## Since Bitcoin does not support staking, why are people still doing it? An in-depth look at Babylon, WBTC, and Stacks

After the 2024 Bitcoin halving, the crypto community began exploring new ways to earn yields. Staking has become a hot topic, but there's a question—**Bitcoin uses a proof-of-work (PoW) mechanism and does not natively support direct staking**. So how are people implementing Bitcoin staking?

Through a combination of innovative protocols, Bitcoin holders have found indirect ways to participate in staking. Solutions like Wrapped Bitcoin (WBTC), Stacks, and Babylon each offer unique methods to bring Bitcoin into the DeFi ecosystem and generate returns.

## What does staking mean? Why can't Bitcoin be staked directly?

In traditional proof-of-stake (PoS) systems, staking involves locking up crypto assets to maintain network functions—validating transactions and ensuring security. Participants earn rewards, similar to interest in a bank.

However, Bitcoin's proof-of-work mechanism is entirely different. Miners verify transactions by solving complex mathematical problems rather than locking tokens. This means traditional staking isn't applicable to Bitcoin.

But developers are clever—they've created workarounds. Some exchanges and protocols allow users to stake tokens related to Bitcoin, indirectly earning Bitcoin-related yields. This not only expands Bitcoin's utility but also integrates it into broader PoS ecosystems.

## Comparing three Bitcoin staking schemes

### Babylon Protocol: Using Bitcoin to protect PoS networks

Babylon represents a new approach—using Bitcoin to secure proof-of-stake blockchains.

**How it works**: Users don't need to transfer Bitcoin out of the Bitcoin blockchain but can "lend" it to other PoS networks via advanced cryptographic methods. Babylon employs smart contracts and blockchain tools to ensure the security of these assets. The result is enhanced security for emerging blockchains while Bitcoin remains intact.

This idea has gained support from major industry players—investment from Binance Labs demonstrates confidence in this approach. It combines Bitcoin's security and widespread recognition with the efficiency and scalability of PoS systems.

### WBTC: Enabling Bitcoin to flow within the Ethereum ecosystem

WBTC is a bridge connecting Bitcoin and Ethereum.

**How it works**: Users deposit actual Bitcoin into a custodial entity, which mints an equivalent amount of WBTC tokens (ERC-20 standard). These tokens can be freely traded, lent, or used in liquidity mining within the Ethereum ecosystem.

With Bitcoin valued at $87.34K, this allows full utilization in Ethereum DeFi applications—users can leverage, borrow, or provide liquidity while maintaining exposure to Bitcoin's price. WBTC transforms Bitcoin from a simple store of value into a tool for complex financial operations.

### Stacks: Smart contract layer on top of Bitcoin

Stacks employs a unique "Proof of Transfer" (PoX) mechanism.

**How it works**: Users lock STX tokens to support the security and transaction processing of the Stacks network, earning **Bitcoin rewards**—a key innovation. Instead of receiving STX, users get real Bitcoin.

This creates a direct link between Stacks' network security and Bitcoin's stability. Stacks thus becomes an application layer on Bitcoin, enabling smart contracts and DApps without altering Bitcoin's core properties.

The current STX trading price is $0.25, and stakers can accumulate Bitcoin rewards.

## Why participate in Bitcoin staking?

**Earn passive income**: Unlike just holding, staking makes your Bitcoin work for you, generating additional yields similar to dividends or interest in traditional investments.

**Enhance network security**: Your participation directly strengthens the network’s defenses, increasing the cost for malicious attacks.

**Improve capital efficiency**: WBTC allows idle Bitcoin to enter DeFi markets; Stacks provides application opportunities on Bitcoin. Capital is no longer just stored passively.

**Access new ecosystems**: Staking enables participation in Ethereum, Bitcoin layer-2 solutions, and other emerging ecosystems, experiencing the opportunities brought by new technologies.

## The dark side: risks of Bitcoin staking

Despite promising prospects, this path is not without challenges.

**Technical complexity**: Integrating PoW assets into PoS protocols increases protocol complexity. New users and developers face high learning curves, potentially delaying adoption. Some protocols' performance under large-scale testing remains uncertain.

**Liquidity issues**: Staking locks assets. When large amounts of Bitcoin are locked in staking contracts, tradable market volume decreases, possibly affecting Bitcoin’s price discovery and trading depth. This poses challenges for traders accustomed to high liquidity.

**Security vulnerabilities**:
- New protocols may have unknown bugs
- Smart contract code could contain vulnerabilities
- Cross-chain interactions add complexity, and any failure could lead to fund loss

**Centralization risks**: Some staking schemes rely on custodians. If custodians are attacked, go bankrupt, or act maliciously, your funds could be at risk.

These issues require joint efforts from developers, auditors, and the community to resolve. Blind participation is akin to gambling.

## Community perspectives

Since the 2024 halving, discussions around new staking protocols have surged in the community.

Babylon's testnet demonstrations have inspired developers, and institutional investors are following suit. This indicates that Bitcoin staking has shifted from niche to mainstream attention.

**Optimists believe**: Bitcoin is evolving—no longer just a store of value but becoming a security backbone and productive asset for the entire blockchain ecosystem. New income streams and application prospects are exciting.

**Skeptics point out**: Proof-of-stake orientation may conflict with Bitcoin’s decentralization ethos. "Lending" Bitcoin to other networks could introduce unforeseen risks. Bitcoin maximalists are especially concerned that these changes might dilute Bitcoin’s uniqueness.

**Moderate view**: Staking innovation is optional and will not force changes to Bitcoin’s core protocol. Users can choose whether to participate or stick to traditional holding strategies.

## What does the future hold?

Bitcoin staking is still in its early stages, full of possibilities and challenges.

**Scalability upgrades**: Layer-2 solutions (like Lightning Network) will enable staking protocols to scale without overloading the main chain, reducing costs and increasing speed.

**Security enhancements**: Cutting-edge cryptography such as zero-knowledge proofs and formal verification will be integrated into staking protocols, significantly reducing risks.

**Cross-chain integration**: Collaboration between Bitcoin and other PoS chains will deepen. Users will be able to stake Bitcoin derivatives directly on chains like Solana and Polygon without intermediaries.

**Ecosystem diversification**: Staking will no longer be limited to WBTC, Stacks, and Babylon. More protocols will emerge, each offering unique risk-reward profiles to meet different investor needs.

## Summary

Bitcoin staking marks an important evolution in the crypto space. Although Bitcoin itself does not support direct staking, solutions like WBTC, Stacks, and Babylon enable holders to participate in DeFi, support emerging blockchains, and earn passive income.

These innovations expand Bitcoin’s application boundaries. At the same time, technical complexity, liquidity considerations, and security risks must be taken seriously. The community needs to balance embracing innovation with cautious evaluation.

The future of Bitcoin staking depends on whether developers can solve these challenges, how regulations evolve, and whether market participants are willing to experiment with these new models. But regardless, the exploration of Bitcoin’s future role has already begun—and it’s just getting started.