Bitcoin now pays interest: How to earn money on your BTC while pumping the price

Bitcoin is evolving beyond a store of value, as holders can now earn interest by locking their BTC into time-based contracts, such as those offered by Babylon's self-custodial staking model, which utilizes native Bitcoin script timelocks (CLTV and CSV) at the UTXO level.

This practice creates a duration structure in the UTXO set, effectively reducing the free-floating supply available for trading or meeting demand. While long-term holder supply is already high, these explicit timelocks directly impact the marginal coin supply. For instance, if 57,000 BTC are staked via Babylon with minimal other time-locked coins, the free-float reduction is estimated at about 0.34% of the circulating supply.

This duration effect is coupled with evolving fee and staking policies. Changes like reducing Babylon's unbonding delay and setting a high preset slashing fee (150,000 sats) create stress points when network fees rise, linking staking security to mempool dynamics. Advancements like version-3 transaction relay (TRUC) and package relay aim to make freeing encumbered coins safer. The growth in duration demand is also being driven by new settlement layers like Citrea and Stacks, which use L1 timelocks for collateral and finality, suggesting that even if spot trading is flat, L1 duration demand can increase, supported by the existing risk-free rate environment.

(Source：CryptoSlate)