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Abstract

Bitcoin’s (BTC) journey from a niche asset to a globally recognized financial instrument has been marked by significant shifts in investor participation. While early adoption was dominated by retail investors, institutional interest in BTC has surged in recent years. Hedge funds, pension funds, corporations, and asset managers are increasingly allocating capital to BTC, viewing it as a portfolio diversifier and a potential hedge against inflation. 

Despite BTC’s growing adoption among institutions, challenges persist. Security, liquidity, and yield remain critical considerations for institutional investors looking to integrate BTC into their portfolios. While the launch of spot BTC ETFs in 2024 has enhanced accessibility, these products come with limitations, including management fees and an inability to generate yield. As institutions seek capital efficiency, the demand for BTC yield-generating strategies is increasing. However, since Bitcoin's base chain does not natively generate yield like Proof-of-Stake chains such as Ethereum and Solana, those seeking yield have had to take on additional risks to generate returns. 

This report explores the evolving landscape of institutional BTC yield-generation. It examines historical trends in addition to current yield strategies. The report also analyzes the latest advancements in BTC staking and liquid BTC staking, evaluating their potential to meet institutional requirements.

BTC staking is being led by the Core blockchain's Self-Custodial BTC Staking mechanism, which is the first and only live implementation of BTC staking, with real yields being paid out daily. Core’s novel consensus design lets BTC holders secure Core in exchange for block rewards and introduces sustainable yields while Bitcoin principal remains secure, a compelling alternative to traditional yield-generating strategies. Additionally, the recent unveiling of lstBTC, a liquid staked BTC token launched in conjunction with institutional-grade custodians, promises to change how institutional BTC treasuries operate. As institutional adoption of BTC continues to mature, the emergence of sophisticated, risk-mitigated yield solutions will play a pivotal role in shaping the future of institutional BTC investment.

Bitcoin’s Institutional Adoption

The cryptocurrency market has experienced phenomenal growth in recent years, attracting a diverse range of investors, including legacy institutional entities known for their risk aversion. While the role of retail investors has been widely discussed throughout BTC’s early years, the participation of institutional investors, such as hedge funds, pension funds, and corporations, has become increasingly significant to BTC’s current market and potential future growth. 

Due to the increased legitimacy of digital assets as an investable asset class, the broader narrative surrounding BTC has undergone a significant transformation. Previously viewed as a speculative retail-driven phenomenon, BTC has now emerged as a legitimate institutional asset thanks to its diversification benefits in a traditional portfolio. Prior to the approval of spot BTC ETFs, institutions could gain exposure to BTC through various methods, including direct purchases from exchanges, futures contracts, BTC-related stocks, exchange-traded products (ETPs), statutory trusts, or private funds. Each option has come with distinct advantages and drawbacks.

Investment preferences obviously vary based on needs. Crypto purists and investors seeking low fees have often opted for direct spot investments with their own custody solutions. Those prioritizing simplicity and regulatory compliance have tended to favor ETPs. Meanwhile, institutions with medium-term horizons have sometimes preferred private funds for their cost efficiency, low tracking error, and strong investor protections.

The introduction of spot BTC ETFs in 2024 has increased institutional adoption by simplifying Bitcoin ownership. However, institutional investors, ETF issuers, and asset allocators face a tradeoff: either hold BTC as a non-yielding asset with no cash flow or take on risks and lose private key control to generate returns. This lack of yield makes BTC less capital-efficient in ETFs and structured products compared to dividend-paying stocks or bonds. If BTC could generate a secure yield, it would offset custody and management fees and enhance its appeal as an institutional asset. This raises a key question: Is there a better BTC yield solution that preserves security and control?

Security, Liquidity, and Yield: The Trifecta of Institutional Bitcoin

For every BTC holder, the security of their BTC holdings is paramount. This is especially true for institutions that operate in a regulated environment and hold funds on behalf of others. The history of cryptocurrency is marked by instances of hacks and breaches, highlighting the need for robust security measures. Institutional-grade custody solutions (BitGo, Hex Trust, Copper, etc.) address these concerns by providing multi-layered security protocols, including multi-signature wallets, geographically distributed storage, and advanced encryption techniques.

Liquidity is another critical factor for institutional BTC holdings, both in terms of trading liquidity and maintaining control over the asset for use as collateral or trading across different venues. For institutions managing large positions, maintaining flexibility with BTC is essential for maximizing capital efficiency. Traditional structures often require giving up direct access to BTC to facilitate certain financial activities, limiting its broader utility. A more efficient approach allows institutions to preserve control over their BTC while optimizing its use across various strategies, ensuring it remains a productive and accessible asset.

Finally, while BTC is considered a store of value, it lacks intrinsic yield-generating mechanisms. This presents a challenge for institutions seeking to generate returns on their BTC holdings. The dilemma has historically boiled down to this simple choice faced by institutions: keep BTC locked away while paying custody fees without earning on it, or accept some degree of trade-offs in security and/or liquidity to generate yield. 

Currently, traditional financial institutions that may consider taking an investment position in BTC can only benefit from BTC’s potential price appreciation unless they want to take on additional risk, due to the lack of a native yield within the BTC ecosystem. There is no yield, dividend, stock buyback, or other mechanism that is commonplace in many other investments. This strategy resembles holding cash instead of investing in treasuries—an inefficient use of capital, especially at a large scale. The good news is that this status quo won’t persist forever as new solutions are being introduced. Sooner or later, Wall Street will pursue ways to make its BTC holdings more productive. 

This sentiment is supported by a recent Twinstake survey that reveals a growing interest among institutions in BTC yield generation opportunities. Although 80% of surveyed institutions hold BTC and 43% are actively exploring yield potential, none have yet adopted BTC yield strategies. 

The holy grail of institutional crypto is a BTC solution that enables secure yield-generation while still maintaining the ability to be used, often as collateral. This would require qualities such as (but not limited to):

1. Security and Risk Mitigation: The collapses of platforms like FTX, Celsius, and BlockFi in previous years are clear-cut examples of the systemic risks that can result when lending practices and internal risk controls fail. These high-profile failures revealed the fragility of yield models reliant on unsecured lending, excessive leverage, or poor treasury management. A better solution is one that removes all counterparty/custodial risk.
2. Scalability for Large Capital: Large capital inflows require deep liquidity and redemption mechanisms. Institutions need to be certain that they can allocate (and eventually redeem) significant BTC positions without incurring substantial slippage or impacting market rates. Beyond liquid markets, an ideal solution would also enable BTC holders to earn yield on their positions while keeping the asset liquid (e.g., the removal of any minimum lockup or staking period).
3. Simplicity in Deployment and Management: Many yield solutions involve bridging BTC to other blockchains, navigating multiple smart contracts, or managing private keys in environments that are neither user-friendly nor institution-friendly. This complexity can be prohibitive for traditional finance players who are still in the early stages of exploring digital assets. Ideally, institutions would be able to use the same custody solutions they already entrust.
4. Sustainable, Predictable, and Transparent Yields: Institutions with longer investment horizons, like pension funds and family offices, are wary of yield products that cannot demonstrate consistent returns. So far in BTC’s history, many yield solutions have either been opaque, “black box” solutions or in the form of “points.” Going forward, a protocol that transparently mints and distributes yields on-chain, with publicly auditable smart contracts, will appeal far more to institutions.

Because institutional investors often operate under tight risk and compliance constraints, achieving a robust BTC yield solution involves walking a fine line. For one, it must offer returns that justify the operational complexity. However, it also has to simultaneously eliminate (or at least drastically reduce) credit and counterparty risk. Such a solution would be a game-changer—offering institutions a reliable mechanism to enhance value while maintaining control and security.

The Evolution of Institutional Yield in Bitcoin and Crypto

Between 2015 and 2019, CeFi platforms popularized crypto lending, attracting institutional players with structured yield opportunities. However, the custodial risks of CeFi became evident in 2022 with the collapse of major lenders like BlockFi and Celsius, exposing weaknesses in risk management and excessive leverage. From 2022 to 2024, BTC yields declined further due to tightening monetary policy, institutional failures, and the unwinding of the GBTC trade—a strategy that once provided institutions with arbitrage profits but led to significant losses when GBTC shares began trading at a discount.

Current State of Institutional Bitcoin Yield

Despite the recent decline in on-chain yields, institutional investors continue to explore strategies for generating returns from their BTC holdings. Institutions face the challenge of turning a volatile, unyielding asset like BTC into a productive component of a balanced portfolio in a compliant and risk-minimized fashion. The current landscape of institutional BTC yield is characterized by a focus on security, compliance, and risk mitigation.

Yield Strategies

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BTC Staking

Although BTC has long been viewed as a dormant store of value asset, the emergence of BTC staking is changing this. BTC staking enables BTC holders to actively participate in securing PoS blockchains. Through staking, BTC is no longer just held passively; it plays an integral role in supporting the functionality and security of other blockchains and decentralized systems.

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The emergence of BTC staking parallels the growth of Bitcoin scaling solutions advancing Bitcoin-secured decentralized finance. These scaling solutions leverage Bitcoin for security, with BTC staking being one example, to support platforms where BTC can be used more flexibly on-chain. These Bitcoin-powered platforms utilize smart contracts and decentralized applications to facilitate BTC-specific activities such as lending, borrowing, trading, and other financial use cases. Activity on these platforms, along with the accompanying fees and emissions, subsidizes the security of these chains, including via rewarding Bitcoin stakers.

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Total value locked, although distinct from total Bitcoin staked, is a helpful metric for identifying platform activity and volume. The leaders in terms of Bitcoin scaling solution TVL are as follows:

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Importantly, different Bitcoin scaling solutions follow distinct design approaches. For example, the Core blockchain’s Self-Custodial BTC Staking deploys Bitcoin to generate yield without risk to the principal from slashing, multi-sig, or the transfer of private keys unlike Babylon or Stacks. Core also offers the only BTC staking solution with its own smart contract blockchain, whereas models like Babylon’s re-staking framework are designed to extend security to Bitcoin scaling solutions and other blockchain networks. While direct participation in on-chain financial activities may be beyond the comfort level of many institutions, providing security through BTC staking offers a lucrative, secure, and institutionally viable strategy.

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Key Bitcoin Staking Protocols

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Bitcoin Staking Leadership

The first and only live implementation of BTC staking is enabled by the Core blockchain, the Proof-of-Stake layer for Bitcoin. Core’s Self-Custodial BTC Staking model leverages Bitcoin’s native absolute time-lock feature to maximize security while allowing stakers to earn a portion of daily CORE token rewards derived from on-chain activity and block rewards. 

Stakers simply lock their BTC on the Bitcoin network using an absolute time-lock, a function of Bitcoin called CLTV (Check Lock Time Verify), granting them the right to participate in Core’s security by electing Core validators who secure the blockchain. The locked BTC remains fully under the staker’s ownership, whether held directly or through a trusted custodian. By participating in the election of Core validators, who secure the network, stakers play a critical role in maintaining the network’s security and are therefore rewarded with CORE tokens for their contribution.

By eliminating protocol and principal risks to accrue rewards for contributing to the decentralization of Core’s security apparatus, Core’s Self-Custodial BTC Staking model offers institutions a secure, sustainable, and scalable approach to BTC yield generation.

Secure, Sustainable, and Scalable Bitcoin Staking with Core

Secure:

1. No Transfer of Key Risk: Stakers retain full custody of their BTC throughout the staking process and can utilize their existing custody solutions.
2. No Slashing Risk for Stakers: BTC and CORE stakers are fully insulated from the slashing penalties typically associated with validator misbehavior or downtime. Even in extreme cases of network disruption, the protocol does not slash the underlying BTC because it isn’t possible to have slashing with trustless Bitcoin staking. If a validator misbehaves, their CORE deposit will be slashed as a penalty. While the staker will not receive rewards because the validator failed to secure the chain, the principal staked Bitcoin remains fully owned by the staker and is never at risk. This differs from other BTC staking protocols that slash both the validator and its stakers. 

Sustainable:

For BTC yield to be sustainable, it must consistently distribute rewards backed by an endogenous source of value. 

1. Live Yield: Core’s BTC staking yields are paid out in CORE tokens, a live and liquid asset integral to the Core blockchain. CORE is required for transactions on the Core network and serves as a vital staking asset, in addition to possessing other functionalities. 
2. Endogenous Value: BTC stakers earn CORE rewards derived from on-chain activity and capped CORE block rewards, allocated over an 81-year period. Most critically, economic activity on the Core blockchain ultimately subsidizes CORE rewards. The Core blockchain hosts an expansive smart contract ecosystem with $660M+ in total value locked (#12 overall), supports hundreds of decentralized applications, and consistently ranks among the top 15 smart contract platforms in on-chain activity.
3. Familiar Mechanics: As the Proof-of-Stake Layer for Bitcoin, Core introduces the staking mechanisms behind PoS chains to Bitcoin for the first time in history—unlocking BTC staking yield while enabling a Bitcoin-secured decentralized financial ecosystem.

Scalable:

Earning BTC yield at scale is a key concern for institutions, which often need to deploy substantial amounts of BTC. To meet institutional demand for varied yield profiles, Core’s BTC staking model follows a tiered system, offering different staking rates based on investor preferences. This tier-based model, known as Dual Staking, ensures flexibility in yield generation for institutions.

Dual Staking: Enhancing Bitcoin Yield

Dual Staking refers to staking both BTC and CORE tokens to unlock higher tiers of BTC staking yields. The higher the number of CORE tokens staked relative to BTC, the higher the yield tier accessed. This design ensures that the most attractive yields are reserved for BTC stakers who demonstrate commitment to Core by staking CORE tokens while still offering optionality for those who prefer to earn a lower yield without taking on CORE exposure.

Currently, the required investment in CORE to access the highest yield tier is minimal in dollar terms—less than 10% of the staked BTC’s dollar value in CORE tokens is needed. This allows institutions to unlock yield rates 20x+ higher than the base staking rate in perpetuity.

Moreover, by making the CORE token the exclusive key to unlocking higher BTC staking yields, Dual Staking significantly enhances the attractiveness of CORE as an asset. This mechanism incentivizes users to hold and stake their CORE token rewards, reinforcing the alignment between CORE and BTC. As a result, institutions earning CORE tokens through BTC staking gain exposure to substantial upside potential.

Liquid Staking

Institutions are already building on top of Core's Dual Staking mechanism. Maple Finance, in collaboration with BitGo, Copper, and Hex Trust, recently introduced lstBTC, the first institutional-grade, liquid, yield-bearing BTC asset where the underlying BTC remains secured by existing custodians.

As previously identified, a BTC asset that is (1) yield-bearing, (2) securely held by an institution’s existing custodian, and (3) fully liquid is the holy grail for institutional BTC holders. This is exactly what lstBTC unlocks.

By tokenizing the Dual Staking process, Maple Finance and its launch partner custodians bring full liquidity to staked BTC and its associated yield. lstBTC generates staking yield on the backend while functioning as a fully liquid token that can be used as collateral on major exchanges, swapped, or utilized like any other ERC-20 token.

Steps for Adopting lstBTC:

1. Mint lstBTC: The institution deposits BTC with institutional custodians (BitGo, Copper, or Hex Trust) and receives lstBTC, a liquid token.
2. Earn Yield: With permission from the trusted custodian, Maple Finance utilizes Core’s Dual Staking mechanism to generate yield on the principal BTC while actively balancing positions to protect the principal.
3. Stay Liquid: While earning yield on the backend, institutions retain full control over their liquid lstBTC, which can sit passively to offset custody costs or be used as collateral to trade on major exchanges.
4. Redeem: Institutions can swap lstBTC for BTC plus accrued yield through their custodian.

This product significantly enhances the value proposition of holding BTC and represents a step-change improvement over existing wrapped BTC, which—despite also being held by many of the same custodians—earns no yield. Furthermore, lstBTC is designed to accrue daily yield denominated in BTC, a major advantage over other LSTs with no endogenous or live form of yield.

Adoption Thus Far

lstBTC is the latest milestone in the institutional adoption of Core’s Self-Custodial BTC Staking and Dual Staking products. This follows multiple institutional custodian integrations of Dual Staking, including BitGo, Hex Trust, Cactus, Ceffu, Cobo, Copper, and Fireblocks.

Currently, over 5,700 BTC are staked with Core, representing more than $550 million in value.

(Beyond staked BTC and staked CORE contributing to Core’s security, Core also receives delegation from approximately 75% of all Bitcoin mining hash power, demonstrating strong miner demand for Core’s services alongside institutional BTC holders.)

One major early adopter of Core’s BTC Staking is Valour Inc., a subsidiary of DeFi Technologies. Valour launched the first yield-bearing BTC ETP on a regulated exchange, which exclusively earns yield through Core. Since its launch in November 2024, the Core-powered ETP has generated an APY of 5.65% for its clients.

Market Potential and Growth Opportunities

BTC has a market cap of approximately $2 trillion USD. Currently, over 3 million BTC—representing nearly $300 billion—is held by companies, ETFs, and governments, with about one-third of that held in ETFs. None of these ETFs are earning staking yield on their BTC.

Institutional BTC holdings—whether custodied, posted as collateral, or used in trading strategies—currently suffer from negative carry. BTC does not generate yield, yet institutions still incur custody fees, management fees, and other costs. While these holdings serve critical functions, they remain a cost center rather than an asset that enhances returns.

By adopting BTC staking—specifically through lstBTC—institutions can transform this dynamic. Instead of bearing negative carry, lstBTC introduces positive carry by generating real yield, turning BTC from a non-yield-bearing, passive asset into an income-generating, productive one. This shift significantly improves capital efficiency across multiple use cases:

• Basis Trade on Stablecoins – Institutions often post BTC as collateral to borrow stablecoins and execute basis trades, earning 20%+ on stablecoin yield opportunities (e.g., Ethena). BTC is the largest collateral asset for these trades, but it currently incurs costs. Replacing BTC with lstBTC allows institutions to generate an additional 1-9% yield on top of the existing trade returns instead of paying a fee.
• Derivative Basis Trades – Many institutional traders use BTC as collateral for basis trades, selling futures on derivative exchanges while buying spot BTC. However, the BTC collateral itself earns nothing. With lstBTC, traders can earn yield on their posted collateral, significantly improving capital efficiency.
• General Collateral Use in Institutional Holdings – Hundreds of billions of dollars in BTC are either custodied or posted as collateral, yet without earning yield, they represent a persistent cost burden. lstBTC eliminates this inefficiency by turning otherwise idle collateral into a yield-generating asset, making it a superior option for institutions looking to optimize returns, unlocking billions in capital efficiency annually

By enabling BTC holders to earn yield while maintaining full collateral utility, lstBTC shifts institutional BTC holdings from a cost center to a source of additional yield, enhancing returns without sacrificing liquidity or utility.

At present, less than 0.1% of all BTC is staked. By comparison, Ethereum has ~33.8 million ETH staked, equivalent to 27.2% of its 122.7 million supply. If BTC staking were to achieve a similar adoption rate, approximately 5.4 million BTC would be staked—amounting to over $500 billion in value.

In tandem with BTC staking, Bitcoin scaling solutions are also still in their infancy, although growing rapidly. Currently, the total value locked (TVL) on these platforms stands at ~$2 billion, just 0.1% of BTC’s ~$2 trillion market cap. By comparison, Ethereum’s ecosystem holds ~$60 billion in TVL, with Ethereum’s market cap at ~$320 billion. If Bitcoin-secured TVL were to reach a similar proportion of BTC’s market cap, its total market size could expand to $375+ billion at today’s BTC valuation.

Several key factors could accelerate the adoption of BTC staking and yield-generating BTC products:

• Institutional Comfortability: Many institutions have only recently become comfortable with securely holding BTC. The next step is recognizing that they can maintain their custody arrangements while earning yield with no risk to the principal.
• Regulatory Tailwinds: The approval of yield-bearing BTC ETFs would unlock substantial institutional capital for BTC staking.
• Technological Advancements: As lstBTC and other institutional-grade products are launched on top of BTC staking protocols like Core, adoption will become significantly smoother for a broad range of institutional participants.

Conclusion

The holy grail of institutional BTC yield is finding a solution that is (1) yield-bearing, (2) secure, and (3) fully liquid—a combination that has historically been elusive, leading to inefficiencies in institutional Bitcoin management. Despite BTC’s widespread adoption, its negative carry dilutes long-term holdings, forcing institutions to seek ways to offset these costs.

BTC staking presents a compelling opportunity to generate yield, particularly for passive holders. However, for institutions that rely on BTC as collateral—the most utilized function of Bitcoin in crypto markets—liquidity constraints in traditional staking solutions pose a significant challenge.

New innovations like lstBTC are transforming this landscape. lstBTC enables institutions to earn structured returns on BTC while maintaining full liquidity and security, eliminating the traditional trade-offs between yield generation and accessibility. By integrating seamlessly with existing custodial and trading arrangements, lstBTC ensures that BTC remains productive without requiring institutions to change their operational frameworks.

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Links to learn more about Core:

• Visit lstbtc.coredao.org to learn more about lstBTC
• Visit stake.coredao.org/staking to stake BTC and CORE. 
• Review Core’s technical resources and documentation at docs.coredao.org/docs/stake-and-delegate/staking-overview‍
• Inquire about institutional partnerships and custodial integrations via  inquire@coredao.org 

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Disclaimer: This report was commissioned by the Core Foundation. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.