⚫️⚪️Where does Bitcoin yield come from?

At BounceBit we have analyzed this topic extensively and have come to the conclusion that currently there are only two ways to source yield for $BTC.

When trying to generate more of an asset that intrinsically is non-yielding, you have to make it part of another system.

1. CeDeFi yield

By incorporating BTC into a CeDeFi asset-management scheme we can generate trading yield, for example through delta-neutral funding rate arbitrage. Strategies generally capitalize on market inefficiencies.

2. Staking yield

By locking BTC as stake to secure a network by Proof-of-Stake you can farm infrastructure tokens of said network. The yield is generated from transaction fees and block rewards.

A recent good example is @babylonlabs_io

/Observations

These two yield sources tend to operate as alternatives to each other, with an inverse relationship in terms of attractiveness and profitability.

During high trading seasons, characterized by increased market volatility and trading volume, CeDeFi yields typically outperform. This is due to greater opportunities for arbitrage and higher demand for liquidity.

Conversely, in periods of lower market activity, staking yields may become more attractive. The predictable nature of staking rewards can offer a more stable yield when trading-based strategies face reduced opportunities.

/Takeaways

It is important to understand these yield sources and their cyclical nature. Only then you can make informed decisions on how to put your BTC to work effectively in varying market conditions.