The Bitcoin Staking Whitepaper

Core Blockchain
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Today we shared the Bitcoin Staking white paper for community review and feedback. It’s a significant proposed upgrade that has the potential to attract institutional Bitcoin capital seeking to Stacks by offering what no other Bitcoin layer can: self-custodial Bitcoin-denominated yield.

This white paper is the cornerstone of phase 1 of our roadmap. It covers a new Bitcoin Staking mechanism built on top of Proof-of-Transfer.

What’s being proposed?

Bitcoin Staking (PoX-5): a proposed upgrade to Proof-of-Transfer (PoX) that enables participants to lock BTC and STX together in order to receive a target yield rate over a given bonding period. Pair BTC:STX commitments are called “protocol bonds,” they enable people to earn BTC-denominated yield without giving up custody of their coins.

Protocol Bonds: Participants pair a BTC timelock with an STX commitment on L2 to receive a target yield rate over a ~6-month bonding period. Yield comes from BTC paid by Stacks miners competing for block rewards. In this design, BTC becomes the yield-bearing asset, while STX functions as a capacity asset: the native token used for governance, and as the variable that determines each participant’s share of the reward pool. This creates a direct economic link between STX demand and BTC yield.

PoX Rewards Eligibility: Bitcoin Staking proposes making paired BTC:STX commitments (aka protocol bonds) eligible for PoX rewards, expanding participation beyond solely STX-only lockups.

Yield Distribution Priority: The yield distribution mechanism determines how the BTC reward pool is allocated. Bitcoin Staking proposes a waterfall structure with defined tranche distribution priority where tranche 1 includes active protocol bonds, tranche 2 is a reserve fund and tranche 3 is STX-only stakers.

Stacking to Staking: Under PoX in its current form, the BTC spent by miners is distributed to eligible participants in a process known as “stacking.” We propose ‘staking’ to replace this term and reflect the expanded dual-asset protocol bonds introduced in Bitcoin Staking.

Key things to know about the proposed changes:

  • The system would launch in a bootstrap phase under Stacks Endowment stewardship, with whitelisted partners and a reserved ~10% community allocation, before transitioning to a fully permissionless auction model in a future PoX-6 upgrade.

  • BTC would remain under your own keys at all times. There is no slashing, bridging or wrapping. You get your BTC and STX back in full when the timelock expires, regardless of what happens to the network.

  • An early exit option would allow user to unlock BTC before the bonding period ends, at the cost of forfeiting remaining yield.

Why Now?

Stacks will drive Bitcoin growth by building Bitcoin-native finance where both individuals and institutions come to grow and manage their Bitcoin. Self-custodial, BTC-denominated yield is the first piece of that puzzle. Bitcoin Staking on Stacks offers a path for Bitcoin-native finance, turning the largest pool of dormant capital in crypto into yield-bearing capital.

  • Bitcoin needs a better staking solution - Stacks is uniquely positioned to succeed. ETH and SOL both demonstrated how staking drives thriving DeFi ecosystems by attracting capital into the protocol.

  • The competitive window is open but closing. Babylon, CoreDAO, Lombard, and Botanix are pursuing the same demand pool with custodial, bridged, or wrapped mechanisms. Stacks has structural advantages no competitor matches, but time to market is critical.

  • Concentrated TVL is the prerequisite for Bitcoin-native DeFi. Without meaningful BTC liquidity on Stacks, lending markets stay shallow, structured products don’t price, and builders don’t ship. Bitcoin Staking concentrates BTC at the protocol layer where the rest of the ecosystem can build on top of.

Take a look at the whitepaper and leave your question, comments, and feedback below!

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How likely is this to launch in July 2026 given previous delays including a full time CMO?

If July is likely, will it coincide with the new CMO as well?

Do you intend for the Tranche 1 and 2 STX demand to overcompensate for the STX-only staking having the least priority (Tranche 3) and possibly zero yield?

Based off current talks, how likely with the initial 3000 BTC be filled and in what time frame?

Thank you.

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Please make Proof of Burn something more meaningful, e.g. send miner commits to the reserve!

Also, it might be good to have a mix of fiat currency in the reserve than only USD. Did you exchange the proposals with institutions around the Bitcoin world?

How is the minimum of entry for staking determined? Aka stacks required per slot. Reward distribution via contracts could in theory remove the limit of 4000 slots for example by reward claiming or by batched distribution. If we keep the 4000 slots how is the stacks required per slot determined?

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I love what Stacks is doing with Bitcoin yield. Rootstock is a tiny eco but still many Bitcoin miners are doing merged mining as it’s essentially free money for them. Stacks is that same value prop only with staking mechanisms for holders built on top of it. It’s an easy thing to sell to someone and it’s why I’m hopeful Stacks will be able to onboard a lot more users in the near future.

What I am consistently seeing from Stacks is that this Bitcoin staking is somehow unique in the industry.

But it’s not. There’s plenty of self solutions doing the same value prop as Stacks: Lock/unlock your BTC directly on the Bitcoin L1, earn yield from the wrapped BTC token.

What I would love to see is Stacks pivot away from the purity contest (i.e., “only [insert decentralised BTC protocol] gives you true control of your Bitcoin!”) and instead focus more on why Stacks BTC yield is going to be higher and more consistent than other similar solutions. I’ve not seen much (if any) discussion around how Stacks intends to deliver the consistent yield that will attract large deposits.

If we take the recent-ish restaking mania on Ethereum as an example.

  • It was a similar high level mechanism (dual stake for boosted yield)
  • It saw large inflows of capital and interest

The focus, from the restaking protocols, was mainly on the use cases for that restaked ETH; not the mechanism itself. We’ve seen a significant drop in capital and interest since things like EigenLayer and Karak launched but there remains a large ecosystem of people now building out restaking products over there. EigenLayer alone is many multiples larger than the entire Stacks ecosystem.

I would like to see BTC staking use cases explored in more detail (in the whitepaper if possible as well). The vast majority of attention should be on exploring BTC staking use cases as opposed to the staking mechanic (which has been, so far, the only topic of conversation coming out of Stacks). I think this is the only way to (finally) get the adoption Stacks so sorely needs.

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Whitepaper looks great. I like the concept. There’s some areas I think could use a little more clarity (har har) on or maybe I’m just missing it.

Signers

Right now, signers get the PoX payments and distribute that out. My understanding of the new PoX-5 flow will be that a single smart contract gets the PoX payments and then those rewards get distributed through the waterfall mechanism. Previously, the signers received the PoX payments directly and distributed to their pool members.

  • Where do signers sit in this new flow - are they part of the STX-only Tranche 2 waterfall?
  • Is there a way for signers to be a part of tranche 1 as well (BTC/STX staking)?

My focus on this is making sure signers continue to be incentivized properly (both through altruism and collecting pool fees, etc). My assumption is that a signer will delegate the STX for their signer and then the PoX waterfall contract (tranche 2) will pay out BTC to the signer directly. The signer will then be responsible for making payouts to each of the individual stackers delegated to them.

The whitepaper is a little vague on payments out to tranche 2 - tranche 1 participants payouts are made directly but I don’t think the signer payouts could be.

STX/BTC Ratio

To confirm, the ratio of STX to BTC is fixed at bonding time. There’s no incentive to go above the set STX:BTC ration (5% or 8% or whatever).

I call this out as this paragraph makes it seem as though there is, or could be, some benefit to locking a higher-than-minimum ratio in 7.2:

Auction manipulation via inflated bids. An attacker could submit artificially high ratio bids to crowd out legitimate participants and monopolize BTC yield capacity. Because the auction clears from lowest yield upward, this requires the attacker to actually lock STX at extreme ratios, making the attack self-limiting.

“artificially high ratio bids” is the main confusion point there. I think that should just be ‘auction bids’. Everything else seems to indicate the STX ratio to BTC will be provided as a fixed rate for a cycle but this paragraph with ‘extreme ratios’ is contradictory to the rest unless I’m mis-reading something.

Coverage Ratio

Lastly, the coverage ratio section discusses overages and underflows of payments. I believe it’s lightly stated in the document, but the auction bid a user makes is what they should get at a maximum, correct? If they bid to get a 3% APY (and are included in the bonding cycle), they will only ever get that amount or less (if the coverage ratio is <1% and the reserve can’t make up the difference).

Bottom line: If the PoX rewards skyrocket during the cycle and there’s a huge amount of overage to tranche 2, the users in tranche 1 will not absorb any of that excess.

Thanks for any clarifications and hope this helps with feedback.

Alex

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In PoX-5 the rewards land in a contract that runs the waterfall, not in the signer’s hands, so the signer is no longer a payout middleman. The cleanest place to pay them is a configurable fee skim baked into the PoX-5 contract itself, taken before delegators are paid, instead of the off-chain pool-fee setup they use today.

How a pool actually bonds depends on where the BTC lives. With sBTC on L2, a pool contract can hold both sBTC and STX and register one bond for the whole group (or per stacker contracts), then split rewards internally. With native BTC on L1, each user timelocks their own UTXO under their own keys — you can’t pool L1 UTXOs without giving up self-custody — so is the “pool” really just a registry: each (BTC timelock proof, STX commitment) is logged separately, and the signer just coordinates the bid and earns the fee.

Looking forward to digging into the actual contract code here, since we’re thinking through how all this fits with the LST we’re building at juiceofbtc.com (jBTC).

On the ratio question, my read is the STX:BTC ratio is set by the protocol per cycle (the 5%/8% number) and people only bid on yield. The attack would be bidding an absurdly low yield to crowd everyone out, but that’s partly self-limiting because the attacker has to lock real STX + BTC, although they can exit the BTC lock early if they want, just forfeiting the remaining yield.

@alzander coverage is exactly as you read it. The bid is a ceiling. If PoX pays more than expected, stakers get their bid, the surplus flows to Tranche 2 (STX-only), and what’s left builds up the Tranche 3 reserve. If PoX pays less, the reserve drains upward to plug Tranche 1’s gap, and once it’s empty, stakers eat the shortfall. That asymmetry is the whole point — Tranche 1 is a fixed-rate product, Tranche 2 is the residual, and the reserve is what manages shortfalls for Tranche 1.

A few things I’d add. @friedger ’s idea of routing PoB into the reserve is great — burning miner commits to OP_RETURN feels like wasted sats when they could sit in the reserve as a real BTC backstop. An sBTC and USDCx denominated reserve seems realistic for v1, and I’d love to see USDA included too: it’s niche but fully on-chain backed, and it was the first DeFi protocol on Stacks, so it’d be great to see it featured here. Other fiats aren’t tokenized on Stacks yet, but it’s also a good idea.

On slot sizing, bigger slots help liveness and a competitive clearing price (3% yield) while smaller slots reduce concentration, so probably dynamic per cycle is the right answer — and I’d love the authors to expand on the “custodial aggregation risk mitigation” they reference, since what actually stops one big custodian from sweeping the whole auction isn’t obvious to me yet.

The early BTC exit for flexibility I like a lot — the forfeited yield flowing to Tranche 2 and the reserve keeps incentives aligned with everyone who stays. The piece I most want expanded is how STX gets priced into bid clearing using Miner’s commits, since I’m building an LST at juiceofbtc.com, and that pricing mechanism directly affects how the LST hedges and prices its own token.

Link thread on all this: https://x.com/JuiceofBTC/status/2054934775303983277?s=20

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One concern I keep seeing about this proposal is that the structure crowds out STX-only stackers by ranking Bitcoin stakers above them. I want to push back on that frame.

Putting Bitcoin stakers in Tranche 1 isn’t a demotion of STX-only stackers. It’s giving Bitcoin holders the first-class slot they’ve never actually had on any Bitcoin layer — and that feels like the right rank for them. The mistake is reading the tranche order as a hierarchy of importance. It isn’t. It’s a hierarchy of yield priority for the BTC reward pool, which is a different thing entirely, and the whole reason that priority exists is to support the target of a fixed BTC income for Tranche 1.

What this design actually does is alchemical: it transforms STX from a yield-bearing asset whose demand was bounded by the STX market itself into Bitcoin staking capacity. STX stops being “the thing you stack to earn BTC” and becomes “the thing that determines how much BTC can be staked at all.” That reframing is easy to miss on a first read, but it changes the entire shape of demand for the asset.

The implication for STX-only stackers is that the right lens for evaluating their position isn’t marginal BTC yield through Tranche 2. It’s the re-pricing of STX as the capacity asset. If Bitcoin Staking does what it’s meant to do — pull institutional BTC into Stacks at scale — every additional dollar of BTC bonded requires a corresponding STX commitment per the protocol-set ratio. That’s a structural bid on STX that didn’t exist before. The yield is the wrapper, but the capacity-asset role is the engine.

This is also why I think LSTs on top of Tranche 1 are going to matter more than people realize. jBTC takes deposits of 100% BTC (as sBTC) plus the 5% STX the protocol ratio requires, bonds that into Tranche 1, and issues a tradable token representing the bonded position. A BTC holder gets liquid BTC-denominated yield without having to source STX themselves or commit to the six-month timelock, and the STX side of every bond becomes pooled productive capacity rather than something each participant has to assemble individually. We’re building this at juiceofbtc.com (jBTC) and would love to compare notes with anyone else thinking along these lines.

None of this resolves the legitimate operational questions in the paper — signer compensation, slot economics, custodial aggregation, the ratio/bid wording — and I’m hoping more detail surfaces as the design matures. But the framing concern about STX-only stackers being squeezed out is, I think, looking at the wrong axis. The flywheel for them isn’t in the yield distribution. It’s in the asset itself.

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Worth completing the picture: STX appreciating against BTC means more BTC will be willing to commit (better collateral economics → more demand for the bond). That expanded BTC inflow ends up locking just as much STX in nominal terms, if not more, because capacity scales with the appreciation.

So the “less STX gets locked as STX wins” framing is only half the view. The other half is that STX winning is precisely what pulls more BTC into the system, which refills the lockup from the other side.

The fact that retail can’t stomach the volatility isn’t a verdict on the project. Failure is the path to success — every monumental thing has been built on top of a graveyard of attempts. History keeps showing the same pattern.

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I do believe this is not available in the industry yet:

Lock/ unlock your BTC directly on the Bitcoin L1, earn yield paid in native BTC coming from block production on Stacks (Bitcoin anchored network).

Overall, your feedback is great

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I would love to see PoB being meaningful too tbh

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Seeing some great questions in this thread!

Another way to ask questions and learn more: join us on the SIP Office Hours call tomorrow on X (1:30 EST) - SIP authors will be on to dig into questions like these. Hope to see some of you there.