Below are guest posts and opinions by facility director Hong Sang in Core Dao.
Traditional financial institutions are beginning to profit from rising bitcoin prices, but they do so in the way they do. Most are sitting on Bitcoin as if it were cash, and are happy with their price exposures while overlooking the productive potential. That won’t continue. Sooner or later, Wall Street is looking for more efficient uses in holding Bitcoin.
However, caution is important in cryptography. Without understanding the underlying risks, we have seen how existing backfires can be backfired. Fortunately, safe and sustainable Bitcoin yield products that minimize major risks are no longer theoretical. They are available today.
Lessons for 2022: Not all yields equal
Bitcoin Holding Institutions need to look back at the recent history of crypto. The collapse of 2022 exposed the dangers of yield strategies built on a volatile foundation. Many once famous companies (Voyager, Blockfi, celsius, Three Arrows Capital, and FTX) now occupy crypto cemeteries that have acquired risk management and unsustainable promised prey.
lesson? Not all yields are created equal. Many so-called yield products have introduced new layers of risk, including counterparty exposures, custody vulnerabilities, thrashing mechanisms, and smart contract exploits. These have proven fatal for miscalculated companies.
The core problem is that Bitcoin, unlike Ethereum, does not offer native staking rewards through its proof of work model. Therefore, to acquire yields, holders have historically been pushed into loan, re-guarantee, or liquidity provisions. All of these come with a trust trade-off.
Bitcoin holders face a dilemma. On the one hand, they enjoy independent, uncompromising security. Meanwhile, the temptation of yield. But filling that gap should not require a leap in faith.
Time Lock: Bitcoin’s Native HODL Function
Bitcoin doesn’t support smart contracts like Ethereum, but it has a powerful native feature, Timelocking. It is designed to “HODL” with mathematical certainty so that users cannot lock BTC and move to designated future blocks.
Now that same HODL mechanic is unlocking a new frontier.
Innovation lies in the new staking model, which uses Bitcoin itself, rather than the wrapped version. Through Bitcoin’s Check Lock Time Verify (CLTV) function, holders can participate in locking BTC and securing blockchain networks to earn yields. Their bitcoin stays in their wallets. It cannot be moved, rearranged, or lost, but it will be productive.
This is exactly the level of security that financial institutions require. There is no new trust assumption. There is no thrashing. There is no complexity of smart contracts. Bitcoin only – used when designed – with additional incentives.
The agency is already in operation
Institutional adoption of this model is already underway. Valor Inc., a subsidiary of Defi Technologies, recently launched the world’s first yield Bitcoin ETP using this mechanism. This combines the benefits of Bitcoin custody with the performance of secure staking.
These solutions allow institutions to move beyond risky lending and speculative trading strategies. For the first time, Bitcoin will not only serve as a valuable store, but also as a productive and yield generation asset class.
From passive holding to active participation
For institutions that own Bitcoin via custodians or ETFs, Bitcoin is a negative carry asset today. Custody and administrative fees take chips on returns and contradict Bitcoin’s core papers as inflation hedge and value stores.
Safe Bitcoin brings about changes in that equation. Institutions can generate yields while supporting decentralized networks while supporting meaningful bridges between traditional finance and blockchain native systems.
This evolution is still in its early stages, but the direction is clear. The future of Bitcoin is not idle. Active, integrated and institutionally aligned.
Take home
Bitcoin yields — done correctly — no longer require new trust assumptions or exposure to untested products. It is based on Bitcoin’s own security model, using Time Lock, originally a HODL mechanism, to protect principals while generating returns.
As financial institutions keep up with this development, competitiveness goes to those who act early. The problem is that systemic Bitcoin yields are no longer possible. That: What do you do with it?