Updated: December 30, 2024

Bitcoin staking’s incredible innovations have driven the need for new solutions to maximize bitcoin’s potential.

Traditional staking models require users to lock up their assets, sacrificing liquidity for yield. Meanwhile, liquid staking protocols have tended to limit staking opportunities for the native Layer 1 chain, restricting users’ ability to maximize their yield.

With the introduction of stBTC, the Babylon liquid staking token (LST), Lorenzo Protocol unlocks bitcoin liquidity for yield earning across the broader DeFi ecosystem, facilitating yield customization through an increasing roster of integrated applications.

In this article, we’ll explore how stBTC token operates in the Lorenzo ecosystem and what steps you need to take to acquire it.

Overview Of Liquid Staking Tokens

Liquid Staking Tokens are tokens that represent staked assets in a blockchain network.

They allow users to stake their tokens to secure a network while, at the same time, maintaining the ability to trade or use their assets for other financial activities. In other words, they let users receive staking rewards while retaining liquidity.

Read more about Liquid Staking Tokens - https://lorenzo-protocol.xyz/academy/what-are-liquid-staking-tokens

What Is stBTC?

stBTC is a Babylon reward-bearing BTC-equivalent LST, earning yields from Lorenzo and Babylon staking. Its value, therefore, is a reflection of the market price of bitcoin in combination with the value of accrued yields

This makes stBTC a powerful tool for BTC holders looking to unlock liquidity, earn rewards, and actively participate in decentralized finance—all while maintaining exposure to bitcoin’s price movements.

In practice, when users deposit bitcoin into the Babylon yield vault, their liquidity is then deposited to Babylon via staking. In exchange for their liquidity, users receive an equivalent amount of stBTC and can ultimately redeem that stBTC to receive their original deposit back. For example, staking 10 BTC would return 10 stBTC, which could be returned for 10 BTC plus their earned yield.

stBTC Advantages

• Liquidity Without Sacrificing Yield: stBTC enables users to unlock the liquidity of their staked bitcoin so they can trade, transfer, and use stBTC across DeFi platforms, while still accruing rewards from their initial staking position.
• Advance Your BTC Savings: Adding powerful Babylon yields to your BTC holdings transforms them into a yield-bearing asset, helping your portfolio gain from the growth of BTCFi and the price appreciation of bitcoin.
• Omnichain presence: stBTC is already available on a growing list of 15+ chains and dozens of supported applications. Use stBTC to expand your retained BTC liquidity across networks to further your yield earnings, all while continuing to earn Babylon rewards from the yield vault.

The stBTC Journey

Acquiring stBTC begins with staking bitcoin to Lorenzo Protocol’s staking dApp, followed by a simple, standard token holding lifecycle.

STEP 1: Stake BTC

Users begin the staking process by depositing bitcoin (or accepted BTC-equivalents) into the Babylon yield vault. Lorenzo yield vaults determine how staked BTC will be utilized, the rules for issuing staking tokens, and how rewards will be distributed.

STEP 2: Get stBTC

Upon staking, the user receives stBTC.

STEP 3: Hold / Use

After receiving their stBTC, users have multiple options for using their tokens within the Lorenzo DeFi ecosystem:

• Holding: Users can simply hold their stBTC to wait for the staking cycle to complete, at which point they will be able to redeem their original BTC.
• Trading: Because stBTC is a liquid asset, users can trade them on decentralized exchanges. This flexibility allows users to manage their risk, take advantage of market movements, or diversify their portfolios without waiting for the staking cycle to end.‍
• Utilizing In DeFi: Lorenzo's ecosystem allows users to use stBTC in various DeFi protocols, such as lending, borrowing, or yield farming, to further maximize their returns.

View stBTC chain integrations - https://docs.lorenzo-protocol.xyz/user-guides/assets

STEP 4: Withdrawing BTC & Yields

Withdrawals

Users can choose to withdraw their BTC principal at any time from BNB Chain or Ethereum. If a user has bridged their liquidity to a different chain, they can use the Lorenzo Bridge to return stBTC to BNB Chain or Ethereum and then unstake.

Receiving Yield

The yield attached to stBTC is tied to the future launch of the Babylon token. Upon Babylon’s token launch, Lorenzo will receive an allocation proportionate to its staking activity with Babylon. These rewards will then be distributed to stBTC holders, reflecting the yield they have accrued through staking.

stBTC vs. wBTC

Wrapped Bitcoin (WBTC) is an ERC-20 token representing bitcoin on the Ethereum blockchain, enabling bitcoin holders to participate in Ethereum’s DeFi ecosystem without selling their bitcoin.

While stBTC and WBTC are similar in the sense that they are both BTC-equivalent tokens, there are several noteworthy differences.‍

‍

Underlying Purpose
stBTC: Represents staked bitcoin principal within Lorenzo’s staking portal dApp, as well as accrued Babylon yield.
WBTC: Acts as a bridge between bitcoin and Ethereum networks.

Ecosystem Integration
stBTC: Integrated into Lorenzo’s DeFi ecosystem, spanning across a variety of chains and applications.
WBTC: Used across multiple Ethereum-based DeFi applications.

Yield Generation
stBTC: Part of a system generating staking rewards from Babylon and Lorenzo Protocol.
WBTC: Does not inherently generate yield but can be used in yield-generating protocols.

A New Era Of Bitcoin Liquid Staking

As the first company to implement BTC with a dual deposit tokenization system, we’ve introduced stBTC as our native liquid principal token alongside yield accruing tokens. This marks a major breakthrough in Bitcoin finance.

Our tokenization system unlocks unparalleled flexibility and opportunities in Bitcoin staking, with stBTC at its core. Bitcoin holders can now fully harness the potential of their BTC by putting it to work in the growing DeFi ecosystem.