The success of the Spot Bitcoin (BTC) Exchange-Traded Funds (ETFS) and the BTC Ministry of Finance’s major companies has marked another step in the institutional adoption of cryptographic .
According to data from Farside Investors, the US-trading spot Bitcoin ETF won $518 million on September 29th, accumulating net flow of $57.3 billion since its launch in January 2024.
BlackRock’s Ishares Bitcoin Trust (IBIT) exceeded $800 billion in assets by July 2025, becoming the fastest ETF to reach its threshold in just 374 trading days. In addition to the incredible performance, names such as Harvard Management Company and Abu Dhabi Sovereign Wealth Fund Mubadara revealed their investment in Bitcoin through IBIT.
The digital assets financial movement expanded in collaboration with the adoption of ETFs. The strategy has increased its Bitcoin holdings to 649,031 BTC to $726.7 billion worth of its $726.7 billion as of September 29th. Meanwhile, Metaplanet’s stock increased to $1.4 billion in September, funding an aggressive Bitcoin acquisition targeting 210,000 BTC by 2027.
Currently, the institution is facing choices for refrigeration and yield production. Max Gokhman, deputy CIO of Franklin Templeton Investment Solutions, noted that yields are a major factor in the institutional adoption of cryptocurrencies.
The SEC clears its yield pathway through regulated products. On August 6, a staff statement confirmed that liquid staking tokens do not constitute securities by default, but the generic listing standard on September 17th facilitated crypto ETF approval.
With more Altcoin ETFs set up to be launched in the US, institutions are subject to the returns offered by Crypto, potentially offering yields through staking. This change could affect the way Wall Street views Bitcoin.
Fragments of the entire Bitcoin option chain
According to the Bitcoin layer, Bitcoin is scattered in a synthetic form of 365,958.79 BTC, totaling $41.8 billion.
Because Bitcoin does not have native smart contract functionality, the idea of synthetic tokens, commonly referred to as wrappers, is to allow the use of BTC in Defi protocols built on other blockchains.
Babylon leads native staking at 58,271.77 BTC and generates 0.29% APR through a self-supporting protocol that ensures a stake chain of certification.
With Babylonian infrastructure, chains and applications can tap on the security layer maintained by BTC staking.
Lombard’s LBTC token converts Bitcoin into liquid staking assets with 0.82% APY and $1.3 billion total value lock (TVL) and is compatible with Ethereum, Base, Solana, BNB Smart Chain, Katana, Sonic, Starknet, and SUI.
Thresholds operate TBTC V2 across Ethereum, Starknet, SUI and Mezochain, winning a 6,335.31 TBTC bridge and $777.7 million TVL.
| protocol | tvl | Yield/APR | Compatible networks |
| Babylon | $6.6 billion | 0.29% APR | Bitcoin Native (Securing POS Chain via Bitcoin Staking) |
| Lombard (LBTC) | $1.3 billion | 0.82%Apy | 13 Networks: Ethereum, Base, Solana, BNB Smart Chain, Katana, Sonic, Starknet, SUI, etc. |
| Threshold (TBTC V2) | $717.7 million | n/a | 4 Networks: Ethereum, Starknet, Sui, Mezochain |
| SOLV Protocol (SOLVBTC) | $1.7 billion | 0.79%-13.28% APY | 12 Networks: Arbitrum, Mantle, Bitcoin Mainnet, etc. |
| B14G | 300 million dollars | ~5% APR (average) | Multiple networks (dual staking with native tokens) |
| Zeus Network (ZBTC) | $58.7 million | 4.52%Apy | Bitcoin-to-Solana Bridge (by multi-party calculation) |
| Saw Chain | $74 million | n/a | Cross-chain Native Swap (multiple blockchains) |
| Lightning Network | $438 million | n/a | Bitcoin Layer 2 Payment Channel |
Solv Protocol offers SolVBTC in 12 chains including Arbitrum, Mantle and Bitcoin Mainnet, offering a $1.7 billion total value lock (TVL).
Meanwhile, B14G offers an average of 5% APR through a dual staking mechanism combining BTC and native protocol tokens across $300 million TVL.
Zeus Network crosses the bridge to Bitcoin via ZBTC wrappers and uses multi-party calculations for unreliable cross-chain interoperability with a $58.7 million TVL. It offers 4.52% APY with staking via fragment metrics.
Thorchain makes it easy to native Bitcoin swaps of assets in various chains where $74 million is locked. Bitcoin Bridge processed $1.87 million in September 2025.
Regarding chains with the largest amount of wrappers, Ethereum holds 178,458.67 BTC as of September 30, followed by a BNB smart chain and a base of 21,647.85 BTC at 24,082.67 BTC.
In addition to the rule of wrappers on established blockchains, Lightning Network has demonstrated its status as a key rail for BTC usage.
Lightning remains at $438 million on TVL despite a 20% drop from 5,400 BTC in the second half of 2023 to 4,200 BTC by August 2025.
Coinbase reported that 15% of Bitcoin withdrawals had been routed through lightning by mid-2025, and Coingate documented that lightning in 2024 accounted for 16% of Bitcoin orders in 2024, compared to 6.5% two years ago.
Additionally, Tether deployed USDT on Lightning via Taproot Assets in January 2025, allowing payments paid in dollars without locking BTC to the channel.
Practical difficulties
If the institution wishes, the key points of access remain through the ETF, despite the multiple networks and wrappers that the institution can use to add complexity to Bitcoin.
Using BlackRock’s IBIT S-1 filing as an example, this document specifies that Coinbase Custody Trust Company holds Bitcoin in an isolated cold storage wallet with multi-signature authentication, apart from all other Coinbase assets.
In January 2025, BlackRock submitted an amendment to the IBIT structure to allow for the creation and redemption of the physical form, and requested that Coinbase custody be processed within 12 hours of withdrawals to public blockchain addresses.
Currently, there is limited room for incorporating yield pathways into Bitcoin ETFs with the use of BTC to explore the Defi Ecosystem.
| protocol | Structure type | The custody model | Trust the assumption |
| Babylon | Bitcoin Native Stake Protocol | Independent (Bitcoin’s unlawful time lock) | Minimize trust: Uses Bitcoin’s native time lock script. BTC remains on the Bitcoin blockchain under user control. It relies on Bitcoin’s security model. There is no bridging, wrapping, or third party custody. Thrashing possible due to validator fraud. |
| Lombard (LBTC) | Liquid Stake Token (LST) built in Babylon | A consortium model with decentralized custody | Federation Trust: Built on top of Babylon’s security layer. Uses a security consortium of institutional administrators. Multi-party verification required for Minting/Burning LBTC. It depends on the ultimate provider and signer. Absorption proof via ChainLink/Redstone Oracles. 9 days unrelated period (Babylon 7 days + 2 days rebalance of Lombard). |
| Threshold (TBTC V2) | Distributed Bridge Protocol | Distributed Multi-Signature Custody (100/100th Threshold) | Honest majority assumptions: Randomly selected groups of 100 or more node operators retain keys via threshold encryption. To approve operation, 51 out of 100 signers are required. It depends on probabilistic safety and wagers tokens for economic security. Forward security protects existing deposits. SPV Proof verifies the Bitcoin status. There is no single custodian control fund. |
| Solf Protocol | Multi-chain Bitcoin LST Platform | It depends on integration | Multi-Chain Trust: Rely on the security of each integrated chain (12 chains). Cross-chain bridge dependencies. A structured product framework with yield aggregation. Trust assumptions vary depending on destination chain and safe strategy. |
| B14G | Bitcoin Remolding Protocol | Dual Staking (BTC + Native Token) | Merge rebuild models: Combines stakes BTC with protocol native tokens. There is no risk of BTC thrashing (only native tokens are eligible for thrashing). It depends on the security of the underlying network. Trust distributed across validator sets. |
| Zeus Network | Cross-Chain Bridge (Bitcoin to Solana) | Multi-party calculation (MPC) custody | Federated MPC Trust: Use a threshold signature scheme where multiple parties need to cooperate. A distributed node network manages ZBTC mint/burning. Trust distributed to Validator Set. It depends on the Solana network security of the destination asset. |
| Saw Chain | Dispersive Fluidity Protocol | Threshold Signature Scheme (TSS) using a Coupled Verification Device | Economic Security Model: Post-bond validator (value 2-3 times the pooled assets). A continuous liquidity pool (CLP) enables native swap. A novel mechanism for malicious behavior. Trust distributed across economically incentive validator sets. No wrap tokens – native asset swap. |
| Lightning Network | Bitcoin Layer 2 Payment Channel | Independence (channel-based) | Channel CounterParty Trust: Users maintain custody through pre-funded payment channels. Bilateral trust between channel partners. Multiple channels can be routed. Time-locked smart contracts enforce settlement. Trust is minimized due to direct channels. Routing adds complexity. There is no bridging or wrapping. |
Additionally, the travel rules for Financial Action Task Force require financial institutions and virtual asset service providers to send information in their original currency transactions and to provide beneficiary identification information.
This standard requires end-to-end transparency to support law enforcement and mitigate the risk of financial crime. ETF publishers must maintain separate custody with regulated entities that can create audit trajectories that meet travel rules requirements.
The wrapped Bitcoin protocol introduces assumptions of trust that are inconsistent with institutional custody standards.
Threshold TBTC relies on decentralized node operators to maintain a bridge between Bitcoin and Ethereum, creating a multi-signature management model where a single entity does not manage funds.
This is a positive from a decentralization perspective, but introduces security dependencies into validator set integrity. Lombard utilizes Babylon’s Bitcoin Staking Protocol, combining it with a custody consortium model that distributes risk to multiple parties.
Again, there is an effort to distribute a single point of failure. However, this adds adjustment requirements that complicate the audit procedure.
Bitcoin ETFs, which hold LBTC on the base, face optimistic fraud prevention systems, centralisation of base sequencers, and scrutiny of bridge oracle dependencies.
Each wrapped BTC variant trades security assumptions. While BITGO’s WBTC uses centralized custody in its legal agreements, Shreshold’s TBTC distributes custody to validators who must maintain the operator and adhere to honest actions.
These layered risks increase the audit surface beyond what is presented by isolated cold storage.
Yield Profile and Cost Benefits
Babylon’s 0.29% APR on Staked Bitcoin is compared adversely to Solana’s 7.1% APY available through Ethereum’s 3.2% staking yield or liquid staking derivatives.
Lombard’s 0.82% return requires an institution that accepts exposure to 13 different blockchain networks, each with a different security model and potential failure mode.
These examples reveal the challenge that the 1% advantage of a 5% Bitcoin allocation contributes only 5 basis points to the total portfolio return.
Institutions may have insufficient compensation to introduce bridge risks, Oracle dependencies, and cross-chain settlement complexity.
Goughman of Franklin Templeton observed that institutions increasingly view Bitcoin as a cyclical, high-beta-risk assets correlated with traditional financial markets as institutional adoptions grow.
This framing suggests that portfolio managers prefer to separate Bitcoin Holding from yield generation, keeping BTC as a pure exposure play while raising returns from assets with a more established Defi infrastructure.
Institutions can deploy capital to Ethereum ETFs that potentially provide staking yields through proven liquid staking tokens approved by the SEC August 2025 guidance, whilst retaining Bitcoin through IBIT’s isolated cold storage.
Splitting exposure requires that you allocate capital to multiple positions, but maintain clarity of custody and simplify compliance reporting.
An alternative to bridging to access BITCOIN is a force agency to assess whether the Threshold Node Operator or Lombard’s distributed consortium provides the same security as Coinbase Custody’s federally controlled cold storage.
Each bridge introduces a new counterparty, and each destination chain adds another risk surface that the Chain Risk Committee must review. The fragmented fluidity of 365,958 BTC across a variety of protocols and chains complicates this complexity. In a single venue, none of the institutions provide the depth they need for entry and exit without market impact.
In conclusion, Bitcoin Layer-2 and Alternative Layer Protocol provide technical solutions for yield generation. However, it is up to the regulator to find a way to house these passes in regulated products, and it is up to the agency to decide whether direct exposure is worth the risk.
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