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Bitcoin staking’s incredible innovation has 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 tend to limit staking opportunities for the native Layer 1 chain, restricting users’ ability to maximize their yield.
As the first company to introduce a dual staking deposit tokenization system through its native liquid principal token (LPT), stBTC, in combination with yield accruing tokens (YATs), Lorenzo Protocol not only unlocks bitcoin liquidity through liquid staking tokens but also partitions and tokenizes the yield itself. This breakthrough maximizes potential yields and offers stakers the flexibility to use their tokenized assets across the broader DeFi ecosystem freely.
In this article, we’ll explore the Lorenzo stBTC token, including how it operates alongside YATs and how Lorenzo’s staking system creates new opportunities for BTC holders — like the ability to customize stBTC yield by minting stBTC through the selection of different staking plans.
Overview Of Liquid Staking Tokens (LSTs)
Liquid Staking Tokens (LSTs) 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.
Traditionally, staking involves locking up assets for a specified period, during which users earn yield but forgo access to their funds. Lorenzo addresses this problem by issuing LPTs and YATs.
- Liquid Principal Tokens (LPTs): Represent the rights to claim the staked bitcoin principal.
- Yield-Accruing Tokens (YATs): Represent the rights to claim staking rewards accrued over the staking period.
These tokens are distributed according to bitcoin liquid staking plans (BLSPs), which are created by projects offering yields in exchange for bitcoin deposits. Since LPTs and YATs can be freely exchanged and traded, anyone who owns a YAT or LPT can use them separately to claim yield and withdraw the original staked BTC principal balance.
This dual-token approach allows for more personalized financial strategies and liquidity management, offering users the flexibility to tailor their investment strategies according to their risk tolerance and market outlook.
What Is stBTC?
stBTC is Lorenzo’s native LPT.
It represents the principal bitcoin staked in BLSPs and can be seen as another form of wrapped bitcoin (but with some core differences discussed later). With BLSPs being the source of stBTC (and YAT) distribution, stBTC stands out because it is the primary vehicle for accessing BLSPs, enabling anyone to customize the yield they earn from their bitcoin holdings.
In practice, when users deposit bitcoin into a BLSP, they 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.
stBTC Advantages
stBTC is the premier version of a wrapped bitcoin token available today, providing direct access to staking advancements that supercharge staking yield for users.
- 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.
- Delegate Staking: Lorenzo also supports delegate staking, allowing users to tokenize other LSTs into LPTs (stBTC) and YATs, streamlining access to liquidity and yield opportunities while saving users from the complexities of running their own validators.
- Loop Staking: This uses external DEX partnerships to allow users to stake their BTC, and then borrow additional BTC against their staked assets. The borrowed BTC is then staked again, creating a “loop” that amplifies staking rewards. This process is repeated to increase the user’s exposure to staking returns.
- Leveraged Staking: Through the Lorenzo protocol’s internal liquidity, users can apply maximum leverage with a single click. This simplifies the process of using stBTC as collateral to borrow more BTC for additional staking. Leveraged staking helps users optimize capital efficiency and yields, making it possible to maximize returns with less initial capital.
Moreover, stBTC maintains significant advantages over other related tokens in the bitcoin DeFi space by being a part of the Lorenzo Protocol dual staking deposit tokenization system.
These advantages include:
- Liquidity Management: Users can liquidate stBTC or YATs separately, providing greater control.
- Separate collateral: Borrowers could use LPTs and YATs as collateral to borrow whatever assets that are needed.
- Risk Mitigation: Trading YATs allows users to hedge against potential fluctuations in staking rewards.
- Enhanced Returns: Engaging with both tokens enables users to optimize returns through strategies like leveraged staking or yield farming.
- Arbitrage opportunities: The separation of YATs and LPTs creates unique trading opportunities between these and other popular crypto assets, such as ETH, BNB, and USD stablecoins.
- Structured Bitcoin Yield Products: With novel algorithms, differently structured bitcoin yield products could be created. One example would be bitcoin fixed-income products, which previously could not be created as bitcoin has no inflation, but now can exist, as LPTs and YATs bring yield into the equation.
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 into a BLSP on Lorenzo. The staking plan is created by a project in need of bitcoin liquidity and outlines how the staked BTC will be utilized, the rules for issuing staking tokens, and how rewards will be distributed. These plans are how Lorenzo provides streamlined bitcoin management, offering transparency and detailed information to users about how their assets will be leveraged and the potential yield they can earn through participation.
STEP 2: Get Liquid Staking Tokens (LSTs)
After staking, the Staking Agent mints stBTC and YATs distributed as specified in the staking plan. This dual tokenization system provides flexibility to stakers.
STEP 3: Hold / Use
After receiving their LPTs (stBTC) and YATs, users have multiple options for using these tokens within the Lorenzo DeFi ecosystem:
- Holding: Users can simply hold their LPTs and YATs to wait for the staking cycle to complete, at which point they will be able to redeem their original BTC (using their LPTs) and the accrued yield (using their YATs).
- Trading: Because stBTC and YATs are liquid assets, 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 and YATs in various DeFi protocols, such as lending, borrowing, or yield farming, to further maximize their returns.
STEP 4: Withdraw BTC
When the staking cycle ends, users can choose to withdraw their BTC principal and redeem their accrued yield. To do this, they must burn their stBTC and YATs. The same Staking Agent that issued the YATs upon the initial deposit will now handle the redemption process, transferring the owed funds to the user.
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.
Similarities Between stBTC and wBTC
Both tokens represent bitcoin in a tokenized form. Like wBTC, stBTC is pegged 1:1 to bitcoin, meaning that each stBTC can be redeemed for an equivalent amount of BTC at any time.
Differences Between stBTC and wBTC
Underlying Purpose
stBTC: Represents staked bitcoin principal within Lorenzo’s dual staking deposit tokenization system.
wBTC: Acts as a bridge between Bitcoin and Ethereum networks.
Ecosystem Integration
stBTC: Integrated into Lorenzo’s platform ecosystem.
wBTC: Used across multiple Ethereum-based DeFi applications.
Yield Generation
stBTC: Part of a system generating staking rewards, with YATs accruing yield. Enables the customization of bitcoin yield generation through staking plan selection.
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.
