Bitcoin Staking: A Guide for Institutional Investors
Staking is a Proof-of-Stake (PoS) consensus mechanism that enables investors to earn yield on their digital assets. By depositing and locking their crypto assets in a smart contract for a specified period, stakers help validate transactions on a PoS blockchain. The staked assets serve as an economic incentive for validators to act in the network's best interests, with the risk of token slashing penalties if they fail to do so.
Historically, staking has been predominantly associated with Ethereum and other PoS networks. Ethereum, being one of the largest and most influential PoS blockchains, has set the standard for staking, allowing investors to earn rewards while contributing to network security.
Although Proof of Work (PoW) networks like bitcoin hold vast amounts of economic value—worth over a trillion dollars—the functionality of staking has been absent for the largest crypto asset by market cap. Recognizing this untapped potential, projects like Babylon have set out to create a bitcoin staking solution, enabling bitcoin holders to stake their BTC, contribute to the security of PoS networks, and earn rewards. This innovation is now gaining popularity as it opens new avenues for bitcoin investors to generate yield and participate in the broader staking ecosystem.
Babylon’s approach to BTC staking
Babylon introduces the concept of remote staking to the bitcoin blockchain, leveraging existing bitcoin scripts and advanced cryptographic techniques. They have developed a bitcoin staking contract that operates directly on the bitcoin blockchain, similar to smart contracts on other blockchains. This method is trustless and self-custodial, eliminating the need to bridge or wrap your bitcoins to other blockchains.
Holders simply lock their bitcoins through the Babylon protocol, making them staked and slashable. This allows them to enjoy the benefits of PoS chains, such as earning altcoin yields, delegating assets to finality providers, staking to multiple PoS chains (restaking), and more.
The Babylon network acts as a coordinator between the bitcoin network and the finality providers on the PoS chains it secures. Finality providers use staked funds to gain voting power, enabling them to validate other blockchains. They then collect the rewards and transfer them back to Babylon.
Ceffu Co-sign Wallet: your gateway BTC staking
To enable our institutional clients to engage with bitcoin staking protocols and earn yields on their previously idle assets, we have integrated our Co-sign Wallet solution with staking providers, starting with Babylon.
Utilizing multi-party computation (MPC) technology for enhanced security, Co-sign Wallet provides both speed and greater control over the transaction signing process. It accomplishes this by binding one of its key shares to a client's chosen personal device during wallet setup, allowing the client to authorize transactions directly from their bound device. This feature is especially valuable in the current landscape of bitcoin staking, where allocations are limited.
BTCFi through Ceffu’s lens
At Ceffu, we excel in crafting bespoke custody and liquidity solutions of the highest operational quality to meet the distinct needs of our institutional clients. After a strong focus on the CeDeFi sub-sector in H1 2024, where we provided essential infrastructure for protocols like Ethena and BounceBit to execute their yield strategies, we are now witnessing a substantial shift in attention towards the bitcoin ecosystem and its various DeFi developments, commonly referred to as BTCFi.
The mainnet launch of Babylon on August 22nd, 2024, is a clear indication of the strong demand for BTCFi, particularly in the realm of bitcoin staking. Babylon secured their staking cap of 1000 BTC in just under 72 minutes, causing network congestion and driving fees up to as high as $140 in the process, compared to the historical average of $0.50 to $2.50.
As market participants seek more native ways to engage with the $1.2 trillion asset, we anticipate that BTCFi will continue to gain traction among both retail and institutional investors, ultimately establishing itself as a dominant trend. We remain steadfast in our commitment to expanding our staking product suite by integrating our infrastructure with emerging bitcoin staking protocols and forging robust partnerships.
Our developmental initiatives, including the co-development of the Babylon integration with Solv Protocol—the leading bitcoin liquid staking provider with over a billion dollars in total value locked (TVL)—ensure that institutions have the most secure and efficient solutions to stay ahead of the curve.
Accelerate growth with institutional staking
To learn more about how Ceffu’s custody and liquidity solutions can help drive your business forward, contact us using our institutional form.
About Ceffu
Ceffu is a compliant, institutional-grade custody platform offering custody and liquidity solutions that are ISO 27001 & 27701 certified and SOC 2 Type 1 & Type 2 attested. Its multi-party computation (MPC) technology, combined with a customizable multi-approval scheme, provides bespoke solutions allowing institutional clients to safely store and manage their digital assets.
Institutions may also benefit from Ceffu’s secure gateway to a wide range of liquidity products within the Binance ecosystem. This can be achieved through MirrorX, our off-exchange settlement solution, provided in partnership with Binance.
Media contact: pr@ceffu.com
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