There are three ways to earn yield on bitcoin today. In one, you give your BTC to a company. In another, you send it across a bridge to another chain. In the third, it stays on Bitcoin, under your keys, the entire time.

The differences between these approaches are not cosmetic. They determine what happens to your bitcoin if something goes wrong. When evaluating any product that offers yield on BTC, the first and most important question is not about the APY. It is about custody: who holds the bitcoin, and under what conditions.

The Custody Spectrum

Every BTC yield product falls somewhere on this spectrum:

Custodial Lending: The Structural Problem

Custodial lending platforms operate a straightforward model: users deposit BTC, the platform lends it out or invests it, and users receive yield from the spread. The issue is not the yield mechanism itself but the custody transfer. Once bitcoin is sent to the platform's wallet, the depositor holds a claim rather than an asset. If market conditions deteriorate and the platform cannot meet its obligations, depositors are creditors, not holders.

This is not a hypothetical risk. It is a structural feature of any model that requires transferring bitcoin to a third party before yield can be earned.

Wrapped BTC in DeFi: Improved, but Incomplete

Products like wBTC in Ethereum DeFi moved the custody question but did not resolve it. BTC is locked with a custodian or bridge, and the depositor receives a wrapped token on another chain. Yield can be earned in DeFi with that token, but the underlying bitcoin remains with the bridge operator.

Bridge exploits have resulted in hundreds of millions in losses. Even well-operated bridges require trust that the wrapped token is fully backed. The fundamental issue persists: the bitcoin is not on Bitcoin.

Bitcoin Staking: Custody Does Not Transfer

Bitcoin Staking on Stacks takes a structurally different approach. BTC never leaves Bitcoin.

• BTC is locked on Bitcoin L1 using a standard timelock (OP_CHECKLOCKTIMEVERIFY), a script in production since 2015. The holder's keys, the holder's wallet.
• The timelock is enforced by Bitcoin consensus, the same rules that govern every other Bitcoin transaction.
• No party can move the BTC during the bonding period. Not Stacks, not a bridge operator, not a smart contract on another chain.
• At maturity (approximately six months), the timelock expires and the BTC is available again.

There is no custody transfer at any point in the process. The yield comes from Stacks miners bidding BTC through Proof of Transfer, a mechanism that has operated continuously since January 2021. Yield is generated by miner activity, not by lending the depositor's bitcoin.

The Tradeoffs

Bitcoin Staking involves tradeoffs relative to other yield approaches, and these should be understood clearly.

• Lower yield: The target is approximately 3% APY. Some lending platforms and DeFi strategies offer higher nominal rates. The yield from Bitcoin Staking is more modest because it derives from a sustainable, verifiable source rather than from leverage or duration mismatch.
• Illiquidity: BTC is locked for approximately six months. Lending platforms typically offer more flexibility. The sBTC path on Stacks provides some DeFi composability, but native L1 positions are locked for the full term.
• STX requirement: Creating a protocol bond requires locking STX worth 5% of the BTC position. This is an additional asset to acquire and hold. Lending platforms and wrapped BTC DeFi do not have this requirement.

What these tradeoffs provide in return is that the bitcoin remains on Bitcoin, under the holder's own keys, for the entire duration. For many BTC holders, that is the determining factor.

The Question to Ask

When evaluating any BTC yield opportunity, the first question should be: where is the bitcoin right now, and who controls it? If the answer is anything other than "on Bitcoin, under the holder's own keys," the strategy involves a custody transfer, and the associated risks should be evaluated accordingly.

Learn how Bitcoin Staking keeps BTC on L1: [link]Pre-register for launch: [link]

Read next: The Risk Profile of Bitcoin Staking Explained | How to Earn Yield Without Giving Up Custody

‍