcoin to entry DeFi yields forces establishments to guage whether or not Threshold’s node operators or Lombard’s decentralized consortium offers equal safety to Coinbase Custody’s federally regulated chilly storage.
Every bridge introduces a brand new counterparty, and every vacation spot chain provides one other danger floor that chain danger committees should evaluate. The fragmented liquidity throughout 365,958 BTC, unfold throughout completely different protocols and chains, compounds this complexity, as no single venue provides the depth that establishments require for entry and exit with out market influence.
In conclusion, Bitcoin layer-2 and different layer protocols supply technical options for yield technology. Nonetheless, it’s as much as regulators to discover a solution to accommodate these paths into regulated merchandise, and it’s as much as establishments to resolve whether or not direct publicity is definitely worth the danger.
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